• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Facebook
  • Instagram
  • LinkedIn
  • Twitter
  • YouTube
Big Ideas for Small Business logo

Barbara Weltman

Big Ideas for Small Business, Inc.

Whitepaper download

Subscribe and download our eBook, "150+ Tax Deductions for Small Business A to Z."

This field is hidden when viewing the form
Get the:

  • Home
  • About Us
  • Big Ideas For Your Business
    • Idea Of The Day ®
    • SMB Legal
    • SMB Taxes
    • SMB Financial
    • Small Business
    • Newsletter Archive
  • Services
  • Books
  • Blog
  • Multimedia
    • Videos
    • Radio Shows/Podcasts
  • Be a Guest Blogger

New Tough Tax Rules for Business Losses

March 8, 2018 / By Barbara Weltman

blog4site_3-8-18_TaxRules4BizLoss_dreamstimeOkay, you’re not in business to lose money but it can happen from time to time. The tax law has new rules in store for you when it comes to writing off business losses in 2018 and beyond. These rules make it more difficult to use losses to save taxes.

Net operating loss

Essentially, a net operating loss arises when the amount of a current business loss is greater that what can be used in the current year (i.e., greater than taxable income), it becomes a net operating loss (NOL). (Technical rules apply to make an NOL more complicated than this.)

When and how the NOL is used has been changed by the Tax Cuts and Jobs Act.

  • NOLs arising prior to 2018. Generally these NOLs can be carried back for 2 years (there are some special rules for certain situations and an option to waive the carryback) and forward for up to 20 years. The NOLs can offset up to 100% of taxable income.
  • NOLs arising in 2018 and beyond. No carryback is allowed (other than for certain farming losses and losses of property and casualty insurance companies), but there’s an unlimited carryforward. However, the NOL can only offset up to 80% of taxable income.

Recordkeeping. If you have a carryforward of a pre-2018 NOL, be sure to keep track of it separately from newer ones so you can use it as a 100% offset going forward. NOLs are taken into account in the order in which they are generated, so that old NOLs are used before newer ones. This rule hasn’t changed.

Noncorporate excess business losses

If you own a pass-through entity—sole proprietorship, partnership, S corporation, or limited liability company—the rules for writing off your losses have changed dramatically. Until now, if you had $1 million in revenue and $1.6 million in expenses, the $600,000 loss passed through to you would be deductible on your return (limited by your basis in the business).

Now there’s an important change in the treatment of losses. Instead of being currently deductible, excess business losses are characterized as net operating losses that must be carried forward.

What is a noncorporate excess business loss? This is the excess of business deductions for the year over the sum of (1) gross income or gain from the business, plus (2) $250,000 for singles or $500,000 for joint filers (with these dollar amounts adjusted for inflation after 2018).

So continuing the example I started earlier, under the new loss limit, instead deducting $600,000 in 2018, assuming you’re single, you’d only be able to write off $350,000 ($1.6 million – [$1 million + $250,000]). The balance of the loss–$250,000—is treated as a net operating loss that becomes deductible in 2019 to the extent permissible (explained earlier).

For owners of partnerships and S corporations, the limit is applied at the owner level, based on the owner’s distributive share of business income and expenses.

The excess business loss limit applies after applying the passive activity loss limit. The excess business loss limit is effective from 2018 through 2025.

Conclusion

To sum it up, when you’re doing well, the government is your partner by sharing in your good fortune via taxes. But when you aren’t doing well, the government doesn’t want to know you anymore. The Tax Cuts and Jobs Act rewards profitable businesses by lowering the taxes to be paid on profits. But this same law essentially penalizes unprofitable businesses by imposing limits on utilizing losses. In the past, for example, if you had an NOL, you could carry it back to generate an immediate cash refund that could be ploughed into the business. In effect, a loss could be turned into a gain. No longer.

Perhaps the lesson here is: Be profitable. Take the steps you need to ensure this—cut expenses, raise prices, etc. And work with your tax advisor to see what other measures can be used to keep you in the black.

Tags business loss new tax rules tax rules for business losses

Primary Sidebar

Categories

  • General Business (506)
  • Guest Blog (114)
  • Homepage (27)
  • Small Business (1,007)
  • SMB Financial (330)
  • SMB Legal (67)
  • SMB Taxes (327)

Barbara’s Recent Posts

  • Is Christmas in July for Your Small Business? July 10, 2025
  • How to Streamline Recruitment and Selection to Enhance Hiring Results July 9, 2025
  • One Big Beautiful Bill: Checklist of Tax Changes for Small Businesses July 8, 2025
  • What the U.S. Supreme Court Told Small Businesses in This Term: Part 1 July 3, 2025
  • Mid-Year Business Planning for 2025 July 1, 2025
  • 10 Ideas for Coping with Cash Flow Challenges June 26, 2025
  • 5 Insurance Traps to Avoid June 24, 2025
  • Creating a Feng Shui Office Layout for Your Business June 20, 2025
  • Scaling Your Business by Optimizing Social Media Marketing June 19, 2025
  • The Timeless Value of Business Cards in a Digital World June 18, 2025
  • What Does the Latest IRS Data Book Tell Us? June 17, 2025
  • Business Advice from Famous Dads June 12, 2025
Awarded Top 100 Small Business Blog medal (link will open in a new window or tab)
Marquis Who's Who 2023 Badge
Top Small Business Blogs (Link will open in a new window or tab.)
8 Financial blogs small business Owners Need to Read. Invoice home.  (link will open in a new window or tab)
Best Small Business Blog, Expertido.org
Top 50 Small Business Blogs 2018
Best Small Business Blogs
BizHumm Top 100 Business Blog Award to Barbara Weltman
FitsSmallBusiness.com: Award for Best Small Business Blog 2017 (link will open in a new window or tab)
FitsSmallBusiness.com: Award for Best Small Business Blog 2016 (link will open in a new window or tab)

Footer

Big Ideas for Small Business logo

Small business ideas, business tax news and small business consulting from Barbara Weltman to provide business owners with the information they need to succeed. Visit our small business blog, Idea of The Day®, small business books and articles on small business taxes, small business finance and small business legal advice.

Contact Us

[email protected]

(772) 492-9593

gacor maxwin situs slot thailand terpercaya situs slot gacor situs gacor akun pro thailand slot bandar togel terpercaya

Latest Tweets

bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 10

5 Best Apps to Help You Delegate Tasks Easily - LifeHack https://bit.ly/4ktlMs8 #smallbusiness #delegate #workplace

Reply on Twitter 1943438117886726437 Retweet on Twitter 1943438117886726437 Like on Twitter 1943438117886726437 1 Twitter 1943438117886726437
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 10

Motivation vs Discipline: Why One Always Beats the Other (And It's Not What You Think) - LifeHack https://bit.ly/4eCTSIQ #productivity #smallbusiness #motivation

Reply on Twitter 1943384967964229673 Retweet on Twitter 1943384967964229673 Like on Twitter 1943384967964229673 Twitter 1943384967964229673
bigideas4sb Big Ideas for Small Business® @bigideas4sb ·
July 10

Use These 11 Guidelines to Decide When to Bend the Rules for Employees https://bit.ly/3GEPOeH #workplace #smallbusiness

Reply on Twitter 1943360134333276317 Retweet on Twitter 1943360134333276317 Like on Twitter 1943360134333276317 Twitter 1943360134333276317
Load More

Copyright © 2008–2025 Big Ideas for Small Business, Inc  |  Designed by Hudson Fusion

  • Privacy Policy
  • Sitemap