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Old 04-08-2012, 05:43 AM
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Some questions concerning NOL carryforward

In 2010 I had NOL caused by an item on line 14. I sold the business for a loss, this was reported on 4797. A 1045 Schedule A was filed along with a note to waive the carryback period.

Now it's 2011. According to note on pg 16 of the 2010 Pub. 536, "Report your 2010 NOL from line 25, Schedule A, Form 1045, on the 'other income' line of your 2011 Form 1040..." That sounds easy enough, but regarding carryforwards Pub 536 also says "You must attach a statement that shows all the important facts about the NOL. Your statement should include a computation showing how you figured the NOL deduction..."

So,
1. I guess I'm wanting to know what exactly that means. What are all the important facts that I need to include? Would the 2010 1045, Schedule A suffice? Should I send Table 1. Worksheet for NOL Carroyover From 2011 to 2012 as well?

2. As I mentioned before the business was sold. I have no Schedule C income this year. All income will be from line 7, 8a, and 20a. The standard deduction and personal exemptions could take this taxable income to 0 before the NOL deduction touches it. There's also short term capital loss carryover of 3K from 2010 as well (there are no additional cap gains or loss from 2011). Perhaps, I should have asked this first:

Can the NOL deduction be used to off set wages (line 7 income)?

3. If I do not mention the NOL this year (even though the generation of the NOL was reported for 2010) will I lose it forever?

4. I suspect I will have to report it to keep it, so then will I have to turn in a 2011 1045 schedule A as well to track how the NOL deduction has been used up?

5. Is there anything that I left out?

Thank you so much for reading through this!



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Old 04-10-2012, 11:28 AM
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“Now it's 2011. According to note on pg 16 of the 2010 Pub. 536, "Report your 2010 NOL from line 25, Schedule A, Form 1045, on the 'other income' line of your 2011 Form 1040..." That sounds easy enough, but regarding carryforwards Pub 536 also says "You must attach a statement that shows all the important facts about the NOL. Your statement should include a computation showing how you figured the NOL deduction..." ---->So, Carryforward for Non-Corporate Taxpayers is much less complicated. You simply list the NOL deduction as a negative figure on line 21, Form 1040. Also, you have to attach a statement to your return that shows how you calculated the NOL as said below. You can get your refund faster by using Form 1045, but you have a shorter time to file it. You can use Form 1045 to apply an NOL to all carryback years. If you use Form 1040X, you must use a separate Form 1040X for each carryback year to which you apply the NOL. Generally, you must file Form 1045 on or after the date you file your tax return for the NOL year, but not later than one year after the NOL year. Attach a computation of your NOL using Schedule A (Form 1045) and, if it applies, your NOL carryover using Schedule B (Form 1045),
“1. I guess I'm wanting to know what exactly that means. What are all the important facts that I need to include? Would the 2010 1045, Schedule A suffice? Should I send Table 1. Worksheet for NOL Carroyover From 2011 to 2012 as well?”----> The whole concept behind NOL is that it essentially averages out or smooths out the income and loss so that huge amounts of tax in the second year can be reduced by all the losses in the first. It's meant to alleviate the very unfortunate break in the middle called Dec. 31st. . As you make the ELECTION to forgo the carry-back period, the remaining NOL, as calculated on the NOL worksheet, is carried forward to 2011. AND the election to carryforward the NOL can only be made on a timely filed return. Your 2010 return is delinquent so you do not have that choice. So, you will have the amount that is available for carryforward. And the carryforward does not go on Schedule D. It is included on Line 21 on 1040. All you need to do is pull up the NOL Worksheet for each year and it was right there;the NOL is worked out on the NOL Worksheet. As said previously, NOL has to go on line 21, putting it on Sch C would reduce your self-employment taxes, which would basically allow you a tax break for the same income twice. Hopefully you file an election in your loss year to carry the NOL forward and forgo carrying it back. If not, you will need to amend prior year returns rather than apply the NOL to 2011. You ALSO need to calculate your AMT NOL for carryback and carryforward purposes. IT MATTERS. You may not be in an AMT situation now, but you could be in a later or prior year. You'll need the AMT NOL number so you can do the AMT calculations correctly in the appropriate years.
2. As I mentioned before the business was sold. I have no Schedule C income this year. All income will be from line 7, 8a, and 20a. The standard deduction and personal exemptions could take this taxable income to 0 before the NOL deduction touches it. There's also short term capital loss carryover of 3Kfrom 2010 as well (there are no additional cap gains or loss from 2011). Perhaps, I should have asked this first:
“Can the NOL deduction be used to off set wages (line 7 income)? “------>Your NOL reported on line 21 1040 reduces AGI/TA/Tax liability for 2011.If your NOL is more than the taxable income of the year , 2011, you carry it to (figured before deducting the NOL), you generally will have an NOL carryover to the next year 2012.
“3. If I do not mention the NOL this year (even though the generation of the NOL was reported for 2010) will I lose it forever? “---->If you like, you can elect to forgo the carryback period, instead choosing to deduct the NOL only over the next 20 years in the future. If so, you must attach a statement to your tax return for the NOL year, or to an amended return for that year 2011/ 2012 perhaps,filed within six months of its due date excluding extensions. The statement must assert that you are electing to forgo the carryback period, if NOT, the IRS assumes you are carrying back the NOL to the 2009,NOT 2011 tax year.
“4. I suspect I will have to report it to keep it, so then will I have to turn in a 2011 1045 schedule A as well to track how the NOL deduction has been used up?”----> If you don't use up your entire NOL in the first carryback year, you may have a carryover, and you'll need to use Schedule B of Form 1045 to compute the amount.
“5. Is there anything that I left out?”-----> The standard procedure is to apply all of the NOL against the income reported in the earliest year, with the remainder carrying forward to each subsequent year in succession until the remaining NOL carryforward has been exhausted. If an NOL has been incurred in each of multiple years, then they should be applied against reported income (in either prior or later years) in order of the first NOL incurred. This rule is used because of the twenty-year limitation on an NOL carryforward, so that an NOL incurred in an earlier year can be used before it expires. Generally, you must file Form 1045 on or after the date you file your tax return for the NOL year, but not later than one year after the end of the NOL year. For example, if you are a calendar year taxpayer with a carryback from 2010 to 2008, you must file Form 1045 on or after the date you file your tax return for 2010, but no later than January 2, 2012.



