As a follow up to my last blog, the new legislation signed by President Obama last week also includes a provision that allows businesses to carry back a net operating loss from 2009 for up to 5 years. This is an extension of a provision that applied in 2008.
A net operating loss is the excess of your business expenses over your business income. For a C corporation, the calculation stops there. For an S corporation, partnership, or sole proprietorship, the net operating loss is a little more complicated. You have to net against the loss from the business your income from other sources, such as wages, pensions and dividends. There are several other minor adjustments, so be sure to ask your accountant to calculate your NOL for you.
Carrying back your NOL means you get to use it against income from a prior year. Normally, you have to carry it back two years and use it against the income from two years ago. If you don't have enough income from two years ago, you can carry any excess forward to the next year. And if you still don't have enough income to offset the entire NOL, you can carry the remainder forward for 20 years.
The new legislation allows you to choose to carry back your NOL 5 years, 4 years, 3 years or 2 years. The reason you might want to carry it back to an earlier year is because you might have had more income and even a higher tax bracket in an earlier year.
This is a great benefit and can put some money into your pocket right away. Carrying back NOL's is INSTANT CASH. So don't hesitate. Get to your accountant now and ask if you have a Net Operating Loss that can be carried back. If your accountant doesn't understand this, GET A NEW ACCOUNTANT!
Warmest regards,
Tom