Tax loss

Tax loss

Tax loss means your deductible costs are higher than your taxable income. In the U.S., this can be a business Net Operating Loss (NOL)capital loss from selling assets for less than their cost.

These losses can reduce taxes by offsetting income. Business NOLs generally apply against business income in other years, while capital losses mainly offset capital gains and are tracked separately. Rules differ, so record what the loss is from and when it happened.

Main types you may encounter:

  • Net Operating Loss (NOL): Business deductions exceed business income. Often carried to other years to reduce taxable income.
  • Capital loss: You sell investments for less than your basis. Used to offset capital gains and, in limited amounts, other income, with unused amounts carried forward.
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Simple illustration

Your shop spends more than it earns and ends the year with a loss. You carry that loss forward and use it to reduce tax when the shop returns to profit.

Keep good documentation. Track each loss separately, note dates, amounts, and what created the loss. State rules can differ from federal rules. Losses do not create profit; they reduce taxable income and the tax that would otherwise be due.

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Practical tip

Separate business NOLs from capital losses in your records. Timing of asset sales can affect how much of a capital loss you can use in a given year.
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