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Old 04-10-2012, 12:51 PM
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Thanks for the response!
So to clarify, the loss (negative TI) occurred in 2010. So 2010 is the NOL year.

A 2010 1040 was filed timely in 2011. (why say it is delinquent?)
Line 21 on the 2010 1040 was blank. (as it should be on the NOL year?)
The following were filed along with the 2010 1040:
1045 schedule A
AMT version of 1045 schedule A
The election to waive carryback

So that is why I did not file a 1045 or a 1040x. That would only apply if we were to carry the NOL back. I am only carrying the NOL forward from 2010. Likewise I will never use 1045 schedule B because I will not be carrying anything back.

For tax year 2011, I will put the final amount from the 2010 1045 schedule A on the 2011 1040 line 21. Along with the 2011 1040, I will file the 2010 1045 schedule A and the AMT version.

So far so good?

Finally, for tax year 2011 since TI will be 0 (negative with line 21 included), I will fill out the carryover worksheet, but it will not be filed.

Correct?

Do I also need to complete 2011 1045 schedule A and AMT version and file that as well?

Thanks again.



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Old 04-10-2012, 02:56 PM
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“A 2010 1040 was filed timely in 2011. (why say it is delinquent?) “--->Not delinquent, you are correct.
“Line 21 on the 2010 1040 was blank. (as it should be on the NOL year?)”--->On 2011 return, NOT on 2010 NOL year return. Your NOL reported on line 21 of 1040 reduces AGI/TA/Tax liability for 2011 as a deduction for AGI. The difference between the original tax liability in 2011 and the recomputed tax liability based on NOL carry forward would be refunded to you.
“The following were filed along with the 2010 1040:1045 schedule A AMT version of 1045 schedule A The election to waive carryback/“So that is why I did not file a 1045 or a 1040x. That would only apply if we were to carry the NOL back. I am only carrying the NOL forward from 2010. Likewise I will never use 1045 schedule B because I will not be carrying anything back.”--->You are right. To make the election of NOL carry forward for an NOL incurred in your 2010 tax year, you need to attach to your 2010 tax return filed on or before the due date (including extensions) a statement you are electing to relinquish the entire carryback period.A separate computation on Form 1045, Schedule A is required to figure a NOL as certain deductions that you're allowed to claim on Form 1040 are not allowed in figuring a NOL. Consequently, to determine whether you have a NOL and its amount, you must perform a separate computation on Schedule A of Form 1045.For example, a nonbusiness capital loss, such as a loss on stock you own personally, is deductible in figuring AGI but is not allowed in computing a NOL.For example, assume you have a nonbusiness capital loss of $2,000. Also assume Line line 41 of Form 1040 shows a negative balance of $6,000 which takes into account the $1,000 capital loss.To compute your NOL you would complete Schedule A of Form 1045. On Line 1 of Schedule A, Form 1045, you would enter the $6,000 negative amount from Line 41, Form 1040.Then, Schedule A, Form 1045 will have you add back the $1,000 capital loss to the negative $6,000. The nonbusiness capital loss may not be used to increase your NOL so it is disallowed and excluded from the $6,000 negative amount that appears on Line 41 of Form 1040.By adding back the $1,000 capital loss to the negative $6,000 reported on line 41 of Form 1040, you would end up with a negative amount of $5,000 (-$6,000 plus $1,000.
“For tax year 2011, I will put the final amount from the 2010 1045 schedule A on the 2011 1040 line 21. Along with the 2011 1040, I will file the 2010 1045 schedule A and the AMT version.”---> I guess so.As you carry forward your NOL to a tax year 2011 after the NOL year , 2010, you need to list your NOL deduction as a negative figure on the Other income line of Form 1040 line 21.
So far so good?
