A business tax loss occurs when your company has more expenses than profit in a given tax year. However, if your business experienced a tax loss in 2022, you may be able to use a qualified business loss carryforward to offset your tax bill in the future.
Also known as a net operating loss carryfoward, a qualified business loss carryforwad is a strategy you might consider if your company didn’t make a net operating profit last year.
You can carry forward the loss to any future tax year, but only for 80% of the taxable income. A provision in the 2020 CARES Act temporarily removed the 80% limit from business loss carryforwards, but this expanded benefit has since expired.
For example, if you have a $10,000 loss in 2022, you could carry forward $8,000 (or 80%) of this loss for your 2023. Depending on where you live, you may also be able to carry forward net operating losses for your state tax returns.
You can carry forward a qualified business loss if you’re a sole-proprietor, member of a limited liability company, partner (in a partnership), or an owner of an S-corporation. There are some constraint for limited partners who do not actively run the company.
If you’ve determined your business has a net operating loss, you can complete IRS Form 1045, Schedule B to figure out how much you can carry forward.