How to Calculate NOL Carry Over
- 1). Add all income from a business, including sales, services and business wages. As an example, if you had $50,000 in sales and $20,000 in service-related billing, your business income would be $70,000, i.e. $50,000 + $20,000.
- 2). Total all the business-related deductions. These will be deductions directly related to the operation of the business, plus "personal casualty losses," which includes natural disaster damage and theft. Business deductions can be supplies, inventory, 50 percent of business meals and entertainment, automobile expenses, licensing fees, office or home office expenses, legal fees, profit-sharing plans, repairs and maintenance, business taxes, travel expenses, utilities and employee wages.
As a simplified example, say you had purchased inventory for $40,000, rented an office for $24,000/year, purchased office supplies for $5,000 and spent $20,000 in travel expenses. Assuming all those deductions were specifically business related, your total deductions would be $89,000, i.e. $40,000 + $24,000 + $5,000 + $20,000. - 3). Subtract your deductions from your business income. If the difference is negative, then your business has a net operating loss of that amount.
In the example, business income was $70,000, while business deductions were $89,000. Since $70,000 minus $89,000 equals $-19,000, you would have a net operating loss of $19,000, which could carry over to the next year to offset greater future profits.
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