Carryover of Unallowed Business Expenses to 2021

[soberjack17]

In 2020 we had a carryover of unallowed business expenses to 2021.  Well that business shut down and we did not spend any money or make any money with that business in 2021.  Can I still carry forward the unallowed business expenses on 2021 tax return?  If so, how do I enter this into turbo tax?  Thanks in advance

Jack

[PatriciaV]

Please clarify what type of business expense was disallowed, and confirm that the business with loss carryover was sold or dissolved.

According to the IRS, you may deduct in full any previously disallowed passive activity loss in the year you dispose of your entire interest in the activity (IRS Tax Topic 425 - Passive Activities - Losses and Credits).

In the case of excess expenses (like the Home Office Deduction), TurboTax will ask you about carryovers from last year.

In TurboTax, you enter the loss carryover under the activity that generated the loss. Look for a question like "I have activity losses carried over from last year." Check the box and TurboTax will ask you for the carryover amount later in the interview.

In the business info section for that activity, indicate that you closed, sold, or disposed of that business in the current tax year. TurboTax should release the loss carryover to be applied to your current year income.

[soberjack17]

The business was dissolved.  The Arkansas Tax website says it closed 24DEC20, but was not submitted or processed till 21MAY21.  The loss shows up on Form 8829.  Operating expense and excess casualty losses and depreciation.  It was an LLC that my wife and I had and we each claimed a percentage of the business so we both have the carryover on 2020 taxes.

[AmeliesUncle]

---

@soberjack17 wrote:

 The loss shows up on Form 8829.

  It was an LLC that my wife and I had and we each claimed a percentage of the business so we both have the carryover on 2020 taxes.

---

Do you have another business?  If not, carryover home office expenses don't go anywhere on your 2021 return.

However, you may have a bigger problem.  If both you and your wife were part of an LLC in Arkansas, you should NOT have a 8829 at all.  That business should have been reported as a Partnership, which is a completely separate tax return.  You may consider going to a tax professional for a consultation about the potential ramifications of doing it incorrectly.

[soberjack17]

I may be wrong, but I believe if my business was set up wrong, that the IRS would have already sent me a CP2000, or some other notice.  Plus, I don't think the VA would have allowed my business to be certified as a SDVOSB and compete for federal contracts.  I'm not an expert though so I will assume that everything we did with our business since 2015 is on the up and up.  

But your stating since the business is no longer in business I can't claim the carry forward, correct?  If thats the case what can I do with that carry forward?  When I filed last year I stated on turbo tax that my business closed in 2020.  Is that carry forward just lost since the business no longer exist?  Can I amend last years return some how to get the carry forward?  

Edited to add this in:

Now my wife did some work this year that Turbo Tax is claiming as self employment, work is related to previous business just not under the business name.  

[AmeliesUncle]

Just because the IRS does not catch you, does not mean it is correct.

A multi-member LLC is a Partnership.  If you did not file as a Partnership, you did it incorrectly.

As a Partnership, there are no Form 8829, so there is nothing to carry over.

[soberjack17]

Here is a line from my operating agreement.  At the time I was under the assumption that meant I could file our taxes as our personal income.  "

The Managing Member has formed this Company as an Arkansas limited liability

company under the Arkansas Small Business Entity Tax Pass Through Act"

[AmeliesUncle]

Your assumption was wrong.   A Partnership (which includes a multi-member LLC) is an entity with "pass through" taxation.   That just means the Partnership itself does not pay taxes, but is "passed" to the Partners via the K-1.