Carry over business losses

[Mike92ct]

I started a business in 2022. My wife works elsewhere as a w2 employee. My losses will offset her taxes due.

Which expenses can I carry over to the 2023 tax season? It appears I have brought our AGI to zero - especially after utilizing the savers credit, my refund does not get any larger. (all of her taxes paid..)

Is there a certain type of expenses I can carry over? For example, can I claim $100 purchase from 2022 in 2023 because it was not reducing my income, or can it only be larger 179 deduction items - which in that case, one would chose wisely which expense was used first... 

[Anonymous_ · Accepted solution]

Your business losses can create NOLs.

See https://www.irs.gov/publications/p536#en_US_2022_publink1000177318

You might want to consult with a local tax professional if you are not familiar with this material.

See https://taxexperts.naea.org/listing/service/business-tax-preparation

[Mike9241]

the 179 depreciation deduction is limited to business income line 11 of form 4562.   any unused is carried forward, but you still need business income in the carryforward year(s) to utilize it.  if you paid a non-capitalizable expense in 2022 it's only deductible in 2022.    If your adjusted gross income is $0 it is unlikely you have an NOL.   however, if it is zero you are not getting any tax benefit from your standard or itemized deductions.  That's about $26,000 in deductions that are wasted.  There may be ways to reduce your business loss or increase AGI without incurring income or self-employment taxes. the increase for 2022 would have the benefit of lowering 2023 income and taxes. as @Anonymous_ suggested a tax pro can look through the numbers and discuss what 2023 looks like to give you better advice than we could.  

[Mike92ct]

I suppose the agi is not zero. The standard deduction is included that with my loss, it brings us to near zero due, resulting in a refund of what she paid. 

Thanks for that explanation. I wasn't sure if receipts are saved and added next year or added all this year then take an amount to carry over - as you mentioned. 

I will reach out to a few local tax preparation companies. I can see how different scenarios can be wasteful vs useful in the next year or so. 

[Mike9241]

if agi is not zero then you are getting some benefit from the standards or itemized deductions. the full benefit is only if they don't exceed AGI. so the only carryover would likely only be the 179. this is another surprise for 2023. assuming that the business is a qualified business, that the 2022 loss carries over in determining the QBI deduction in 2023 should the business be profitable. what I'm implying, and this is an example, there can be substantial differences in taxes between having zero taxable income one year and $50,000 the next and having $25,000 each year.  but as stated someone has to look at the numbers and then ask about next year. 

[Critter-3]

The only legal thing you can do after the first of the year to "manipulate" the bottom line  is in the assets section of the Sch C.    You can choose to NOT take all or part of a 179 deduction, elect out of the bonus depreciation,  depreciate assets that could be expensed instead of expensing them and/or  use  a longer depreciation period.  

https://www.wolterskluwer.com/en/expert-insights/use-expensing-or-bonus-depreciation-to-write-off-as...