I want to apply my single member LLC Qualified Business Income Loss Carryover against my W-2 income. Where on my TurboTax return would I begin to do this?

[Sam883]

Hi. My single member LLC has a Qualified Business Income Loss Carryover from last year, 2022. The LLC in 2023 had no activity (no income or expenses); however, I have W-2 income, and I understand the IRS allows applying the carryover loss from the LCC against W-2 income.

My question is, where in the federal return would I begin to the process to apply the loss carryover from this LLC from last year to presumably reduce my W-2 income for 2023?

I have TurboTax Home & Business, the version where you purchase a key (which includes 5 returns by default). I don’t know if that’s considered the online version.

Thanks in advance for your help.

Sam

[Mike9241]

w-2 income is not qbi.  

 I understand the IRS allows applying the carryover loss from the LCC against W-2 income. Where did you see this. from IRC 199A (4)Treatment of reasonable compensation and guaranteed payments Qualified business income shall not include—

(A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business,

it would seem your LLC is an s-Ciorp hence the w-2 income the QBI loss carryforward can be applied against the s-corp k-1 income but not the wages paid.   Turbotax should have proforma's the 2022 QBI loss carryforward into the 2023 return depending on the form used to report the 2022 QBI loss form 2022

[Sam883]

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?

[JulieS · Accepted solution]

No, Qualified Business Income (QBI) loss carryover isn't the same as net operating loss (NOL). A QBI loss carryover is only used to reduce current QBI for the purpose of figuring out the QBI deduction. 

You can use current business losses to offset your W-2 income, but you say you don't have any this year. 

You can use an NOL to offset your W-2 income, but I don't think that you have one. An NOL is when your entire income for a year is a negative number. 

The passage you cite about At-Risk losses and passive activities probably doesn't apply to your situation. 

Passive activities are those that are more investment-related, rather a business activity that you actively participate in. At-Risk limitations refer to financing your business with non-recourse loans. 

This is what the iRS says about QBI loss carryover: "If the total QBI from all trades or businesses is less than zero, the taxpayer's QBI Component will be zero and any negative amount is carried forward to the next taxable year. The carried forward negative QBI will be treated as negative QBI from a separate trade or business for purpose of determining the QBI Component in the next taxable year. Any negative QBI carried into the subsequent tax year as a qualified business net loss carryforward will be used in that subsequent year to determine the net qualified business income or loss in that year. If the net loss carryforward from the originating year is not fully absorbed in the subsequent year, the new net loss amount will become a qualified business net loss carryforward to be applied in the subsequent year."

I know that isn't very clear either, but it means the QBI loss carryover is combined with the current QBI gain or loss. If there is still a loss, it gets carried forward to the next year. 

[Sam883]

Well, okay, JulieS. You seem to have hit all the points on the issue as applied to my situation, and what you cite from the IRS doesn't seem to leave any room for applying the carryover loss against current W-2 income. I guess I'll just carryforward the loss to next year and hope for income in the LLC to apply it against.

Thank you most kindly for you expertise and your kind assistance.

Happy tax season and beyond!

Sam