Why Does TurboTax keep adjusting my dedcutions to a zero AGI instead of showing a loss?

[EFDisaster]

I've done the taxes for my fiancee's sole proprietor / self-employed business here on TurboTax for the past ten years+ and this year has been very frustrating.

First, the order that things are presented on the page for the business is Expenses first, including cost of goods, and THEN income... so at the very least, the Home Office deduction (standard) kept changing its mind about whether we were eligible or not, because there wasn't any income, other deductions may have been doing weird things, too, I am unsure. Looking down the list of expenses once we were finished, everything seems to line up with her tracking and receipts, except that very fluid Home Office deduction number.

However, my main concern is that the Home Office deduction keeps adjusting itself so that our AGI becomes $0 ... is that how it's supposed to work? This is the first year that our deductions are adding up to more than our income, which would seem to indicate a Net Operating Loss, but with the Home Office deduction continuing to change itself based on all the other numbers, I am unsure.

It even popped up a question during wrap-up of some section about whether we'd like to officially declare a NOL, but having not been in this situation before, I don't know if that is the proper response, or if TurboTax is secretly storing the actual amount of loss somewhere, even though it's constantly adjusting the AGI to zero.

[AliciaP1]

Yes, that's how it's supposed to work.  Your home office deduction cannot cause you to have a business net loss.  And you're speaking about 2 different things - AGI is your Adjusted Gross Income which considers all your joint income and any Adjustments to Income you are allowed.  When you are speaking about your business income, it is either your Net Income or Net Loss.

You cannot have negative AGI, your income can only be reduced to 0.  Your business, however, is allowed to report a loss as long as the loss is created by business activities only, your home office deduction does not count as a business activity.  You are seeing the home office deduction move because since it cannot create a loss, it can only reduce your business Net Income to 0.

If your business has a Net Loss and you do not have enough AGI to support the entire loss, you are allowed a loss carryforward of the additional amount that can be used to offset income in future years and your tax return reports that loss carryforward for the consideration.