Andy
Good question.
No, you cannot carry over business deductions to the next year.
You must deduct them in the year they were paid (if you are cash basis)or when they were incurred (if you are accrual).
And yes.You can carry forward (or back) any loss incurred for the year.Deciding which way to go is an art in itself. But the default, unless you elect to the contrary, is to carry it forward.
Delaying them is attractive because ...
The goal is to use the loss to offset high bracket income.
But the taxpayer's income is low enough, the loss will consume only the 10% bracket income and the zero bracket income ... giving him only a 5% benefit ... the loss is essentially worthless in a tax sense.
But the entire loss is fully consumed without any benefit. Carry forward or back is not available.
The inclination is to simply delay for a year deducting the loss. The danger is ... by the time he gets audited, if he does, the actual year may have closed, so he can't amend the return and take the loss in the correct year ... and the loss goes completely to waste ... losing even
the 5% benefit.
Probably more info than you want to know. But this is a good strategic training opportunity for the preparers in our office.
Robert Ellis CPA
www.elliscpafirm.com
(970) 241-5040
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