“Finally, for tax year 2011 since TI will be 0 (negative with line 21 included), I will fill out the carryover worksheet, but it will not be filed. Correct?”---->The worksheet for NOL carryover from 2010 is essential to calculate the NOL carryover to 2011. You must attach a statement that shows all the important facts about the NOL carry forward. Your statement should include a computation showing how you figured the NOL deduction. Whichever form you use to claim the carryback, you must use Schedule A of Form 1045 to compute the amount of the NOL. If the entire loss isn't used up within the permitted period, no further NOL carryover is permitted. I mean, If you like, you can elect to forgo the carryback period, instead choosing to deduct the NOL only over the next 20 years in the future. If so, you must attach a statement to your tax return for the NOL year(You electing to waive the carryback should attach a statement to their timely filed original tax return for the year the NOL arose).
“Do I also need to complete 2011 1045 schedule A and AMT version and file that as well?”--->I guess it depends as long as you have NOL carry forward to 2012. To obtain the maximum benefit between regular and AMT tax deductions, you must make a proper determination of the regular NOL; compute the AMT NOL by modifying the regular NOL; and project the benefits of carrying the loss back with a consideration of the consequences of both regular tax and AMT With these modifications, you can use the regular NOL worksheet..) Remember the NOL deduction is limited for AMT; you can see Form 6251.



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Old 04-12-2012, 05:37 PM
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What goes in line 11 of 2011 Form 6251? The amount that was calculated from the 2010 AMT version of 1045 schedule A?

Please note, lines 2-9, 12-27 of 2011 Form 6251 are blank as none of these appear to apply to my situation.



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Old 04-12-2012, 09:37 PM
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“What goes in line 11 of 2011 Form 6251? The amount that was calculated from the 2010 AMT version of 1045 schedule A?”---->ATNOLD(Your ATNOL for a loss year is the excess of the deductions allowed for figuring AMTI (excluding the ATNOLD) over the income included in AMTI)if you substituted the NOL with ATNOL when calculating yur AMT. Only years in which you are subject to AMT rules will ATNOL rules also apply.ATNOLD which is the sum of the alternative tax net operating loss carrybacks / carryforwards to the tax year, subject to the limitation. To figure the ATNOLD limitation, you must first figure your AMTI without regard to the ATNOLD on line 11 of 6251 and any domestic production activities deduction. To do this, first figure a tentative amount for line 9 by treating line 11 as if it were zero. Next, figure a tentative total of lines 1 through 27 using the tentative line 9 amount and treating line 11 as if it were zero. Add any domestic production activities deduction to this tentative total if youhave. Your ATNOLD is limited to 90% of the result. If you are subject to the AMT, you will lose the ability to take advantage of many common tax deductions. For example, you can no longer deduct state and local taxes from your income, and all misc. itemized deductions are disallowed. If you own a business, and your deductions for business expenses were greater than the revenues from that business, you can still deduct up to 90 percent of the loss against your income as a NOL, even under AMT rules. You need to calculate your NOL on 1040. Then, you also should calculate your NOL using Sch A of Form 1045 and start with your taxable income, adding back the personal exemption deduction and any deductions for net capital losses in excess of $3,000, if youhave. Add back nonbusiness deductions to the extent they are greater than income received from nonbusiness activities. Your NOL deduction can be up to 90 percent of your income under AMT rules. This can potentially result in a significant reduction in your AMT tax liability. You should compare your income tax due on your Form 1040 with the tax due on Form 6251,TMT. You must pay the higher of the two amounts.
“Please note, lines 2-9, 12-27 of 2011 Form 6251 are blank as none of these appear to apply to my situation.”---->As described above; Regular Tax NOL + AMT depreciation Adjustment + Preference Items =AMTNOL. Incorrect calculations and figures are common errors that will delay your claim. You should make sure your figures are correct and based on the figures from the original filed return. The IRS uses a different table for each year. The correct able must be used to calculate each carry-back year.



