My new client did their own 1040 for 2020 but did not include their new Sch C business started in Oct which has an NOL for it's first year. Need to show for carryforward

[tschlehr5885]

I'm trying to amend so they'll have their NOl carryfoward for 2021 but it's trying to offset their employment income from their regular jobs.  What am I missing?
Thank you.

[sjrcpa]

They may not have an NOL. 

A Schedule C loss offsets other ordinary income. The excess loss becomes an NOL. I'm oversimplifying the NOL computation here but this is the gist.

Why'd they leave it off? Was it really an active business n 2020? Start up expenses are not deductible until operations begin.

[George4Tacks]

https://www.irs.gov/publications/p536

[tschlehr5885]

Hi @sjrcpa   He as operational and fully registered (state and Fed) Sept 2020.  He wasn't profitable yet but I don't think it occurred to him to file a Sch C with his return.  In all honesty he also elected S Corp status in 2021 without understanding what that meant, so I'm cleaning things up for him.  He had a refund on his original 2020 return but he'll be profitable this year so I want him to get his NOL for 2020  to offset 2021 and for tax planning.  He only came to me recently.

Thanks!

[abctax55]

"... get his NOL for 2020"

You have yet to document that there IS a NOL.  A loss on a Schedule C doesn't not automatically mean there is one.

Most professional software produces a worksheet/diagnostic showing the computation.  Do you see one when you input the original return into PTO?

If not, irs.gov has a worksheet for computing a possible NOL.

[TaxGuyBill · Accepted solution]

A "business loss" and "Net Operating Loss" are two different things.

If AGI is not negative, there is no NOL.  As you have seen, a business loss properly offsets any other income on the tax return.

[sjrcpa]

So it's an LLC?

[abctax55]

👍

Susan - excellent mind reading; between the lines.  Have you been going to summer school?

[tschlehr5885]

Single member, yes.  At some point this year, and for whatever reason, he elected S-corp as of 2021.  No, I' not sure why.

[tschlehr5885]

Thank you @TaxGuyBill .  I know one business NOL can't offset another business positive income so, unfortunately, my mind was taking it another step as if ALL income is separate. Definitely overthinking it but it's been one of those clients lol.

Thanks again.

[TaxGuyBill]

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@tschlehr5885 wrote:

I know one business NOL can't offset another business positive income

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Assuming you are talking about two Schedule C's, that is incorrect.  If one Schedule C has a business loss (again it is NOT a NOL), it CAN offset the positive income of the other Schedule C.