Can individual taxpayers claim a Net Operating Loss (NOL) like businesses do?

Yes, individuals absolutely can have a Net Operating Loss (NOL). If you're self-employed or have business activities reported on your personal tax return and your deductions exceed your income, you can end up with an NOL. For individuals, an NOL generally occurs when you have negative income on certain parts of your tax return - typically from business losses, casualty losses, or rental activities. The basic idea is that your business deductions exceed your business income plus other income. The way it works now is that NOLs can be carried forward indefinitely, but they're limited to 80% of your taxable income in any future year you use them. You'll need to file Form 1045 or Form 1040X to claim the NOL carryforward in future years.

After struggling with a similar issue last year, I found an amazing tool called taxr.ai (https://taxr.ai) that was incredibly helpful for figuring out my NOL situation. I'm not a tax professional by any means, and trying to calculate if I qualified for an NOL and how to properly document it was driving me crazy. What I liked about taxr.ai is that I could upload my tax documents and get a detailed analysis of my specific situation. It confirmed I could claim an NOL as an individual with my photography business losses and walked me through exactly how to document everything properly on my return. Saved me hours of research and probably a costly mistake.

I wanted to follow up about my experience with taxr.ai since I decided to try it after asking about the NOL carryforward calculations. It was actually really impressive! I uploaded my last two years of returns and some of my current year documents, and it immediately identified that I had been miscalculating my potential NOL. The detailed breakdown showed me exactly which business expenses were contributing to my NOL and which weren't eligible. It even flagged that I had missed some deductions that would have increased my loss. The step-by-step instructions for documenting everything on my return were incredibly clear - definitely worth checking out if you're dealing with an NOL situation.

If you're having trouble getting clear answers about your NOL situation from the IRS, I highly recommend using Claimyr (https://claimyr.com). I was in NOL limbo for months trying to get clarification on some specific rules for my situation. After weeks of failed attempts to reach anyone at the IRS (endless hold times and disconnections), I tried Claimyr as a last resort. They got me connected to an actual IRS agent in about 20 minutes when I'd previously waited hours only to get disconnected. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent was able to answer my specific questions about how to document my NOL properly and confirm I was eligible to carry it forward. Saved me from potentially making a mistake that could have triggered an audit.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway since I was desperate to talk to someone at the IRS about my NOL documentation. I've been trying for WEEKS to get through on my own with no luck. I'm honestly shocked - it actually worked! Got connected to an IRS agent in about 15 minutes when I had previously been unable to reach anyone after multiple attempts and hours on hold. The agent confirmed that yes, as an individual with a side business showing losses, I could claim an NOL and carry it forward. They walked me through the specific forms I needed (Form 1045) and explained how the 80% limitation works for future years. If you're struggling with NOL questions and need to talk to a real person at the IRS, this service is legitimate and works as advertised.

One thing to be careful about with NOLs as an individual - make sure your loss is actually from a legitimate business activity and not just a hobby. The IRS is pretty strict about the distinction. If you haven't been showing a profit in 3 out of 5 consecutive years (or 2 out of 7 for activities involving horses), the IRS might classify your activity as a hobby rather than a business. If that happens, you can't use those losses to create an NOL.

Has anyone actually filed an NOL as an individual before? I'm trying to figure out the actual mechanics of it. Do you just report negative income on your Schedule C and that automatically creates an NOL, or is there additional paperwork?

Thanks for sharing all this information about NOLs for individuals - this is really helpful! I'm in a similar situation where my consulting business had a rough year due to losing a major client. One question I have is about timing - if I determine I have an NOL for this tax year, do I need to wait until I file my return to start planning for the carryforward, or can I estimate it now to help with tax planning for next year? I'm trying to figure out if I should adjust my estimated tax payments for next year based on potentially having an NOL to carry forward. Also, does anyone know if there are any restrictions on what types of business expenses can contribute to an NOL? I had some large equipment purchases and professional development courses this year that pushed me into the red.

