Contractors: Lessen Your Operating Loss and Save Money

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Like I mentioned in my last post, we’ve all gone through some rough financial times these past few years. With fewer homes being bought and budgets tightening, contractors who specialize in home improvement and repairs are finding less clients to help support them. Luckily we’ve taken notice of yet another program to help us out in these thin times. Read more after the jump.

In general, net operating losses (NOL) are your current tax basis losses. NOL can be carried back two years and forward twenty. However, under the 2009 Worker Act, the carry back period has been expanded to five years. In addition, the Government made the election retroactive to years ending after December 31, 2007. This would allow you to re-file your 2008 tax returns as well.

Eligible small businesses can make the election for two loss years. All others are allowed one election. The real opportunity here is that you are able to carry back your current losses to offset the years when many of you had the highest income and paid taxes in the highest brackets.

Here is a quick example of how the tax loss carry back provision works:
Let’s say your company suffered a loss of $30,000 in 2009 and its profits in the past years were as follows:

$13,000 in 2008
$10,000 in 2007
$10,000 in 2006
$12,000 in 2005 and
$8,000 in 2004.

Under the old rules, you were only allowed to go back two years to offset the loss and get refunds for the taxes paid in 2007 and 2008. Therefore, the $30,000 loss in 2009 would only offset $23,000 ($10,000 from 2007 and $13,000 from 2008) and the remaining $7,000 would be carried forward 20 years.

Under the new rules, the IRS is allowing you to go back as many as five years to get refunds. In this case, the $30,000 loss in 2009 would offset $30,000 of prior years income ($8,000 in 2004, $12,000 in 2005 and $10,000 in 2006). As a result, the taxpayer would receive a greater refund. Keep in mind that the amount of your refund may vary based on your tax bracket.

In addition, if you have already filed your tax returns for prior years before enactment of the 2009 Worker Act, you may be allowed to revoke your prior election and timely file a new election – giving you an opportunity to carry back losses from your 2008 income tax year.

Under the old rules, you were only allowed to go back two years to offset the loss and get refunds for the taxes paid in 2007 and 2008. Therefore, the $30,000 loss in 2009 would only offset $23,000 ($10,000 from 2007 and $13,000 from 2008) and the remaining $7,000 would be carried forward 20 years.

Under the new rules, the IRS is allowing you to go back as many as five years to get refunds. In this case, the $30,000 loss in 2009 would offset $30,000 of prior years income ($8,000 in 2004, $12,000 in 2005 and $10,000 in 2006). As a result, the taxpayer would receive a greater refund. Keep in mind that THE amount of YOUR refund may vary based on your tax bracket.

In addition, if you have already filed your tax returns for prior years before enactment of the 2009 Worker Act, you may be allowed to revoke your prior election and timely file a new election – giving you an opportunity to carry back losses from your 2008 income tax year.

This opportunity to carryback losses and recapture prior tax payments can have a significant impact on your bonding and banking credit by effectively reducing the net loss the company has and therefore lessening the negative affect on your working capital and net worth. Not to mention it will significantly help your cash flow, because it is cash coming in the door. There are various provisions within this rule so be sure to discuss with your tax advisor to see if you qualify within the provisions of the expanded carry back rules.

At Orbit-Supply, we’re here not just to provide you with the finest quality bath and kitchen products, accessories and materials, but also the tools necessary to help you thrive in your business.

The financial information was sourced from here.

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