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AHWA
Returning Member

Sole proprieter with a $40k loss in 2020

I have a carry-over loss, does the tax-break get added to that or is there a return I should expect or be refiling for? Not sure what to do since the unemployment income was above the amount that was tax-free and I filed prior to the break. 

3 Replies
Nancy M5
Employee Tax Expert

Sole proprieter with a $40k loss in 2020

Hello.  A loss on a schedule C is used in the year it was generated.  In this case, it was used to shelter other income on your 2020 return.  However, if the loss resulted in an NOL (net operating loss) then this will be carried forward automatically by TurboTax.  You can also carryback an NOL.  Did you want some information about how to do that?

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AHWA
Returning Member

Sole proprieter with a $40k loss in 2020

So does the unemployment tax break, "reduce" my operating loss or is sent out as a credit? If it reduces my tax break then it's actually a penalty?

 

NancyM5
Employee Tax Expert

Sole proprieter with a $40k loss in 2020

The unemployment tax break does not "reduce" your operating loss.   An NOL (net operating loss) is the excess of allowable deductions over your taxable income, as in your self-employment loss of $40K.  If your "net" unemployment income is zero, it has no affect on your NOL.  "Net" unemployment income would be zero if the unemployment benefits you received was $10,200 or less.  In other words, the unemployment tax break can increase your NOL, rather than "reduce" your operating loss.

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