Tax planning opportunities for individual net operating losses.
Taxpayers with business income can "smooth out" their income tax liabilities by using NOL carryovers. In a down economy, the business taxpayer incurs a zero income tax during years with operating losses, but the "benefits" of such losses are felt in other years as well. NOLs relate only to business income and deduction items, so an individual taxpayer must separate out the non-business items on the Form 1040 in computing the NOL. The modifications that apply in this process can be complex to derive and apply, if you want to see how it works, we can show you a case study.
If you think that you are going to have an NOL this year, it is even more important to contact your tax preparer because without electing to carry it forward you will, by default, carry it back where it could be less valuable.