NOL 80% Offset Rule - How Does It Apply for Combined CarryOver and Current Year Expenses?

The 80% taxable income limitation only applies to Net Operating Loss (NOL) carryovers from years beginning after December 31, 2017. It doesn't apply to your current year business expenses or losses. Those current year expenses reduce your income dollar-for-dollar before the NOL carryover even comes into play. Here's how it would work in your situation: First, calculate your current year taxable income by subtracting your $8,200 in current year business expenses from your $63,400 profit. This gives you $55,200. Then, you can use your NOL carryover to offset up to 80% of that $55,200, which would be $44,160 maximum. Since your carryover is $42,000, you can use all of it since it's less than the 80% limit. Your final taxable income would be $13,200 ($55,200 - $42,000).

Just wanted to share my experience with NOLs since I was in a similar situation last year. I found a great tool called taxr.ai (https://taxr.ai) that helped me navigate this exact NOL carryover issue. After struggling with the 80% limitation rules and getting different answers from various accountants, I uploaded my previous returns and it analyzed my NOL situation perfectly. The software correctly separated my pre-2018 NOLs (which can offset 100% of income) from my post-2017 NOLs (subject to the 80% limitation). It also properly handled my current year business expenses before applying the NOL limitations. Saved me a ton of headache trying to manually calculate everything!

I was initially worried about the tool handling those complex NOL provisions from the CARES Act since my accountant had totally missed them. I decided to try taxr.ai (after seeing the recommendation here) and wow - it actually found I could carry back some losses from 2019 that my accountant had only carried forward! It correctly identified which portions of my NOLs were subject to the 80% limitation and which weren't. The analysis even flagged that I should file an amended return for 2018 because my previous accountant had applied the 80% limitation incorrectly during that transitional period. Looking at a potential $3,700 refund now! The current year vs. carryover distinction was clearly explained in the report it generated.

For anyone struggling with getting help about NOLs from the IRS - I feel your pain! I spent WEEKS trying to get through to someone who actually understood the NOL carryover rules after the tax law changes. I finally used Claimyr (https://claimyr.com) to get through to an IRS agent who specialized in business tax issues. You can see how it works here: https://youtu.be/_kiP6q8DX5c After multiple failed attempts calling directly, Claimyr got me connected in about 25 minutes. The agent I spoke with clarified exactly how the 80% limitation works with current year losses versus carryovers - totally consistent with what the first commenter explained. They even sent me specific IRS publications about NOL calculations that I wasn't able to find on my own.

I need to eat my words. After my skeptical comment, I decided to try Claimyr as a last resort since I was getting nowhere with the IRS directly about my NOL issues. I was honestly shocked when I got a call back in about 40 minutes connecting me to an actual IRS business tax specialist. The agent was able to pull up my records and confirm exactly how my NOL carryovers should be calculated with the 80% limitation. He even explained a special provision I didn't know about for small businesses that might apply to my situation! Saved me from potentially making a $7,900 error on my return. I still can't believe I got through when I'd previously spent hours upon hours getting disconnected or waiting on hold. Totally changed my mind about the service.

One thing nobody's mentioned yet - the rules for NOLs have changed several times in recent years! The Tax Cuts and Jobs Act (TCJA) initially eliminated NOL carrybacks and implemented the 80% limitation starting in 2018. Then the CARES Act temporarily suspended the 80% limitation for tax years 2018-2020 and allowed 5-year carrybacks. Now we're back to the TCJA rules with the 80% limitation. Just make sure you're applying the right rules based on when your losses occurred. Pre-2018 NOLs follow the old rules (can offset 100% of income), while post-2020 NOLs are subject to the 80% limitation with no carryback option.

Has anyone used the IRS's worksheet for calculating NOLs with the 80% limitation? I found it super confusing because there seem to be different versions and some don't clearly address how to handle current year expenses vs. carryover amounts.

The IRS worksheets can definitely be confusing! I've been dealing with NOL calculations for my consulting business for several years now. What helped me was understanding that the calculation happens in stages: 1) Calculate your current year taxable income INCLUDING all current year business expenses and deductions 2) Apply the 80% limitation to that final taxable income amount 3) Use your NOL carryovers up to that 80% limit The tricky part is that different tax years' NOLs follow different rules. My 2017 NOLs can offset 100% of income, but my 2021+ NOLs are limited to 80%. I keep a simple tracking spreadsheet that shows each year's NOL balance and which limitation applies. One thing that caught me off guard - if you have NOLs from multiple years, you generally have to use them in chronological order (oldest first). This can affect your tax planning since the older NOLs might have more favorable rules. @Paolo Ricci I'd actually love to see that spreadsheet you created if you're willing to share it! The IRS worksheets are really hard to follow.