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Old 07-04-2010, 07:20 PM
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Muiliple year averaging of already filed returns

My situation is this. For years my wife and I received good W-2 wages from our S corp. We paid our fair share of taxes while doing this. 2 years ago it was apparent that our business would not weather this financial storm that was building. We quit taking income out of the business hoping that would help it, it did not.

Last year tax year 09 I had zero income yet continued to pay all personal bills and mortgages out of savings. It was clear that we could not continue to do this and are on the verge of BK. I have 20,000 worth of expenses to deal with for last year but with no income it has nowhere to go.
The question is can we go back and do income averaging on tax returns for past years to try and gain benefit for the money we put out last year on 2 homes and other deductions.

I want to get this done if possible. I would hire a tax pro to do it as well if it makes $$ sense to do so.


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Old 07-06-2010, 01:01 PM
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Income Averaging is a method of computing personal income tax "whereby tax is figured on the average of the total of current year's income and that of the three preceding years. According to 1984 U.S. Tax legislation, income averaging was used when a person's income for the current year exceeded 140% of the average taxable income in the preceding three years." Unfortunately, the Tax Reform Act of 1986 repealed income averaging!

But, I would file your 2009 S Corporation Tax Return and claim all of your allowable deductions which would result in a loss as per your note. Now, these losses would flow to your personal tax return via the K-1. The result of these losses flowing to your personal tax return may be that you would have a Net Operating Loss in 2009!

Per Pursuant to Rev. Proc. 2009-52, you may elect "to apply IRC Section 172(b)(1)(H), electing a 5-year carryback period with respect to the net operating loss incurred for the tax year ended 12/31/09. Thus, you can offset the losses in 2009 against your potential income that you reported as far back as 5 years and obtain a tentative tax refund using Form 1045!

But, you must not be a TARP recipient nor, in 2008 or 2009, or was an affiliate of a TARP recipient.

Find a CPA near you!

Ask TaxGuru Please refer to the legal disclaimer.

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