Publication 334 |
2008 Tax Year |
9.
Figuring Net Profit or Loss
After figuring your business income and expenses, you are ready to figure the net profit or net loss from your business. You do this by subtracting business expenses
from business income. If your expenses are less than your income, the difference is net profit and becomes part of your income
on page 1 of Form 1040. If your expenses are more than your income, the difference is a net loss. You usually can deduct it
from gross income on page 1 of Form 1040. But in some situations your loss is limited. This chapter briefly explains two of
those situations. Other situations that may limit your loss are explained in the Instructions for Schedule C, line G and line
32.
If you have more than one business, you must figure your net profit or loss for each business on a separate Schedule C.
Net Operating Losses (NOLs)
If your deductions for the year are more than your income for the year (line 41 of your Form 1040 is a negative number), you
may have a net operating loss (NOL). You can use an NOL by deducting it from your income in another year or years.
Examples of typical losses that may produce an NOL include, but are not limited to, losses incurred from the following.
A loss from operating a business is the most common reason for an NOL.
For details about NOLs, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. It explains
how to figure an NOL, when to use it, how to claim an NOL deduction, and how to figure an NOL carryover.
Not-for-Profit Activities
If you do not carry on your business to make a profit, there is a limit on the deductions you can take. You cannot use a loss
from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, come under this
limit.
For details about not-for-profit activities, see chapter 1 in Publication 535, Business Expenses. That chapter explains how
to determine whether your activity is carried on to make a profit and how to figure the amount of loss you can deduct.
Previous | Index | Next
SEARCH:
You can search for information in the entire Tax Prep Help section, or in the entire site. For a more focused search, put your search word(s) in quotes.
Publication Index | Tax Prep Help Main | Home
|