Articles

Tax Reform Limits Business Use of Net Operating Losses by Joanie B. Stein, CPA


Posted on March 29, 2018 by Joanie Stein

The Tax Cuts and Jobs Act aims to make it impossible for businesses to continue using net operating losses (NOLs) to reduce their corporate tax liabilities to zero over more than two decades.

 

For taxable years beginning after Dec. 31, 2017, NOL carrybacks are eliminated for most business (excluding farming and insurance businesses), and NOLs carryforwards are limited to 80 percent of the taxpayer’s taxable income. Moreover, the new law prohibits taxpayers from claiming business losses in excess of $250,000 for individual taxpayers and $500,000 for joint filers. The one bright spot is a new provision that allows taxpayers to carry NOL’s forward indefinitely to offset future taxable income.

 

Under the previous tax regime, taxpayers could deduct losses they incurred in an active trade or business from other income sources, including passive and investment income. Moreover, taxpayers were permitted to carry those NOLs back two years and forward 20 years to offset taxable income and either claim a refund for prior tax years or reduce tax liabilities in future years.

 

With the new regulations concerning NOLs, taxpayers should meet with advisors to understand how they should treat NOL’s generated prior to Jan. 1, 2018, and how they may carefully minimize the impact of any potential adverse tax and cash-flow issues in the future.

 

About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she works with individuals and closely held businesses to implement sound strategies that are intended to preserve wealth and improve tax-efficiency.  She can be reached at the CPA firm’s Miami office at (305) 379-7000 or via email at info@bpbcpa.com.