Asking forgiveness in advance for not trying to research this, I run into so few NOLs I only have a general understanding but don't know the details by heart. Hoping someone who deals with them more often knows the answer from memory.
Taxpayer has a variety of income sources for 2017 (interest, pension, business, Line 21, plus adjustments for SEHI and SE tax). AGI is about $35K. Schedule C business has net profit of about $1,800. Due primarily to mortgage, and paying some property tax before year-end, Schedule A is a little over $35K, so before exemption deduction, taxable income is already a little less than zero. I'm not concerned about under-reported income, as a large life insurance payout was received so taxpayer has plenty of money to pay bills.
Unexpectedly, an NOL of $50 (federal only) pops up with the return. Since the tax benefit of a $50 deduction will be so small compared to my fee for preparing the form and electing to carrying forward to next year, taxpayer is willing to forgo reporting it. No other tax benefit will be involved (remember income tax is already zero), so it's not like gaming the EIC or anything.
I scratch my head, as to why a profitable business is generating an NOL, but I reduce Schedule C expense by $50 as a test, and the NOL remains the same. After doing this several times, I look at the 1045 form and worksheet and decide instead to try reducing Schedule A by removing the charity deduction of about $1,200. The NOL disappears.
So why does a Sched A charitable contribution affect whether or not there is an NOL?
Taxpayer has a variety of income sources for 2017 (interest, pension, business, Line 21, plus adjustments for SEHI and SE tax). AGI is about $35K. Schedule C business has net profit of about $1,800. Due primarily to mortgage, and paying some property tax before year-end, Schedule A is a little over $35K, so before exemption deduction, taxable income is already a little less than zero. I'm not concerned about under-reported income, as a large life insurance payout was received so taxpayer has plenty of money to pay bills.
Unexpectedly, an NOL of $50 (federal only) pops up with the return. Since the tax benefit of a $50 deduction will be so small compared to my fee for preparing the form and electing to carrying forward to next year, taxpayer is willing to forgo reporting it. No other tax benefit will be involved (remember income tax is already zero), so it's not like gaming the EIC or anything.
I scratch my head, as to why a profitable business is generating an NOL, but I reduce Schedule C expense by $50 as a test, and the NOL remains the same. After doing this several times, I look at the 1045 form and worksheet and decide instead to try reducing Schedule A by removing the charity deduction of about $1,200. The NOL disappears.
So why does a Sched A charitable contribution affect whether or not there is an NOL?
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