NOL question

[TomSanders]

What is the name of your state? California

I have a question about how to calculate the NOL. Hope someone can help.

Assume that a taxpayer chose to have all his NOLs carried forward. Suppose he has $10,000 NOL carryover from 2004. Then in 2005 the taxpayer had an overall loss again and he incurred an additional $3,000 NOL. Does it mean he will have a total of $13,000 NOL carryover to 2006?

But then when I worked on Form 1045 Schedule A, the result on line 25 is only $3,000, which is the additional amount of NOL that the taxpayer incurred in 2005. Then what about the $10,000 NOL from 2004 that the taxpayer cannot use in 2005?

Is it because the $10,000 from 2004 can only be carried forward for one year and you would lose it if you cannot use it in 2005?

Or the figure on Form 1045 Schedule A Line 25 is not the total amount of NOL allowed to be carried forward to 2006?

Thank you.

 

[abezon]

NOLs are carried back 2 years, then forward 20 years. Thus, you must track each year's NOL separately.

 

[TomSanders]

NOLs are carried back 2 years, then forward 20 years. Thus, you must track each year's NOL separately.

He has elected to carry forward the loss in his 2004 tax return and he also elect the carryforward in his 2005 tax return. So there is nothing to be concerned about the carrybackward.

Now for the carry forward amount. Based on what you said, he should calculate the NOL each year and add them together to carry it forward. Is that what you mean? For example if he calculates the NOL in 2004 is 10,000 and in 2005 is 3,000, he then carry forward 13,000 to his 2006 tax return. Is it right?

Thank you for your help.

 

[LdiJ]

He has elected to carry forward the loss in his 2004 tax return and he also elect the carryforward in his 2005 tax return. So there is nothing to be concerned about the carrybackward.

Now for the carry forward amount. Based on what you said, he should calculate the NOL each year and add them together to carry it forward. Is that what you mean? For example if he calculates the NOL in 2004 is 10,000 and in 2005 is 3,000, he then carry forward 13,000 to his 2006 tax return. Is it right?

Thank you for your help.

Actually he carries forward 10,000 AND 3,000 to his 2006 return. As Abezon said, you have to track each year's loss separately, because of the 20 year limitation. However yes, in total he will be carrying 13,000 forward into 2006.

Why are you filing form 1045 if he is not carrying back?

 

[tranquility]

I agree with abezon and LdiJ and note that I believe the election (to relinquish the carryback) is irrevocable without permission from the commissioner. I too am confused about the 1045. That is what is used when one takes the NOL in a previous year (carryback).

 

[abezon]

1045 Schedule A calculates this year's NOL. The rest of Form 1045 carries back this year's NOL 2 years & calculates any NOL left over after carryback. This amount is then carried forward 20 years.

When you finally claim the NOL in the future, you attach a statement showing the amount of each year's NOL claimed this year, & whether there is any NOL still available for carryforward.

 

[TomSanders]

When you finally claim the NOL in the future, you attach a statement showing the amount of each year's NOL claimed this year, & whether there is any NOL still available for carryforward.

I understand what you mean now. But if this is the case, why would my tax program carry forward the 2004 NOL and claim it on Form 1040 page 1 (entered as a negative figure on line 21)?

Also, if the carryforward NOL is to be claimed on line 21 on Form 1040 like what the tax program does, does the taxpyer claim the total accumulated NOL through the years on line 21 or only the NOL incurred in the previous year? For example, suppose a taxpayer had:

1,000 NOL in 2001
1,200 NOL in 2002
2,000 NOL in 2003
1,500 NOL in 2004

On line 21 of his 2005 Form 1040, does he claim 5,700 (the total accumulated NOL through the years) or only 1,500 (the NOL in 2004). Assume that he has elected to carry forward his NOL in every year.

Thank you very much for your help.

 

[LdiJ]

I understand what you mean now. But if this is the case, why would my tax program carry forward the 2004 NOL and claim it on Form 1040 page 1 (entered as a negative figure on line 21)?

Also, if the carryforward NOL is to be claimed on line 21 on Form 1040 like what the tax program does, does the taxpyer claim the total accumulated NOL through the years on line 21 or only the NOL incurred in the previous year? For example, suppose a taxpayer had:

1,000 NOL in 2001
1,200 NOL in 2002
2,000 NOL in 2003
1,500 NOL in 2004

On line 21 of his 2005 Form 1040, does he claim 5,700 (the total accumulated NOL through the years) or only 1,500 (the NOL in 2004). Assume that he has elected to carry forward his NOL in every year.

