Thanks for your answer. Well, no, my LLC is not a C Corp. In any case, I'm sorry but I really don't follow much of your response. I'm not saying it isn't correct. I simply don't understand the answer. To your question about my where I write: I understand the IRS allows applying the carryover loss from the LCC against W-2 income, you ask, "Where did you see this." The following is what I understood. I can't quite remember where I found it online. I highlighted the in bold the three main points that apply to the question I asked.
As a single-member LLC (Limited Liability Company), you can use business expenses and losses from your LLC to offset other income on your personal tax return, including W-2 income from an unrelated job. A single-member LLC is considered a "disregarded entity" for tax purposes, meaning the IRS treats the business as if it doesn't exist separately from its owner.
The income and expenses of the LLC are reported on Schedule C of your personal tax return (Form 1040). If your LLC has a net loss (i.e., the expenses exceed the income), you can use that loss to offset other income you may have, such as W-2 income.
However, there are some limitations and considerations:
Passive Loss Rules: If your involvement in the LLC is considered passive (meaning you are not materially participating in the business), there are limitations on your ability to offset non-business income with passive losses. You may need to check the IRS rules regarding passive activities and losses.
At-Risk Rules: There are also at-risk rules that could limit your ability to deduct losses if you have not risked your own money in the business.
Business vs. Hobby: The IRS may scrutinize businesses that consistently show losses. To ensure that your business is considered a legitimate business and not a hobby, it's important to run it in a businesslike manner and have the intention to make a profit.
Deductions and Credits: Make sure you are eligible for the deductions you are claiming, and consider any tax credits that may apply.
The general principle still applies if you have business losses from a previous year that are carried forward to the current year. These carried forward losses can potentially be used to offset other income on your personal tax return, including W-2 income from an unrelated job.
When you have a net operating loss (NOL) in your single-member LLC that you are unable to fully deduct in the year it occurs, the remaining loss amount can be carried forward to future years. The specific rules for carrying forward and utilizing NOLs can depend on the tax laws in effect during the relevant years.
Here are some key points to consider:
Carryforward Period: As of my last knowledge update in January 2022, the Tax Cuts and Jobs Act (TCJA) allows for a carryforward of NOLs for up to 20 years. However, tax laws can change, so it's important to check the most recent tax regulations or consult with a tax professional for the current rules.
Offsetting Other Income: In a year when you have carried forward losses, you can use those losses to offset other income on your tax return, such as W-2 income.
Passive Loss and At-Risk Rules: Similar to current-year losses, you may need to consider passive loss and at-risk rules when applying carried forward losses.
Does the above explanation help?
