Schedule C Loss Question

[TJBoy]

What is the name of your state? California. I am in the process of filing personal tax returns for tax years 2004-2006 (Form 1040). I have a Schedule C (cash method) loss of approximately $30,000 (3 years combined). I do not need the loss from 2004 (approx $12,000) as my tax liability for the year is zero without it. Can I carryforward this loss to 2005 (and 2006 if necessary)? If so, how do I do this? Do I still report the full loss on 2004 return, and if I am carrying forward do I record this on Schedule C or directly on to form 1040 in subsequent years? This seems to be a fairly straightforward question but I can't find a definitive answer online. Approximately one-half of 2004 loss was for start-up. Remainder of loss for three years was simply net operating loss; my Schedule C expenses exceeded my Schedule C income. Please help!

[tranquility]

For the short answer, yes. The appropriate amount of your NOL can be carried forward if you make the appropriate election not to carry it back. For the NOL, you will take it on the front page of your 1040 as other income and not on your Schedule C.

But, your situation seems more complex than you can handle right now. I would have concerns regarding your "start-up" costs and that you show a loss for all three years. (And, that you haven't filed for the three years.) There is a calculation worksheet you need to complete to know the proper amount to carryforward after you carry it back appropriately.

That's all I'm going to say on the question. My recommendation is to have a tax professional complete these returns for you. There are many issues going on and I am doubtful you will complete the returns properly. Not because you are not smart or anything, it's just that there is a lot more here than if you can carry the loss forward and which box to put it in.

[irsos]

The election to carry the loss forward must be made on a timely filed return, including extensions. Therefore, it will have to be carried back two years, years which may be closed, before any unabsorbed loss can be carried forward.

[tranquility]

Good point on the election, I mislead by adding it to the answer with such an old NOL. (It can also be filed on an amended return within six months of the due date as extended of timely filed return.)

At the same time, the carryback request is for refund is made on Form 1045. However, the form may be used only if it is filed within one year after the NOL is created. Meaning the OP needs to file an amended return within the statute of limitations for the carryback-creating year (attaching the 1045 calculation.). In this case, I'd say by April of 2008. He would need to take it back two years before taking it forward. (Assuming he can't take it back farther because of certain circumstances.) Failure to do this (or skip any years forward) will cause the loss of the available amount which could have been applied.

[tecate]

To add to all of this fun, keep in mind that California NOL rules are different from the federal rules. For example, there are no carrybacks. The FTB website probably has a discussion of them. I agree with Tranquility: this is advanced tax work. Have a pro do it for you.

[LdiJ]

Originally Posted by tecate

To add to all of this fun, keep in mind that California NOL rules are different from the federal rules. For example, there are no carrybacks. The FTB website probably has a discussion of them. I agree with Tranquility: this is advanced tax work. Have a pro do it for you.

And I am going to ditto that recommendation. This is absolutely NOT a DIY project.

[TJBoy]

Thank you to everyone who replied to my query; most feel I should hire a professional to complete my outstanding returns. Given my current situation, obviously my wish had been to prepare the returns myself...hence the post. I realize the complexity involved in doing so, however.

The first response gave me hope...it indicated I should elect to not carry back, then list the loss as other income on the front of form 1040 rather than on the schedule C. However carrying back two years first, and then carrying forward....and the use of form 1045...left me completely lost. Perhaps printing form 1045 and instructions will clarify the situation somewhat, but it does sound like I may be in over my head. And of course, as a resident of CA, state returns are another matter altogether (though my primary concern at this point are the federal returns). Despite not filing for 3 years, my income and losses are relatively straightforward...so the issue is one of completing the forms correctly. Does anyone think that's a possibility or is professional assistance an absolute necessity?

[irsos]

There is no way you should do this yourself because you are still very confued about two critical issues. You may not use Form 1045 and you must carry the losses back first. This is not always the case, but it is the case for you in this circumstance.

Mike Wellman
[email]mw@irsos.com[/email]

[tranquility]

I agree you must carry it back first. If you do not, you will lose any NOL that could have been carried back. (The reason you cannot elect to just carry it forward is because the appropriate election must be timely.)

And, while true you cannot *file* the 1045 alone, the calculations that form provides must be attached to your amended returns for the tax years you are carrying back.

Realistically, I have a sense as to how this all goes as I get this issue (without the lack of filing complication) all the time. I still have to spend a lot of time making sure I check the computer calculations to make sure it's right. Not that it added and subtracted properly, but to make sure I input all the data correctly to get the result I would expect. While the calculation and preparation is still ministerial in that no decisions need to made requiring professional judgment, it is a series of complex calculations. I don't know how much money your time is worth, but to learn about and perform everything properly will take you a whole big bunch of time. Surely it would be better spent doing what you do best.

[irsos]

Originally Posted by TJBoy

What is the name of your state? California. I am in the process of filing personal tax returns for tax years 2004-2006 (Form 1040). I have a Schedule C (cash method) loss of approximately $30,000 (3 years combined). I do not need the loss from 2004 (approx $12,000) as my tax liability for the year is zero without it. Can I carryforward this loss to 2005 (and 2006 if necessary)? If so, how do I do this? Do I still report the full loss on 2004 return, and if I am carrying forward do I record this on Schedule C or directly on to form 1040 in subsequent years? This seems to be a fairly straightforward question but I can't find a definitive answer online. Approximately one-half of 2004 loss was for start-up. Remainder of loss for three years was simply net operating loss; my Schedule C expenses exceeded my Schedule C income. Please help!

One thing you may want to consider. Since a good portion of your 2004 loss was due to "start-up" expenses, and since you may lose these losses if they are carried back to closed years, if they are properly capitalized, you will get future beneift of the amortization of these costs.

Mike Wellman
[email]mw@irsos.com[/email]

[tranquility]

Good point on the capitalization, but are the years closed? The code seems to allow the carryback on an amended return within the statute.

[irsos]

Originally Posted by tranquility

Good point on the capitalization, but are the years closed? The code seems to allow the carryback on an amended return within the statute.

If these returns were also filed late, it is possible they are open. This is but one more reason the taxpayer should not attempt to do this himself/herself.

Mike Wellman
[email]mw@irsos.com[/email]

[TJBoy]

Well I suppose I have my answer...clearly I need help with this. Now the fun part....finding the right person to complete the returns .

[tranquility]

Most any tax professional can help. It's not that it is an extremely complex and subtle area, it's just that it is difficult unless you have some experience and the right tools.

[LdiJ]

Look for a local tax office that is open all year long. You don't need a high priced CPA, but you do need someone with some decent experience. Offices that are open all year long tend to have more experienced staff.