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!