Discussion:! NOL carryfrwd. & 1040 line 21 (mechanism)
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Discussion Forum Index --> Advanced Tax Questions --> ! NOL carryfrwd. & 1040 line 21 (mechanism)
Discussion Forum Index --> Tax Questions --> ! NOL carryfrwd. & 1040 line 21 (mechanism)
| 9 March 2008 | |
| The issue is with an NOL being carried forward. The NOL is comprised of several years losses, all of which have been carried back to the extent possible. The net carryforward resulting is such in relation to current income that it will take several years to absorb. The NOL resulted from 1040 schedule C - Income from biz. It is being carried forward on individual's 1040, line 21, as client is no longer engaged in schedule C activities (now wage income).
Question: Using hypothetically (for illustration): available NOL carryforward = $150,000; Line 7 through 19 income = $50,000. The problem is that if the enitre NOL is entered on line 21, AGI becomes negative; taxable income becomes negative. This then reflects a loss in the current tax year; when in fact the loss occured in previous years. Is this the correct way to carry the (partial) NOL to line 21, or should only the amount that is being used to offset tax in the current year be carried to line 21? If the answer is the later, what then becomes the mechanism for accounting for the NOL, w/ regard to the IRS & its records (i.e. schedules A&B of 1045)? Or is this not an issue as the NOL justification is provided for in the return of the year for which it is used? | |
| 9 March 2008 | |
| Use the NOL worksheet provided by IRS. It tells you how to calculate the carryover. | |
| 9 March 2008 | |
| Dear DZCPA, thank you for your reply. The question was not how to calculate the NOL carryover (I have done that), but how to apply it to a 1040 when it is greater then income. Thanks again | |
| 9 March 2008 | |
| Put it on the return. It will create a negative. Carry over the new NOL to the next year. Do this again next year. | |
| 9 March 2008 | |
| Thanks - So no problem with the resulting negative AGI & taxable income then? | |
| 9 March 2008 | |
| No problem. Looks like some of the clients deductions will be wasted.Tax planning tip...If this will happen next year, maybe some of the itemized deductions can be delayed to a future year. Or maybe dependents can qualify to be their own dependents. There are more ideas. | |
| 9 March 2008 | |
| (actually, this doesn't create a new NOL, if you follow the 1045 worksheet or those provided by TaxTools, you will come up with the carryover amount, but it still retains its original year)
thanks for posting a profile | |
| 9 March 2008 | |
| Thanks for the suggestions DZCPA - Indeed all deductions are essentially not attainable! + there is an AMT liability!
Kevinh5 - Thanks & you'r welcome. I did not understand your reply though... Not sure why you state or what you mean by " does not create new NOL". DO you mean that although the return will show negative AGI & taxable income, the 1045 worksheet will insure that this does not add to the NOL in the following year's NOL carryover calculation ? | |
| 9 March 2008 | |
| ... & thus will not be double-counted.
(addendum to last post) | |
| 9 March 2008 | |
| yes, that's exactly correct - the carryover worksheet ensures that you don't count it twice | |
RoyDaleOne (talk|edits) said: | 9 March 2008 |
| Is there an AMT NOL carryover? | |
