If during 2013 income tax return filing you found that your business had a net operating loss (NOL) for the year, the news isn’t all bad. While no one enjoys being unprofitable, an NOL does have an upside: tax benefits.
In a nutshell, an NOL occurs when a company’s deductible expenses exceed its income — though of course the specific rules are more complex.
When a business incurs a qualifying NOL, there are a couple of options:
- Carry the loss back up to two years, and then carry any remaining amount forward up to 20 years. The carryback can generate an immediate tax refund, boosting cash flow.
- Elect to carry the entire loss forward. If cash flow is fairly strong, carrying the loss forward may be more beneficial. After all, it will offset income for up to 20 years. Doing so may be especially savvy when business income is expected to increase substantially.
In the case of flow-through entities, owners might be able to reap individual tax benefits from the NOL.
If you have questions about the NOL rules or would like assistance in determining how to make the most of an NOL, please contact Kyla Stafford, Shareholder, at 406.556.6160.