If your small business operates at a loss, meaning its expenses exceed its income, there are several tax implications to consider…

1. Offsetting other income – In many cases, if your small business operates as a sole proprietorship, partnership, or LLC, you may be able to use the business losses to offset other income you have, such as income from a job or investments. This can potentially reduce your overall tax liability.
2. Carryover of losses – If your business’s losses exceed your other income for the year, you may be able to carry over the excess losses to future tax years. This can help offset future income and reduce taxes in those years.
3. Deductible business expenses – Make sure you’re accurately tracking and deducting all eligible business expenses. This includes expenses such as rent, utilities, supplies, salaries, and depreciation of assets.
4. NOL Carryback and Carryforward – The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the ability to carry back net operating losses (NOLs) for most taxpayers, but it allows for an indefinite carryforward period. This means you can use the losses to offset income in future years.
5. Business structure considerations – Depending on your business structure, there may be different tax implications for operating at a loss. For example, losses from a sole proprietorship or partnership are typically reported on your individual tax return, while losses from a corporation may have different rules.
6. Seek professional advice – Tax laws and regulations can be complex, especially regarding business losses. Consulting with a tax professional or accountant who is familiar with small business taxation can help ensure you’re taking advantage of all available deductions and strategies to minimize your tax liability.

While operating at a loss can be challenging for a small business, there are tax strategies available to help mitigate the impact and potentially provide benefits in future tax years.