Due to the coronavirus pandemic, many businesses have not been doing as well as they usually would be. Some business owners have even found that their company has had losses instead of a profit. If this has happened to your company, you might be wondering how this will affect the way that you file taxes this year. Here’s what you need to know about how losses affect the way that you should file taxes:
Investment losses can be deducted from your income, but there’s a catch
If you’ve lost money on your investments, it is possible to report the loss and have it deducted from your personal income. However, you’ll only be able to do this if you sell the investments, which may or may not be a wise decision. However, if a company that you’ve invested in went under or the stock price dropped and you already sold your investment, this policy can be a silver lining on a difficult situation.
If you’re a sole proprietor, business losses can be deducted from your income
Sole proprietors can deduct losses from their personal income, which means that businesses that are struggling during the coronavirus pandemic might be able to save some money during tax season. In some cases, this could even lower your tax rate by getting you into a lower tax bracket. If you are an LLC owner who has experienced a business loss, you can also deduct the loss from your personal income.
The situation is a bit different for corporations and larger LLCs
If your business is a corporation or a multi-person LLC, you will not be able to deduct all of your company’s losses from your personal income. Corporations that experience losses will be able to deduct income for corporate tax purposes, and the loss can be carried forward for as long as five years.
Members of partnerships will be able to deduct the losses from their income, and it will be split evenly between members. Members of a multi-person LLC will be able to deduct the losses in this manner as well, but there is a limit of $500,000 worth of losses that can be deducted by each member.
