Can a sole proprietor carry forward business losses to next year's taxes?

Yes, as a sole proprietor you absolutely can carry forward losses! This is actually one of the benefits of having a business. When your business expenses exceed your income (creating a net loss), that loss can offset other income on your tax return for that year. If the loss is more than your other income, you can carry it forward to future tax years. The technical term is Net Operating Loss (NOL). Current tax rules generally allow you to carry forward NOLs indefinitely until they're used up, though there are some limitations on how much you can use each year (generally limited to 80% of your taxable income in any given year). Definitely bring this up with your CPA because proper documentation and reporting of these losses can save you significant money in future tax years when your business becomes profitable.

I went through exactly this scenario last year with my handmade jewelry business. My CPA kept saying I should just write off what I could against my regular income, but something didn't feel right. I found this service called https://taxr.ai that analyzes your tax situation and gives you advice personalized to your specific case. They confirmed I could carry forward my $8,200 loss from my sole proprietorship and explained exactly how to document it properly. The system analyzed my business structure and specific situation rather than giving generic advice. They actually provided examples of the exact forms I needed and how to fill them out - it was super helpful because my situation had some complications with inventory that my CPA kept overlooking.

Guys, I just wanted to update everyone after trying that taxr.ai site that was mentioned. I was super skeptical at first because my side hustle (mobile detailing) had a $6,700 loss last year that my accountant just kind of glossed over. The tool actually identified that I'd been documenting my losses incorrectly! Apparently I had classified some startup costs wrong that should have been amortized differently. It showed me exactly how to carry forward my losses properly and even generated a letter I could give to my accountant explaining the tax code references. Just filed an amended return for last year and should be getting back about $1,400! Plus now I know how to properly document everything going forward. Totally worth checking out if you're dealing with business losses.

After reading this thread, I tried calling the IRS to get clarity on carrying forward losses for my sole proprietorship (dog grooming business). Spent THREE DAYS trying to get through - kept getting disconnected or waiting for hours. Super frustrating. I finally tried this service called https://claimyr.com that someone in my business group recommended. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. Basically, they get you in the IRS phone queue and then call you when an agent is about to pick up. Sounds weird but it actually worked! Got connected with an IRS agent in about 45 minutes instead of the multiple days I was trying on my own. The agent confirmed that yes, sole proprietors can carry forward losses and explained exactly which forms I needed. They also checked my past returns and confirmed I could amend last year's return to claim losses I hadn't properly documented.

Ok I need to eat my words from earlier. After being skeptical about that Claimyr service, I decided to try it because I was desperate to talk to the IRS about amending my return for my lawn care business losses. I had tried calling the IRS THREE SEPARATE TIMES last week, waiting over 2 hours each time before giving up. With Claimyr, I got a call back in 37 minutes saying an agent was about to pick up. I was connected immediately and got all my questions answered about carrying forward my $9300 loss from last year. The IRS agent confirmed I could file an amended return and walked me through exactly what forms I needed. Was able to get this resolved in one afternoon after wasting almost an entire week trying to do it myself. Never thought I'd be recommending an IRS-related service but here we are lol.

Something nobody's mentioned yet - make sure you're actually running a legitimate business and not what the IRS considers a hobby. If the IRS determines your business is a hobby, you can't deduct losses against other income or carry them forward. They look at stuff like: Do you keep proper business records? Are you operating in a businesslike manner? Have you made a profit in at least 3 of the last 5 years? Do you depend on the income? Etc. My brother had his woodworking "business" reclassified as a hobby during an audit and it was a MESS. Just something to keep in mind before counting on those carried-forward losses.

One thing to remember with NOLs (Net Operating Losses) for sole props - they're reported on your regular 1040 using Schedule C, then flow to your 1040. The losses automatically offset your other income for the current year first. It's only the EXCESS losses that get carried forward. So if your business lost $20k but you had $30k in W-2 income, you'd use the entire $20k loss this year and have nothing to carry forward. But if your business lost $40k and you only had $30k in other income, you'd use $30k this year and carry forward the remaining $10k.

This is such valuable information! I had no idea about NOL carryforwards until reading this thread. I run a small consulting business and had a $7,800 loss last year that I thought was just... gone. My tax preparer never mentioned anything about carrying it forward. Reading about everyone's experiences here, I'm realizing I should probably be more proactive about understanding my tax options. It sounds like there are several tools and services mentioned that could help me figure out if I'm missing opportunities like this. For anyone else in a similar boat - it seems like the key takeaways are: 1) Keep detailed business records to prove it's a legitimate business, not a hobby, 2) NOLs can be carried forward indefinitely (with some limitations), and 3) You might need to be proactive with your tax professional or seek additional resources to make sure you're not leaving money on the table. Thanks to everyone who shared their experiences - this thread has been incredibly helpful!

This thread has been incredibly eye-opening! I've been running my small photography business for about 2 years and had losses both years (around $3,400 last year and $5,200 this year). My tax preparer just treated them as hobby losses and said I could only deduct up to my business income, which was basically nothing. After reading everyone's experiences here, I'm realizing I might have legitimate business losses that could be carried forward. I keep detailed records, have business insurance, maintain a separate business bank account, and actively market my services - so I think I can demonstrate this is a real business, not just a hobby. I'm definitely going to have a serious conversation with my tax preparer about amending my returns and properly documenting these losses for carryforward. It sounds like I might be able to recover some significant money from previous years and set myself up better for when the business becomes profitable. Has anyone dealt specifically with photography businesses and the hobby vs. business determination? I'm wondering if there are any industry-specific things I should be documenting to prove business intent.

I've been following this discussion and wanted to share my experience with carrying forward losses from my consulting business. Last year I had a $12,400 loss due to some major software purchases and certification courses, and I was initially told by my tax preparer that I could only use it to offset other income that year. After doing some research (and finding threads like this one), I discovered that the remaining $8,600 could be carried forward as a Net Operating Loss. What really helped me was creating a detailed business plan that showed my investment strategy and projected profitability timeline - this documentation was crucial when I amended my return. One thing I learned is that it's important to track not just the dollar amounts, but also the business rationale behind your expenses. The IRS wants to see that your losses are part of a legitimate business strategy, not just random spending. I now keep a business journal documenting major purchases and how they relate to growing my revenue. For anyone considering amending previous returns to claim NOL carryforwards - it's definitely worth it if you have the documentation. I ended up getting back about $2,100 from my amended return, and now I have the remaining loss amount properly set up to reduce taxes in future profitable years.