As someone who went through the NOL process as an individual taxpayer two years ago, I wanted to share a few practical tips that might help you navigate this situation. First, make sure you're keeping detailed records of all your business expenses - the IRS will want to see that these are legitimate business deductions if they ever audit. For equipment purchases like you mentioned, you'll need to decide whether to depreciate them over time or take advantage of Section 179 deduction to expense them all in the current year (which could increase your NOL). One thing that caught me off guard was that calculating the actual NOL amount isn't as simple as just taking your Schedule C loss. You have to use Form 1045 Schedule A, and there are adjustments that need to be made. Some deductions that are allowed on your regular tax return don't count toward the NOL calculation. Also, keep in mind that while the NOL can be carried forward indefinitely, you're limited to using 80% of your taxable income in future years. So if you have a big income year coming up, you won't be able to completely offset all of it with your NOL carryforward. The good news is that since your business has been profitable in previous years, you shouldn't have any issues with the IRS claiming it's a hobby rather than a legitimate business. Document your efforts to return to profitability - marketing activities, new client outreach, business plan updates, etc. This shows you're operating with a profit motive even during the loss year.

Great discussion everyone! I wanted to add something that might be helpful for Mary and others dealing with NOL situations. One thing that's often overlooked is the importance of timing your income and expenses strategically when you know you might have an NOL. For example, if you're already showing a loss for the year, you might want to accelerate certain deductible business expenses into the current year (like equipment purchases, professional memberships, or prepaying some business expenses) to maximize your NOL. Conversely, if you have any flexibility in timing income (like delaying invoicing clients until January), that could help increase your loss for NOL purposes. Also, don't forget about the qualified business income (QBI) deduction interaction. If you have an NOL carryforward that reduces your taxable income in future years, it might also impact your QBI deduction calculation since that's based on your taxable income. It's another reason to run projections for future years to optimize your overall tax situation. The equipment expense timing decision that NeonNebula mentioned is crucial - Section 179 lets you expense up to $1,080,000 (for 2022) of qualifying equipment immediately, while bonus depreciation can let you deduct 80% (for 2023) of certain assets in the first year. Both could significantly increase your current year NOL if that's beneficial for your situation.

This has been such an informative discussion! I'm dealing with a similar NOL situation with my marketing consulting business. One aspect I haven't seen mentioned yet is the state tax implications - does anyone know if NOL carryforwards work the same way at the state level? I'm in California and I'm wondering if the state will recognize my federal NOL carryforward, or if they have different rules. Some states don't conform to federal NOL provisions, and with California's tendency to have their own tax rules, I want to make sure I'm not missing anything important. Also, for those who have successfully navigated the NOL process, how did you handle the bookkeeping and tracking year over year? I'm concerned about properly documenting the carryforward amounts for future tax returns, especially if I end up with NOLs for multiple years or only use partial amounts in future years. The strategic timing advice from Kolton is brilliant - I'm definitely going to look at accelerating some planned equipment purchases before year-end to maximize my NOL. Better to get the full benefit now rather than depreciating over multiple years when I might not have enough income to fully utilize the deductions.

This thread has been incredibly educational! I'm a freelance web developer who's been putting off dealing with a similar NOL situation from last year when several major projects fell through and I had significant equipment and software licensing expenses. Reading through everyone's experiences, I realize I need to stop procrastinating and properly calculate my NOL using Form 1045 Schedule A rather than just assuming my Schedule C loss equals my NOL. The strategic timing advice about accelerating expenses is particularly relevant since I'm facing another potentially tough year. One question for those who've been through this - if you have an NOL carryforward available but your income in the following year is relatively low, is there any benefit to NOT using the full amount you're entitled to? I'm thinking about the 80% limitation and wondering if it might make sense to save some NOL for a higher income year, or if you're always better off using as much as possible each year. Also, has anyone dealt with NOLs while also receiving unemployment benefits? I had a period where I was collecting unemployment while trying to rebuild my client base, and I'm not sure how that factors into the NOL calculation or carryforward strategy. Thanks to everyone who's shared their real-world experiences - this is exactly the kind of practical guidance that's hard to find elsewhere!