New Tax Break for Business Losses

2009 may have been a tough year economically, but it has been a major year for new tax breaks. The latest is a new tax break announced by the IRS for business losses.

As you might imagine, there have been a number of businesses operating at a loss during 2009. The general rule with business losses is that you can carry them back two years and apply them to income to gain a tax refund. The new tax break allows the loss to be carried back between three and six years. Yes, back to when times were good and a few of us where actually making something called a "profit" instead of sweating our bills. Ah, the good old days! The magic provision is a part of The Worker, Homeownership and Business Assistance Act. It was signed into law on November 1, 2009 by President Obama.

At this point, you might be having a sense of deja vu. Wasn't this tax break issued a year or two ago? Don't worry. You are not going crazy. Nearly the same exact tax break was issued as part of the Stimulus act that was issued last February. The difference has to do with a cap. The Stimulus provision was restricted to businesses with less than $15 million in revenues each year. The new provision in The Worker, Homeownership and Business Assistance Act gets rid of the $15 million dollar cap and makes the tax break available to all businesses.

What if the additional years don't account for all your losses? After all, you might of made a small profit over the last six tax years, but had a huge loss in 2009. In such a scenario, you can carry forward the loss for up to 20 years. Put another way, you can apply it to future gains.

In these times of tight credit, it makes sense to look for funding wherever you can find it. In this case, you might find a silver lining to a bad year by applying 2009 losses to past gains for a nice tax refund.

Richard A. Chapo writes about taxes for BusinessTaxRecovery.com.