I just completed the Schedule C for my sister's antique business, for her personal tax return. She had a loss for the year, but the program showed no refund. Then I remembered: If you have a business loss, you must have other income on your tax return to offset that loss. My sister will have other income when she completes the return, but at this point there is no other income, so no refund.
Business Income for Sole Proprietorship
If you are filing on Schedule C for a sole proprietorship, you can't take a business loss that is larger than your other income. If your business loss exceeds your other income, you can take that net operating loss (NOL) and:
- Carry it back against profits in previous years, or
- Carry it forward against profits in years to come
NOL Carryback and Carry Forward
If you have a business loss this year and profits in previous years, you can get a refund for taxes you paid on those prior year profits, using the NOL carryback rules. My sister has been in business for two years, and she didn't have a profit the first year, so she will have to wait until she has a profitable year, then use the NOL carry forward provisions to get a refund. The IRS has specific procedures for these carryback and carry forward provisions, so check with your tax preparer if you think you qualify.
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