NOL carryforward for single member LLC - am I misunderstanding how this works?

Thanks for the explanation, but I'm still confused about something. If I had a $20,000 loss from my LLC but $60,000 in W-2 income in Year 1, wouldn't all of my loss be used up that year? When would I actually have an NOL to carry forward? Also, does having a single-member LLC vs a partnership make any difference for NOL purposes?

In your example, if you had a $20,000 LLC loss and $60,000 in W-2 income in Year 1, you're correct - the entire loss would be used in Year 1 to offset part of your W-2 income, and you wouldn't have any NOL to carry forward to future years. An NOL carryforward only happens when your total losses exceed your total income in a given tax year. For example, if your LLC lost $70,000 but you only had $60,000 in W-2 income, you'd have a $10,000 NOL to carry forward. As for your second question, the entity type does matter. With a single-member LLC (disregarded entity), the losses flow directly to your personal return. With a partnership, the losses flow through to the partners' personal returns based on their ownership percentages, but partnership losses might be limited by basis, at-risk rules, and passive activity rules.

How exactly does taxr.ai work with this kind of situation? I'm self-employed with an LLC and had a rough 2023 with some big losses, but I'm expecting to be profitable in 2024. Do they help with calculating the carryforward amount or just explaining the concept?

Is taxr.ai worth it compared to just asking my regular accountant? I've had mixed experiences with online tax tools - seems like they miss nuances specific to my situation. Does it handle state NOL rules too? Those can be completely different from federal.

It analyzes your tax documents and transcripts to identify your specific NOL situation. In my case, it looked at my Schedule C losses and calculated exactly how much NOL I had available to carry forward based on my specific numbers, not just general concepts. For state NOL rules, yes it does handle those too. That was actually the most valuable part for me - each state has different conformity with federal NOL rules. Some states don't allow carryforwards at all, while others allow different carryforward periods or percentages than the federal rules.

Wait, this actually works? I thought it was impossible to get anyone on the phone at the IRS. How much does this service cost? And do they actually connect you with IRS agents who understand complex issues like NOL carryforwards for pass-through entities?

This sounds like a scam. The IRS phone system is deliberately designed to be impenetrable. What magic do they supposedly use to get through when millions of people and even tax professionals can't? I'll believe it when I see it.

The service works by using technology to navigate the IRS phone system and waiting on hold so you don't have to. When an agent actually picks up, they call your phone and connect you directly to that agent. It's like having someone wait in line for you. Regarding the second question about IRS agent knowledge - it can vary. I was connected with someone in the business tax department who was familiar with NOLs. If you get someone who doesn't understand your specific issue, you can always ask to be transferred to a specialist or call back. The benefit is that you're actually speaking with someone instead of never getting through at all.

Do you know if there's a good resource that compares all the different state NOL rules? I have income in multiple states through my LLC and trying to figure out each state's rules individually is making my head spin.

I don't know of a single comprehensive resource that covers all states' NOL rules in one place. The most reliable approach I found was to go directly to each state's department of revenue website. Most states have tax bulletins or publications specifically addressing NOLs and how they conform (or don't conform) to federal treatment. The variations can be significant - some states limit carryforward periods to 5 or 10 years while federal is indefinite, some don't recognize NOLs at all, and others have special limitations based on your business type or income level.

What kind of documentation did the IRS want to see specifically? Did you need to create your own spreadsheet or is there an official form for tracking NOL carryforwards from year to year?

The IRS didn't require a specific form for tracking the NOL carryforward, but they wanted to see how I calculated the original loss and how much I had used in each subsequent year. I ended up creating a simple spreadsheet showing the original NOL amount, how much I used each year, and the remaining balance. I also included copies of the relevant schedules from each year's tax return (Schedule C showing the business loss, Form 1040 showing the NOL deduction, etc.). The agent seemed satisfied with this approach. What made it complicated was that I had to show not just the NOL itself but also demonstrate that I had basis in my LLC to claim the loss in the first place. This is where good bookkeeping really pays off!

Great question about the NOL and QBI interaction! You're absolutely right that this creates a potential conflict between maximizing current tax savings and preserving future QBI benefits. When you use NOL carryforward to offset business income, it does reduce the income that's eligible for the QBI deduction. So if you have $50,000 in business income in 2024 and use $20,000 of NOL carryforward, you'd only have $30,000 eligible for the 20% QBI deduction instead of the full $50,000. One strategy some people use is to only utilize enough NOL each year to stay within lower tax brackets, preserving both the remaining NOL for future years and maximizing QBI on the income they do report. Since NOL carryforwards are now indefinite (post-2017), you have flexibility in timing. Have you run the numbers both ways to see which approach gives you better long-term tax savings? The optimal strategy really depends on your expected income trajectory and tax bracket projections for the next few years.

This is really valuable advice about creating a multi-year projection model! As someone new to dealing with NOLs, I hadn't considered how the 80% limitation might actually help preserve some QBI benefits. One thing I'm wondering about - when you mention the QBI phase-out thresholds, does that apply to the business income before or after NOL adjustments? If my gross business income puts me over the threshold but my net income (after NOL carryforward) brings me back under, which number determines my QBI eligibility? Also, for those who've worked with tax professionals on this kind of strategic planning, roughly how much should I budget for that level of analysis? I want to make sure the cost of the advice doesn't eat up the potential tax savings!