How To Claim A Loan Loss On Income Taxes
If you run your own business you must understand how to claim a loan loss on income taxes. Businesses have periods of ups and downs, and sometimes it is necessary to take out a loan to perform a service for a client. This is certainly the case in the even that you do not charge up-front for services. Business take out these loans under the assumption that the client will pay them in a timely manner at which time the loan can be repaid. For instance, a contractor may take out a loan to cover the cost of building supplies. If a significant amount of time has passed before the client begins to pay the contractor, this contractor will endure a loss in profits. If this amount is quite substantial the contractor can report this as a Net Operating Loss on his or her income tax.
- Complete your income tax documents as you would normally on a 1040. If while you are completing these documents a negative amount appears on line 41, you should complete steps to verify that yes you do have a Net Operating Loss.
- Verify that you have a Net Operating Loss. This step is rather simple to determine. If your yearly income is less than your total deductions for that year, you have a Net Operating Loss. Total all of your deductions and then subtract that figure from your total income.
- Waive the carryback and carry the loss forward to a future year. Unless your loss is a result of farming or natural disaster you cannot use the carryback as per the rules of the IRS.
- Deduct the loss in the next year's income tax filing. This will give you up to twenty years to use portions of this deduction. This will give you future deductions that may be helpful and may help you receive a larger return in future years.