Small business owners can generally use net operating losses (NOLs) to offset taxable income from another tax year. Prior to the Tax Cuts and Jobs Act, NOLs could be carried back two years to offset taxable income before being carried forward for up to 15 years. Under the TCJA, the two-year carryback period was repealed for most businesses and now NOLs can only be carried forward. The good news is the carryforward period is now indefinite instead of limited to 15 years. The TCJA also limited a NOL to 80% of the firm’s taxable income, so carryforwards must be adjusted to take the 80% limit into account.
The TCJA also limited losses of non-corporate taxpayers (individuals, estates and trusts) that may be used to offset non-business income to $250,000 for single filers and $500,000 for joint filers ($313,000 and $626,000 for 2025, respectively). For S-corporation owners and partners in partnerships, these limits are accounted for at the individual level. The amount of the excess business loss is treated as an NOL carryover in the subsequent year, subject to the 80% limit.
The new One Big Beautiful Tax Act (OBBBA) extended these provisions permanently!
Although a NOL claimed by a C-corporation may only offset its business income, self-employed individuals and owners of pass-through entities, like partnerships and S corporations, may reap the tax rewards on their personal returns. Nevertheless, to benefit from a NOL, they must show that they were actually operating a business.
Reach out to us: Be aware of the rules for NOLs going forward, they can be complicated. The process for calculating NOLs varies slightly for corporations and individuals. Certain deductions and exclusions are not allowed when calculating a NOLs. A TFG tax professional can help maximize the tax benefits for you and your business. Email us at CPA@Fuoco.com.
