🎯Net Operating Loss TF

Responses

1. 

   Djokovic Nadal Avengers 8 October 2024

   Hi Farhat Team, quick question. I understand we can only deduct business losses based on the expenses which is $30,000. But we can only deduct 80% on the 30,000 correct? Which is $24,000?

   Nonbusiness income: $30,000
   80% deduction rule: You can only deduct 80% of this nonbusiness income, which is $24,000.
   This leaves a $6,000 portion of the nonbusiness income not yet offset.

   Additionally, the original NOL (Net Operating Loss) was $50,000. After deducting $30,000 (nonbusiness income), you still have $20,000 of the NOL remaining that hasn’t been offset.

   So, in total:

   $6,000 of nonbusiness income is still unutilized.
   $20,000 of the original NOL remains.

   1. 

      Maroun, CPA 11 October 2024

      Hello Nadal,

      You mentioned the 80% deduction rule, but that rule applies to the utilization of an NOL when offsetting taxable income in future years, not to the calculation of how much of the NOL can be offset against nonbusiness income in the current year.

      You can use the NOL to offset up to the full $30,000 of nonbusiness income in the current year. There is no 80% limitation on how much of the NOL can offset nonbusiness income during the year in which the NOL is being reported.

      The 80% limitation applies only when using the NOL in future tax years to offset taxable income, not when offsetting nonbusiness income in the year the NOL is created.

      For example, if the taxable income is $10,000 in the next year, only $8,000 out of the $20,000 NOL may be used to offset taxable income. The taxpayer would still have to pay the tax on the remaining $2,000 ($10,000 – $8,000).

      I hope this helps!

2. 

   Prem Lalwani 23 April 2026

   In question 3, I am not able to understand the explanation, wouldn’t the business expense be allowed to be deducted to against business, reimbursed or direct expense doesn’t really matter right ?

   1. 

      Maroun, CPA 24 April 2026

      Hello Prem,

      The key point is that this question says reimbursed employee business expense. That does matter.

      If the reimbursement is made under an accountable plan, it is excluded from the employee’s gross income and the employee does not deduct it; the employer gets the deduction.

      If it is paid under a nonaccountable plan, the reimbursement is generally treated as wages to the employee. And for most taxpayers, employee business expenses are not deductible for 2018 through 2025.

      Therefore, either way, a reimbursed employee business expense generally does not create an individual NOL in this context. That is why the statement is False.

      Hope this helps!