If you had a tough 2008, then the government has some money for you. Do not file your tax return until you’ve maximized all the losses you can for 2008. For this one year only, and only if your company has average gross receipts of $15 million per year or less, you get a choice of taking a net operating loss carryback for 3 years, 4 years, or 5 years. Here are a few strategies you can use with this one-year-only NOL strategy.
Let’s say you had a big 2005. Your income was at the top tax bracket. But, 2008 was a tough year and you have a net operating loss. You’d want to make sure you took every deduction you legally can and if you have a choice of pushing income to 2009 or 2008, take it in 2009. Run your loss as big as you can. (Tomorrow I’ll go over some depreciation strategies to create phantom expenses.)
The loss will then be carried back to 2005 (a 3 year loss carryback election). You’ll use up the loss against 2005, any extra loss can then be taken against 2006 income. Meanwhile, if you file using the right form, the IRS will refund your 2005 income tax within 45 days. (Cash!) If you still have loss left after you’ve rolled back to 2006 (and filed for a refund which you’ll also get within 45 days), the rest of the loss goes against 2007 income. If there is still loss left over, you then carry forward the rest.
If you had a big 2003 income year, you might want to elect to carryback 5 years and start there. Or if none of the years were big and you think that the future is where the big income pops will be, then just elect to carryforward.
Lots of options here! The challenge is making the right choice. You only get ONE CHANCE to get this one right.