| Pub. 334, Tax Guide for Small Business |
2004 Tax Year |
Chapter 9 - Figuring Net Profit or Loss
This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Introduction
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 line G and line 32 of Schedule C.
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 40 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 | First | Next
Publications Index | 2004 Tax Help Archives | Tax Help Archives Main | Home
|
