Use Net Operating Losses to Generate Cash Infusions

In this economy, it is important to turn lemons into lemonade. It can be tough to make a profit. Tax law allows a business sustaining operating losses to carryback and carryforward those losses. This can result in a refund of taxes and an infusion of cash into your business. Here are the general provisions of net operating losses.

CORPORATIONS

For the 2010 tax year, corporations are allowed to carryback an operating loss two years and carryforward the loss for twenty years.{The carryback period is five years for losses ocurring in 2008 and 2009} For example, say your income and loss for 2008-2010 are as follows:

2008   profit   $10,000   federal taxes paid $1,500
2009   profit   $20,000   federal taxes paid $3,000
2010   loss   $40,000   federal taxes paid $0

Under the the net operating loss rules, you can carryback $30,000 of the 2010 loss to 2008 and 2009 and receive a full refund of taxes paid or $4,500. You may carryforward the remaining net operating loss of $10,000 from 2010 to 2011 and beyond to offset future profits.

You may elect to not carryback the loss two years. Instead you would carryforward the loss for twenty years.

INDIVIDUALS

Individuals can use a net operating loss resulting from

Losses from a trade or business

Casualty losses

Employee Business Expenses

TURN YOUR LOSS INTO CASH

There are two ways of turning your business loss into cash.

1. Obtain a quick ninety day refund by filing form 1045 within one year of the year the operating loss occurred.
2. File an amended return. The refund will take longer. The carryback period is increased to three years in the following cases.

Property casuality losses

Farming losses