Self-employed businesses expenses incurred one year but reimbursed following year

[Carl235]

I am self-employed and file Schedule C for my sole proprietor business each year.  I am using the "cash accounting" method.  This has worked fine for many years as I have always had a net business profit each year.  This time is different.  In CY 2024 I incurred (paid out) business travel expenses (in December) which exceeded my 2024 income, so I had a net business loss for the year.  However, I will receive reimbursement from my client for that travel in early 2025 which will post as income in 2025.  Will my business loss in 2024 carry over to 2025 to offset the expected income?  Or is there some other way that my travel expenses in 2024 and the reimbursement in 2025 will effectively become a wash tax-wise?  Thanks in advance.  

[ThomasM125 · Accepted solution]

Your business loss in 2024 may or may not carryover to 2025. The only way this could happen is if your business loss exceeded your non-business income resulting in a net operating loss, which can be carried forward to future years. Since you are on a cash basis, expenses are supposed to be deducting in the year that they are incurred and the same applies to reimbursements. 

Even though you are deducting expenses in 2024 and adding the associated reimbursement in 2025, the expense are deductible so your income will be understated in 2024 and equally overstated in 2025, so they will net or "wash" in that sense.

[Carl235]

Thomas - Thanks for the quick and very helpful reply.  The "wash" situation is what I was hoping for, so it appears that there should be no significant adverse consequences.

Regards,

Carl