This article discusses the new tax law that has been passed by Congress. As of November 25th, it has not yet passed the Senate. The final plan may be different. Make sure you have the latest information for your personal tax plan before you implement it.
Prior to the change that becomes effective in 2018, if you have a net operating loss, you have a choice to either take it backwards or take it forward. These are known as loss carrybacks and loss carryforwards.
If you had a high income year, followed by a loss year, you may want to take the loss backwards so that you get a refund on the taxes you paid in the previous year. Sometimes you may find that you have really high taxable income just due to the timing of an event that wasn’t really indicative of your business. The good news is that the next year’s loss can be used to offset some of the income.
A strategy for clients short of cash can be to get an installment payment schedule with the IRS for the high income year and then as soon as you have the loss, file quick and get the agreement changed.
That opportunity is gone with the new tax plan. You will only be able to roll losses forward starting after 2017. If 2017 looks to be a high income year, you need to find ways to bring that taxable income down now, before year end. You won’t get another shot by using the NOL carryback strategy.
Additionally, you can only use up to 90% of your net income in NOL. That means you will still have some tax due in the carryforward years, even if you have a lot of loss.
Finally, some good news. AMT will be gone. You won’t run into any AMT NOL issues.
Please keep checking back here to see more tax law changes and strategies you can use.
We’ll also be having a special coaching session with strategies for business owners and real estate owners both for 2017 and beyond. This coaching session is December 6th at 5 pm Pacific. Click Here for more information.