The Tax Cuts and Jobs Act (TCJA) tax reform added an amazing limit on larger business losses that can attack you where it hurts—right in your cash flow.
And this new law works in some unusual ways that can tax you even when you have no real income for the year. When you know how this ugly new rule works, you have some planning opportunities to dodge the problem.
Over the years, lawmakers have implemented rules that limit your ability to use your business or rental losses against other income sources.
The big three are:
The TCJA tax reform added Section 461(l) to the tax code, and it applies to individuals (not corporations) for tax years 2018 through 2025.
The big picture under this new provision: You can’t use the portion of your business losses deemed by the new law to be an “excess business loss” in the current year. Instead, you’ll treat the excess business loss as if it were a net operating loss (NOL) carryover to the next taxable year.
If one of your businesses will have a loss in excess of the limits, we should start discussing planning opportunities as soon as possible. The longer we wait, the fewer opportunities we will have to limit or, better yet, eliminate the damage. We will help you determine your business excess loss.
We're Here to Help
Get advice from our experienced network of financial managers.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.