Question: Alfred incurred a net operating loss (NOL) for 2021. His 2022 return is on extension with a due date of Oct. 15, 2023. His business has been slow to recover from the economic fallout of the recent pandemic, so his 2022 income was low. But he has great prospects and expectations for success in 2023. He wants to know if he can skip applying the 2021 NOL against 2022 income so that more of the NOL might be saved for 2023, when he anticipates a significant increase in income.
Answer: No. Unfortunately, under IRC §172(b)(1)(A)(ii)(II), “in the case of a net operating loss arising in a taxable year beginning after Dec. 31, 2017, [losses shall be carried forward] to each taxable year following the taxable year of the loss [emphasis added].”
To calculate the NOL for the current year and any remainder available to carry forward to future years, use the worksheets provided in IRS Publication 536 Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.
As a reminder, the Tax Cuts and Jobs Act (TCJA) eliminated carry back of NOLs. The original NOL changes made under TCJA, as illustrated above, were delayed by legislative action for tax years 2018 through 2020. For NOLs incurred after 2020, carrying the NOL forward is the only option. While the carryforward years are unlimited, the amount of any NOL carryforward is limited to 80% of the taxable income in the carry-forward year.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.