Level 2

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My new client did their own 1040 for 2020 but did not include their new Sch C business started in Oct which has an NOL for it's first year. Need to show for carryforward

Forum|Forum|4 years ago
July 29, 2021
3 replies
20 views

I'm trying to amend so they'll have their NOl carryfoward for 2021 but it's trying to offset their employment income from their regular jobs. What am I missing?
Thank you.

ProConnect Tax

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Best answer by TaxGuyBill

A "business loss" and "Net Operating Loss" are two different things.

If AGI is not negative, there is no NOL. As you have seen, a business loss properly offsets any other income on the tax return.

sjrcpa

Level 15

They may not have an NOL.

A Schedule C loss offsets other ordinary income. The excess loss becomes an NOL. I'm oversimplifying the NOL computation here but this is the gist.

Why'd they leave it off? Was it really an active business n 2020? Start up expenses are not deductible until operations begin.

The more I know the more I don’t know.

T

tschlehr5885Author

Level 2

Hi @sjrcpa He as operational and fully registered (state and Fed) Sept 2020. He wasn't profitable yet but I don't think it occurred to him to file a Sch C with his return. In all honesty he also elected S Corp status in 2021 without understanding what that meant, so I'm cleaning things up for him. He had a refund on his original 2020 return but he'll be profitable this year so I want him to get his NOL for 2020 to offset 2021 and for tax planning. He only came to me recently.

Thanks!

abctax55

Level 15

"... get his NOL for 2020"

You have yet to document that there IS a NOL. A loss on a Schedule C doesn't not automatically mean there is one.

Most professional software produces a worksheet/diagnostic showing the computation. Do you see one when you input the original return into PTO?

If not, irs.gov has a worksheet for computing a possible NOL.

HumanKind... Be Both

George4Tacks

Level 15

https://www.irs.gov/publications/p536

Answers are easy. Questions are hard!

T

TaxGuyBillAnswer

Level 15

A "business loss" and "Net Operating Loss" are two different things.

If AGI is not negative, there is no NOL. As you have seen, a business loss properly offsets any other income on the tax return.

T

tschlehr5885Author

Level 2

Thank you @TaxGuyBill . I know one business NOL can't offset another business positive income so, unfortunately, my mind was taking it another step as if ALL income is separate. Definitely overthinking it but it's been one of those clients lol.

Thanks again.

T

TaxGuyBill

Level 15

@tschlehr5885 wrote:

I know one business NOL can't offset another business positive income

Assuming you are talking about two Schedule C's, that is incorrect. If one Schedule C has a business loss (again it is NOT a NOL), it CAN offset the positive income of the other Schedule C.

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