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How Does the CARES Act Impact Net Operating Losses for Small Businesses?

Source: https://accountingweb.com/tax/business-tax/how-does-the-cares-act-impact-net-operating-losses-for-small-businesses - Apr 28, 2020

This week, we delve into how the Act affects small businesses’ net operating losses. Significantly, although the CARES Act essentially repeals tough rules that were imposed by the Tax Cuts and Jobs Act (TCJA), the changes go even deeper than that.

These rules are extremely complex and difficult to follow, even for tax practitioners. The IRS recently issued new guidance on carrying back NOLs under the revised setup (IR-2020-67, 4/9/20). First, let’s recap recent history.

Prior to the TCJA, which was signed late in 2017, a business was able to carry back an NOL for two years and then forward for up to 20 years. In other words, the NOL could first offset tax liability for a prior year. Alternatively, if it suited its purposes, the business could elect to forego the carryback.

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Category: General Business