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Old 07-21-2012, 10:34 AM
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NOL Carryforward Applied First?

Does the IRS require you to apply the NOL carrryforward to income first, before any other deductions or credits?

I'm asking because if multiple other deductions and credits result in a zero-tax situation without using any of the NOL carryforward, why is the NOL carryforward being "wasted" in this situation?

I would rather use other deductions and credits first, and then use only a portion of the NOL carryforward if necessary to bring the taxable income down to zero.

Is this possible?



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Old 07-21-2012, 02:01 PM
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“Does the IRS require you to apply the NOL carrryforward to income first, before any other deductions or credits?”---->NOL is to give you the full "benefit" of your loss by letting you reduce your taxable income and lower your tax bill in years where you didn't suffer a loss. NOLs are usually connected to running a business. However, individual taxpayers with casualty and theft losses or business expenses can have a NOL. The NOL rules for individuals are the same as those for non-corporate taxpayers like sole proprietorships. Corporations, except S-Corporations, have slightly different NOL rules. If you are in a partnership or limited liability company , or a shareholder in a S-Corp, then, the NOL rules generally don't apply to you. But partners and shareholders can take their individual shares of business income and deductions into account in calculating their individual NOL. Rather, you'll claim businesses losses, subject to the passive activity rules, on your individual tax return. If you carry forward your NOL to a tax year after the NOL year, list your NOL deduction as a negative figure on the Other income line of Form 1040 line 21. Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit. You must attach a statement that shows all the important facts about the NOL. Your statement should include a computation showing how you figured the NOL deduction. If you deduct more than one NOL in the same year, your statement must cover each of them.
There are also slightly different rules for non-corporate and corporate taxpayers.The sequence of the deduction calculation for NOL (for C corp) is required to be calculated after div received deduction ;for example, assume that C corp has gross income from operation of $250K, div income of $100K, operating expenses, $100K, charitable contribution $50K, dividends from 30% owned domestic corp of $100K and NOL $40K(ALSO assume that the C corp has no charitable contribution, capital loss, US production activities deduction), then its gross income is $450K($100K+$250K+ $100K) minus OE of $100K, then its taxable income before special deductions is $350K and minus div received deduction of $80K($100K*80%), then the Taxable income before NOL C/F is $270K($350K-$80K) minus NOL C/F of $40K, then its Taxable income is $230K($270K-$40K).

“I'm asking because if multiple other deductions and credits result in a zero-tax situation without using any of the NOL carryforward, why is the NOL carryforward being "wasted" in this situation?”---->As yo can see, if you have a NOL, you can elect to carry if forward instead of carrying it back(Cannot carry it forward if not elected on original return). If the entire NOL from a single year was not completely used in the first year, it may be carried to multiple years. There is no carryback period if the NOL occurs in a corporate taxpayer's first year.The carryback and carryforward periods generally cannot be extended, and any NOL remaining after the 20-year carryforward period is lost.
“I would rather use other deductions and credits first, and then use only a portion of the NOL carryforward if necessary to bring the taxable income down to zero.Is this possible?”---->I guess in geenral no, however, it depends; some things are simple;if (assume that you are subject to AMT)the NOL includes items not deductible for AMT, like some depreciation, then the AMT NOL is different because of that. Look at the items on the 6251 that are added back to regular income, then look at line 29. The NOL w/s says take line 41(net income, which is after Sch A), and add back the non-business deductions(i.e., SEP, previous NOLs, student loan interest, tuition deduction, and taxes, as they exceed non-business income, pensions) to get regular NOL. In some case, only the real estate taxes and miscellaneous over 2% make a difference, so the AMT NOL is different by that much. HOWEVER, in general, if you are carrying forward an NOL, you would show the carryforward amount as a negative figure on the "Other Income" line of Form 1040 as described above and reduce your total income on 1040 line 22 before deductions/credits for AGI.



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