combine two small businesses

[EllieB]

client has been running two separate schedule C service businesses. One has been showing a profit; the other a loss. Now wants to simplify things and combine the two under a single name (the profitable one). What happens to the NOL from the now closed business, and are there any other reasons NOT to do this?

[TaxGuyBill]

There is no such thing as a NOL within a Schedule C business.

In most cases, the loss from that business would have offset other income on the tax return. A couple of exceptions to that is if the taxpayer was not "at risk" (which is quite unusual) or had a Home Office expenses that were carried over (Line 42 and 43 of Form 8829).

Can you clarify what you mean by "NOL" from the second business? Or are you saying the second business had a loss large enough to create a NOL on the entire tax return (Line 41 of Form 1040 would be negative)?

[EllieB]

oops - you are right The NOL applies to the individual's 1040

There is no such thing as a NOL within a Schedule C business.

In most cases, the loss from that business would have offset other income on the tax return. A couple of exceptions to that is if the taxpayer was not "at risk" (which is quite unusual) or had a Home Office expenses that were carried over (Line 42 and 43 of Form 8829).

Can you clarify what you mean by "NOL" from the second business? Or are you saying the second business had a loss large enough to create a NOL on the entire tax return (Line 41 of Form 1040 would be negative)?

Sorry - you are right - the NOL

[TaxGuyBill]

Because the NOL applies to the individual, nothing changes in that regard if the business closes.

As for reasons why not to combine them, it doesn't really make sense to me if they are unrelated businesses.

Also, that seems like the taxpayer want to intentionally 'hide' the losses of one business. If the business repeatedly is showing a loss, is it really a business? Or might it be a hobby?