Discussion:Why don't schedule C NOLs offset SE tax?

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Discussion Forum Index --> Tax Questions --> Why don't schedule C NOLs offset SE tax?


Randian (talk|edits) said:

6 January 2007
I feel the need to rant about how absurd it is that schedule C NOLs don't offset SE tax. If I had earned additional income in the NOL year the NOL would have completely offset SE tax on that income until the NOL was reduced to zero, but since I mistimed my income I'm screwed? Is there some high tax concept at work here, or is this just a "hate the little guy" rule?

Michaelstar (talk|edits) said:

6 January 2007
That is not how the tax law was written. There will be times when one can have no taxable income (due to the NOL etc) but still have the SE tax. No way around it.

Lhhesscpa (talk|edits) said:

6 January 2007
JD: Another way to look at it is that a net operating loss is a deduction from taxable income not a credit against tax. -- Larry Hess, CPA, Albuquerque, NM - Talk to me

Randian (talk|edits) said:

6 January 2007
>There will be times when one can have no taxable income (due to the NOL etc) but still have the SE tax

Precisely the situation I'm in right now. It's just wrong.

>Another way to look at it is that a net operating loss is a deduction from taxable income not a credit against tax.

I never said it should be a credit. A NOL should reduce income subject to SE tax no matter when you apply it, just as it would if the income were earned in the year you suffered the NOL.

DZCPA (talk|edits) said:

6 January 2007
Randian, You are right. It is not fair. Timing of schedule C profits versus loss can cost you self employment taxes. There is no credit available for SE tax NOT paid in a loss year to be offset against a profitable year.

Taxref (talk|edits) said:

7 January 2007
The basic concept involved is that income taxes and self-employment taxes are two different things. SE tax is to pay into social security. It is based on one's business profit for that year only, just as fica taxes are withheld from employees wages each year based on their earnings. Employees who have zero federal taxable income must still pay fica taxes, it works the same for the self employed.

Www.cpa1.biz (talk|edits) said:

7 January 2007
I have some questions on this NOL for self-employment:

1) If you started a company in 2006 and had a NOL then can you carry that back to the 2005 return (1040) even though the company was established in 2006 and not in 2005. The NOL would offset W-2 income from a previous job.

2) I am trying to get what you all are talking about in NOL not effecting the S/E tax. Is this because you show NOL as a negative on the other income line of the 1040 and not just offset it against schedule C income from the previous year?

Please advise...

Thanks,

BJ

Taxman 55 (talk|edits) said:

7 January 2007
1) If you incur the NOL in 2006 you would carry the loss back to 2004 (NOL's are generally carried back to the 2nd preceding year), unless you elect to forego the carryback period and carry the NOL forward.

2) You are correct in that the NOL deduction is shown as a negative on the other income line on the front of the 1040. It will not effect the income on the Sch C for S/E purposes.

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