I had a QBI loss carryforward in 2021, can I deduct in in 2023

[Unwired17]

In 2021 my Schedule C Sole Proprietorship business had its main client go out of business, As such we posted a loss that year. The QBI worksheet shows a Carry forward loss. We paused the business in 2022 so there was no Schedule C prepared as we decided how to move forward. In 2023 we began operating the business again and now show a small profit. My question is, can I use the loss in 2021 as a carry forward loss to help offset the profit and tax implications in 2023?

Thanks for your help.  

[DavidD66 · Accepted solution]

Probably not.  A QBI loss carryforward is not the same thing as a Net Operating Loss (NOL) carryforward.  The QBI loss carryforward reduces the amount of your QBI deduction in future years.  It is not a loss you can use to offset other income.  A business loss first offsets other income in the current year.  If you subtract your standard deduction or itemized deductions from your adjusted gross income (AGI) and you have a negative number, you have a NOL that you can carryforward.  You would have first carried it forward to 2022.  If you had other income that exceeded the amount of your business loss in 2021 you would not have an NOL.  For instance, if you had a business loss of $50,000 but you had W-2 income of $100,000 and you used the standard deduction, you would not have an NOL that you could carry forward.  

You do have to carry your 2021 QBI loss carryforward to 2023.  It won't reduce your taxable income, it will reduce or eliminate your 2023 QBI deduction.  

For more information, see Publication 536 (2023), Net Operating Losses (NOLs) and Qualified Business Income 

[Unwired17]

Thaks. I think I understand.

We did have other income (W-2) in 2021 that was far in excess of the Schedule C loss. If I understand correctly, then I did not have an NOL.  I was thinking of the NOL as the loss in the business, rather than net of other income outside the business on the tax return.