Dealing with losses - Individual

Have you heard that it’s very difficult for a business survive the first two years or during difficult economy situation many businesses not making any profit, what can you do with the losses? Some people thought that means not worth file the tax return, first filing tax return is legal requirement and which can benefit you later.

When a taxpayer’s deductions for a year exceed his or her income for that year this when losses occurs. Losses may be carried forward to a later year and deducted from the net income of the taxpayer in that later year. Be aware only losses made in taxable situations may be carried forward. Anything private is not taxable. When a loss is carried forward form one year to the next, it is treated as a deduction from the net income of the taxpayer in the next year. If there is not enough net income in the next year to absorb all the loss, or if there is another net loss, the balance is carried forward to the year after that, and so on until the loss is fully absorbed. This process is commonly referred to as an offset of losses. There is no time limit within which losses must be recouped of offset.

An individual with a tax loss carried forward must file a tax return to keep the losses alive. Losses cannot be carried back to previous year.

Please note, this applies to individual only, company is different.