Offset Past or Future Income With a Net Operating Loss

Offset past or future income with a net operating loss

If you reported more business expenses than income on your 2015 tax return, you may have a net operating loss. That means you have the opportunity to apply your loss to past and future tax years to generate a refund or reduce your tax liability.

Unless you elected to carry the entire loss to future years, the general rule is you can use it to offset income in the two prior years, then carry the remainder, if any, forward for the next 20 years. Here's how it works. Your 2015 operating loss will first reduce the income you reported on your 2013 and 2014 federal income tax returns, potentially generating refunds for those years. Any remaining 2015 operating loss can be used to offset income on future tax returns, beginning with the one you'll file next April for 2016.

One way to claim the carryback is by using Form 1045, Application for Tentative Refund. You must file Form 1045 within a year of the "loss year" – that is, by December 2016 for an operating loss reported on your calendar year 2015 tax return.

Want to discuss your specific situation? Contact us at 505-897-7382 to schedule a small business consulting appointment. We will discuss other rules and tax planning moves for net operating losses.

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