EDUCATION CENTER
GTT RESOURCES: NET OPERATING LOSSES

Net Operating Losses: a huge tax benefit for traders

Business taxpayers are allowed a special huge benefit – Net Operating Loss (NOL) tax laws. NOLs provide the opportunity to carry business losses back or forward. You can make a fortune in one year and pay your taxes, then lose a fortune in the following years, carry back your NOLs and get huge refunds of taxes paid in the prior years. If it sounds too good to be true – well, it isn’t! And, you’re in for a lucky break – the NOL got even better.

In 2001, Congress passed temporary relief extending the carry-back period from two to five years for 2001 and 2002 NOLs. This is fantastic news for traders, because most traders made a fortune in 1997, 1998 and 1999 and then lost a fortune in 2000, 2001 and 2002. For example, a trader can carry back a 2001 NOL from 1996 through 2000, instead of just carrying it back to 1999 and 2000 (which was the previous law). This tax law change has great significance for traders, because many already carried back 2000 losses to 1998 and 1999, and have already used up the gains for those years. In summary, this tax law change will put hundreds of thousands of dollars in the pockets of many traders.

There’s even more good news! There is also an added benefit here in connection with AMT (Alternative Minimum Tax), which previously reduced the amount of many NOL refunds.

Our firm has many trader clients and we have prepared more than 100 net operating loss tax returns over the past few years. Our clients have received their refunds. In some cases, the IRS asks some questions, which are usually settled quickly. In a very few cases, the refunds are delayed. NOL refund claim tax returns are very complex and require exact execution. Otherwise, they can lead to questions from the IRS.

See the article by Robert A. Green, CPA in the September 2002 issue of Active Trader magazine. It includes a sample 2001 tax return together with a Form 1045 NOL refund tax return. That taxpayer example generated refund checks of close to $600,000 on trading losses of $1.6 million in 2001. The article has analysis and tips for filing NOL returns. Click here for our Active Trader articles page. Green also wrote a groundbreaking article on NOLs for traders in the March 2001 issue of Active Trader magazine.

Pages from the IRS Web site:
How to claim an NOL deduction
NOL Carryover From 2001 to 2002 including a worksheet to calculate your NOL.
Net Operating Losses general rules.

If you have any questions, e-mail info@greencompany.com or call us.

Good news!
Check out our new "Advocacy campaign" to seek "retroactive" relief for all traders. We need your help to enact this change. Click here.

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