Question

What should I do if my deductions exceed income earned?

Answer

 

If your deductions exceed income earned and you had tax withheld from your paycheck, you might be entitled to a refund.

You may also be able to claim a net operating loss (NOLs). A Net Operating Loss is when your deductions for the year are greater than your income in that same year. You can use your Net Operating Loss by deducting it from your income in another tax year. Whether you can deduct a NOL from a tax year depends on the type of deductions you have.

To qualify for a Net Operating Loss, the loss you have incurred should be caused by deductions from:

Trade or business

As an employee

Theft

Relocation or moving

Rental property

To support your claim of a Net Operating Loss you will need to keep accurate records for any tax year that is considered a NOL for three (3) years after you have used the carryback/carryforward or 3 years after the carry forward expires.

To learn more about Net Operating Loss (NOLs), visit IRS Publication 536: Net Operating Losses for Individuals, Estates and Trusts at https://www.irs.gov/pub/irs-pdf/p536.pdf.

 

Related Topics

Related Resources

Direct Sellers and Taxes – How Does it Work?

Many are surprised to learn that even side gigs come with a tax price. H&R Block Tax pro's have arranged expert tips for those who owe direct sales taxes.

Veterans Day: Are Veterans Benefits Taxable?

Are Veterans benefits taxable? Our H&R Tax Professionals address your veteran's related tax questions in honor of our soldiers this Veteran's Day.

Common Tax Questions Roundup

Here are the top tax questions our professionals got this year – with answers for you! How can you use this? Read on to get answers from H&R Block.

Tax Implications of Starting a New Business

The startup tax or new business tax is a topic many new business owners shy away from. Don't get caught off-guard. Review these tips provided by our tax pros.