Are There Still IRS Schedule C Carry Over Losses?
- Normal IRS carryover rules require that you first carry back the loss two years, and then carry forward remaining losses for the next 20 years or until the loss is exhausted. If your business has gross receipts of $5 million or less in the three years before the net operating loss carry year, you may carry back three years. When the net operating loss is carried to other tax years, you may reduce your adjusted gross income using the loss. The result is lower taxable income and lower income tax due.
- You may elect to waive the carry-back period and just carry your NOL forward. To do this, you must attach a statement to your individual income tax return for the year you accrue the NOL you are carrying forward. The note must state you are waiving the carry back period. If you file the return but do not attach a statement, you must file an amended return using Form 1040X with the statement attached within six months of the date you originally file. On the top of the statement you must write "filed pursuant to section 301.9100-2". Once you make an election to waive the carry-back period, you may not reverse the decision for any reason.
- To claim an NOL in a carry-forward year, you must first determine the amount of NOL available for the year. To calculate this, you must find the amount of your NOL in the year you decided to carry over your Schedule C loss. If you carry back your NOL, carry the whole portion to the earliest of the two- or three-year carry-back period, depending on the gross receipts test. Reduce your adjusted gross income to zero and carry any remaining loss to the next one or two years after. Skip the original NOL year and carry the balance forward until it is depleted. For each carry forward year, report your NOL on Form 1040, line 21, "Other Income". Show the amount as a negative figure and write "NOL" in the box to the left of line 21.
- For carry-back periods, you must amend previously filed returns that are affected by the carry-back period. Your NOL primarily creates changes to your adjusted gross income, however, your adjusted gross income affects other tax return items, such as itemized deductions, the student loan interest deduction and IRA deductions. You may use Form 1040X to amend your return, or use Form 1045, Application for Tentative Refund, to amend the return. If you are due a refund as a result of the amendment, you will receive your check quicker if you file Form 1045. Form 1045 must be filed within one year from the date you filed the original NOL year return, and Form 1040X must be filed within three years from the date the original NOL year return was due.