Thank you very much for your help.

The amount of TOTAL allowable NOL appears on line 21 on each year's return.

Example:

You have accumulated NOL of 13,000, plus another 4,000 for the current year. You have enough income to allow you to take 16,000 of the total of 17,000 of NOL. You put -16,000 on line 21, and carryforward 1,000. That 1,000 that you are carrying forward is from the current year's NOL, because you have used up all of the past carryforwards.

You are not tracking the individual year's NOL's on your tax return. You are tracking them on your personal records. You can set up a simple spreadsheet where you record the NOLs and the amounts used against each one of them, each year.

I disagree with Abezon about the 1045. If you are electing to carryforward instead of carrying back, then you attach a statement making that election to your 1040. You do not file a 1045. Your 1040 adequately calculates the current year NOL. That is clearly explained in the 1045 instructions.

You really may want to consider using a tax professional to prepare your returns while you are dealing with NOLs. They will track all of it for you if you stick with the same company and will make sure that it is done correctly. You would need to ask for an enrolled agent or someone with experience with NOLs to prepare your returns.

Look for an office that is open all year long rather than just during the tax season. They tend to have more experience with this sort of thing.

 

[TomSanders]

The amount of TOTAL allowable NOL appears on line 21 on each year's return.

Example:

You have accumulated NOL of 13,000, plus another 4,000 for the current year. You have enough income to allow you to take 16,000 of the total of 17,000 of NOL. You put -16,000 on line 21, and carryforward 1,000. That 1,000 that you are carrying forward is from the current year's NOL, because you have used up all of the past carryforwards.

Thank you very much. I have one last question. Suppose the taxpayer again had an overall loss in 2005 and therefore he cannot use (or say does not need to use) the NOL carryforward, does he still enter the 13,000 accumulated NOL from previous years on line 21 of his 2005 Form 1040?

Thank you again the help.

 

[LdiJ]

Thank you very much. I have one last question. Suppose the taxpayer again had an overall loss in 2005 and therefore he cannot use (or say does not need to use) the NOL carryforward, does he still enter the 13,000 accumulated NOL from previous years on line 21 of his 2005 Form 1040?

Thank you again the help.

I truly believe that you need to be using a professional to handle these returns for you. You don't have to hire a CPA or other high priced professional, you just need a tax office that is experienced in dealing with these issues.

 

[TomSanders]

I truly believe that you need to be using a professional to handle these returns for you. You don't have to hire a CPA or other high priced professional, you just need a tax office that is experienced in dealing with these issues.

I am just helping my friend out to ask some questions here. I have no influence on whether she will hire a CPA or not. But I will let her know that she should seriously consider doing that.

I still hope you will answer my last question though. I think it would be my last question on this topic.

Thank you very much. I have one last question. Suppose the taxpayer again had an overall loss in 2005 and therefore he cannot use (or say does not need to use) the NOL carryforward, does he still enter the 13,000 accumulated NOL from previous years on line 21 of his 2005 Form 1040?

Thank you very much again for your help and advice.

 

[LdiJ]

I am just helping my friend out to ask some questions here. I have no influence on whether she will hire a CPA or not. But I will let her know that she should seriously consider doing that.

I still hope you will answer my last question though. I think it would be my last question on this topic.

Thank you very much. I have one last question. Suppose the taxpayer again had an overall loss in 2005 and therefore he cannot use (or say does not need to use) the NOL carryforward, does he still enter the 13,000 accumulated NOL from previous years on line 21 of his 2005 Form 1040?

Thank you very much again for your help and advice.

She does NOT need a CPA. That would be spending way more money than necessary. She needs an enrolled agent or someone with experience...but not a CPA.

I am going to act in the best interest of your friend here and decline to answer any more questions. This thread has demonstrated to me that she really needs a professional handling this for her and I am not going to enable her (or you) to attempt it without one.

Please don't take offense...but I think that you are taking on a job that you are not equipped to handle, OR this is homework. If its the former, you aren't doing your friend any favors, if its the latter...we don't do homework.