You are currently viewing Does the CARES Act Impact Net Operating Losses for Small Businesses?

Does the CARES Act Impact Net Operating Losses for Small Businesses?

The CARES Act allows small businesses to carry forward their net operating losses once again.

The passage of the Coronavirus Aid, Relief, and Economic Security Act includes significant changes to how small businesses can use their net operating losses (NOLs). As Ken Berry discussed in his previous columns on this topic for The Berry Law Firm, there are now several different categories under which one may carry back an NOL from last year’s taxes–including certain ‘qualified investments made by corporations during that period; as well!

The latest tax law, signed late last year and in January 2019, changes how NOLs work. The rule now states that companies can carry back their losses from prior years for two additional years before they are eligible to be forward commissioner, otherwise known as “carried over.” 

Owners of pass-through entities like partnerships or S corporations may also claim an individual’s available net operating loss (NOL) against other types’ income if it suits their purposes because there isn’t specific guidance provided within this piece concerning them expressly.

The TCJA imposed three key restrictions for NOLs arising in tax years beginning after 2017: no carrybacks, a new 80% limit, and unlimited deductibility. On the one hand, they can be carried forward indefinitely, but on the other, you have to consider that these accounts might only allow up to 20%, which is less than what most people expected when signing their return last April!

The TCJA limited losses of non-corporate taxpayers—such as individuals, estates, and trusts–that may be used to offset their business income. For S corporation owners or partnership partners, this limit is considered at the individual level; any excess can become an NOL (subject to 80% limits).

The CARES Act provides taxpayers with significantly more flexibility when claiming NOLs. Not only can they carry back for five years any losses from 2018, 2019, or 2020 to offset profits in prior years; the 80% limit on income isn’t applicable until 2021 – so if you had $100K of capital gains last year and are now sitting tight waiting out this temporary rule change before beginning your taxes again (or want another reason why?), then thank goodness because that means there’s no immediate need whatsoever over Come January 1st when all these excellent tax breaks go away unless Congress decides otherwise!

If you’re a professional or taxpayer, there’s more to this than meets the eye. The CARES Act also coordinates new tax breaks with various other provisions so that they may be applied accordingly by professionals and taxpayers alike; one such document is an IRS Notice issued last week, which provides insight into how losses from NOL projects can carry back Wolfgang Koehringer 2018 loss planning strategies for pass-through entities like C corporations (included).