What Happens When a Business Takes a Loss?

If your business losses exceed all of your income from all your other sources, you’re operating at a net operating loss, often abbreviated to NOL. This occurs when your losses declared on your Schedule C form as a sole proprietor, or the amount passed through to your personal return from an LLC, S corp or partnership, leaves you with a negative adjusted gross income. Add back any nonbusiness deductions that exceed your AGI, such as from personal exemptions, charitable donations or nonbusiness capital losses. If that number is still negative, you can carry the loss back for up to two years, applying for a refund or filing an amended return and taking the remaining loss off of that income. You can also carry a loss forward for up to 20 years.