The new business loss carryback rules

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March 14, 2010

By David Compton The Meridian Star The Meridian Star Sun Mar 14, 2010, 08:30 AM CDT

MERIDIAN — In an effort to ease the tax burden on all businesses, large or small, Congress expanded the net operating loss (NOL) carryback rules to allow more companies to recoup taxes paid in previous years.

    A net operating loss occurs when a business has more deductions than income in a tax year. Prior to 2009, companies could receive a tax refund by carrying back an NOL and offsetting it against taxable income of the previous two years. Once the income of those two years was exhausted, any leftover NOL had to be carried forward to future tax years.

    Early in 2009, Congress changed the rules to allow small businesses — those with average annual gross receipts of $15 million or less — to apply an NOL to tax years as far back as five years. Larger companies were still limited to the original two-year carryback provision.

    But with the November 2009 signing of the Worker, Homeownership, and Business Assistance Act of 2009, nearly all businesses, regardless of their size, can carry back an NOL for five years. The Act also expanded the provision to cover NOLs for tax years ending after December 31, 2007, and starting before January 1, 2010.

However, there are a few catches. Businesses which received TARP payments from the U.S. government are not eligible for the new tax break. And an NOL carried back to the fifth previous year can only offset 50% of that year’s income. Any remaining NOL can be used to offset income in the remaining four years.

    David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.

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