NOL question

[taldrknsom]

I just filed my 2022 income taxes and my AGI (on line 11 of form 1040) was -$370,800. 

I am assuming that my NOL to be carried forward to 2023 year will be $ 370,800. Is that correct?

This loss was a result of loss in one of my businesses (that loss was -$ 552437) which was offset by salary and other income.

This is the first time in my life that I have this kind of loss. My question is: Should I convert my 403b plan into a Roth IRA in 2023, so that the conversion will boost my taxable income for 2023, but it will be still under NOL of $ 370,800? Secondly, if my taxable income for 2023 before NOL is less than $ 370,800, can I carry forward unused NOL to 2024 and beyond? Thanks in advance.

[GeorgeM777]

A net operating loss can be carried forward indefinitely--they can no longer be carried back--but such losses are limited to 80% of taxable income. Whatever remains after deducting the NOL in 2023, just carries over to the next year and so on until exhausted.  

Regarding converting your 403(b) to a Roth IRA, we don't know without a full review of your financial records whether that would be prudent.   If the amount converted were contributed pre-tax then upon conversion such funds would represent taxable funds.  The withdrawn funds may also be subject to early withdrawal penalties.

@taldrknsom 

[taldrknsom]

@GeorgeM777 

Thank you for responding.

I guess I need to figure out my actual NOL that will get carried forward to 2023 and beyond. Can you determine how much will my NOL be? I thought it was equal to excess loss over my AGI.

I am 62 years old, and will not be subject to early withdrawal penalty on my 403b conversion. I know all of my 403b conversion will become taxable income when I convert it into my Roth IRA. I am converting it into Roth because my NOL carryforward losses are large enough to cover my extra taxable income from 403b conversion. Plus, I have more freedom as to where to invest in my Roth IRA. 

Given the loss numbers I provided in my original post, can you tell me how much will be NOL that I can use in 2023 and beyond? Thanks

[GeorgeM777]

No, because it's a multi-step process to calculate a net operating loss.  IRS Publication 536 and Worksheet 1 on pages 3 and 4 explain the method a taxpayer should use to calculate a NOL.  In summary, a NOL calculation starts with your total 2022 income, less your original 2022 total deductions, reduced by the disallowed items, and the resulting number is your NOL for 2022.

Here is a link to IRS Publication 536.

NOLs for Individuals, Estates and Trusts

@taldrknsom 

[photographyman]

I'm trying to work out the calculation for an NOL and I'm having some difficulty understanding how to fill in Worksheet 1 from IRS-536 to do so. The example they give in the publication to fill out the worksheet doesn't actually follow the Worksheet at all (which is both funny and frustrating) and I haven't been able to square up the actual worksheet with the example data for the NOL they calculate in the text. I also haven't been able to find a better example or more clarity after searching for hours. Everyone I've seen just points back to 536 (or Form 1045 which has the same worksheet, calling it Schedule A there). Does anyone have a better example or two? Or can explain how the example fits into the Worksheet? Thanks

[TomD8]

No guarantees, but this YouTube video has a pretty clear explanation of how to calculate and report an NOL:

https://youtu.be/JpeyEJZbB_8?si=omB5bs3rzl44SM-I

[Mike9241]

to calculate you need to separate business items from non business items

then the way it's supposed to work is you take items of business income and reduce them by business losses

if you end up with a loss this must be further reduced by the excess, IF ANY, of nonbusiness income over nonbusiness deductions (schedule A or the standard deduction are non-business)