Cannot find anyplace on NJ 1040 to deduct accumulated losses forcing me to pay a tax on a rather large number that I actually never made.. Is this correct?????==========>>> As the income of your LLC is taxed on your 1040s,NOT on your state return, you get to deduct the biz losses reported on the business Sch K-1of 1065.however, you need your basis in LLC to deduct losses form the LLC; Your basis starts with your investment in the LLC; it is increased by income and cash contributions and decreased by losses and distributions. your basis may include a portion of the company's borrowings from third parties aslo if the LLC has.so, you may need to keep a separate schedule of your basis to determine whether you might deduct K-1 losses. if your basis is attributable to borrowings that are "non-recourse" that you aren't personally liable for it is not "at risk," andyour Sch K1 losses attributable to that basis must be deferred. You may also not be considered "at risk" for related-party borrowing, especially if you borrow from your business or from a business associate to fund your ownership in the K-1 issuer.your LLC K-1s provide some useful information in determining whether you have an "at-risk" issue. If you have losses in excess of your cash investment, and your share of debt on the K-1 part K is on the "nonrecourse" line, you are likely to have an at-risk problem. Your loss is "passive" if you don't "materially participate" in the business. There are a number of tests that you can use to determine whether you materially participate, but the most common is working at least 500 hours in the business in a year. If you have "passive" losses in excess of "passive" income, you have to defer the losses until you have passive income in a future year, or until you dispose of the "passive activity" in a taxable transaction.