Business Losses and Income

Generally, losses are regarded as a bad thing in the world of business. When you do have a loss, however, you may think that you can make a bad situation better by getting a tax refund for your loss, and, in some cases, this may actually be true. Whether or not you can get a refund for your loss will depend on the legal classification/type of your business and if your investment is considered “at risk.” Other sources of income you have may also play a role.   

Corporations

For those whose businesses fall under the “corporation” classification, they are not taxed on business profits or losses. This is because the corporation’s taxes are kept separate from the business owner’s taxes. Instead, they are taxed on dividends.

Pass-Through Entities

For some business owners, their business income and losses affect their own personal tax returns. The business types for which this occurs, often called pass-through entities, include:

·         Sole proprietors

·         Single-Member LLCs that calculate business taxes on Schedule C

·         Partnerships, multiple-member LLCs, and S corporations that calculate business taxes on partnership returns

Net Operating Losses

On your personal tax return, you will be able to calculate your net operating loss, and, if it turns out that you have one, you may be able to get a refund for your loss.

At-Risk Rules

There are also “at-risk” rules that can determine if your business will qualify for a refund or not. A qualified tax professional can help you to understand these rules and if and how they affect you and your business.

In fact, consulting with a tax professional can be helpful whenever you have any type of business loss. Often, these professionals will be familiar with effective ways to help you minimize and recover from the loss tax-wise. Thus, don’t go it alone; seek help from a tax professional!