Can an LLC Really Carry Forward Losses? – Yes, But Avoid This Mistake + FAQs

Roughly 30% of small businesses lose money in a given year. And if you don’t handle those losses correctly, you could be leaving thousands of dollars on the table (or worse, facing an IRS headache). Let’s break down whether your LLC can carry forward losses, how to do it right, and the pitfalls to avoid – before those losses turn into costly tax traps.

Can an LLC Carry Forward Losses?

Yes. An LLC can carry forward losses to future years – but how this works depends on your LLC’s tax status and the tax laws in play.

In most cases, an LLC’s losses can be used to offset future income, reducing taxable profit in later years. However, the exact mechanism differs based on whether your LLC is taxed as a pass-through entity (like a sole proprietorship, partnership, or S-corp) or as a C-corporation. The good news is that either way, those losses aren’t wasted – they can become a valuable tax break down the road. The key is understanding the rules so you actually get the benefit of your LLC’s net operating losses (NOLs) instead of missing out.

In a nutshell: If your LLC has a loss this year, you generally won’t lose that tax deduction just because the year ended. You’ll typically be able to carry it forward to offset income in future tax years. But you’ll need to follow IRS guidelines and some important limitations, which we’ll explore next.

Avoid These Costly Mistakes When Carrying Forward LLC Losses

Carrying forward losses can save you money – but only if you avoid common traps that business owners fall into. Here are some costly mistakes and pitfalls to steer clear of:

• Assuming All Losses Can Be Deducted Immediately: Don’t assume you can write off unlimited LLC losses in the current year. The IRS restricts using losses in some cases (like the 80% rule for large NOLs, or the excess business loss limits for individuals). If your loss is too big to fully use this year, it carries forward, but you must adhere to those limits each year.

• Ignoring Basis and At-Risk Limits: If your LLC is a pass-through (partnership or S-corp), you can only deduct losses up to the amount you have “at risk” or invested (your tax basis in the company). Avoid trying to deduct losses greater than your investment or loan guarantees – the IRS will disallow the excess. Those extra losses aren’t gone, but they’re suspended until you add more capital or future profits restore your basis.

• Violating Passive Loss Rules: Be careful if your LLC activity is considered passive (for example, you’re not actively involved day-to-day, or it’s a rental property LLC). Passive losses generally cannot offset active income like salary or other business profits. They carry forward separately to offset future passive income. Trying to use passive losses against non-passive income is a big no-no and could trigger IRS scrutiny.

• Forgetting State Tax Differences: A huge mistake is assuming your state treats losses the same as federal. Warning: many states have their own rules – some only allow loss carryforwards for a limited number of years or with caps. If you don’t account for this, you might accidentally overstate a deduction on your state return or miss a carryforward you’re entitled to. We’ll cover state nuances in detail below.

• Hobby Loss Trap: Treat your LLC like a real business. If you report losses year after year without a profit motive, the IRS might label your activity a hobby rather than a business. Hobby losses aren’t deductible beyond hobby income, meaning you lose the ability to carry forward those excess losses. Avoid this by keeping documentation that you’re trying to make a profit (even if success takes time).

• Not Keeping Records of Loss Carryforwards: It sounds simple, but keeping clear records of your prior year losses is critical. If you forget to carry forward an NOL or miscalculate the remaining amount, you could pay more tax than required. Always track your loss carryforward on your tax forms (there are dedicated lines for NOL carryovers) and double-check each year how much is left to use.

By steering clear of these pitfalls, you ensure your LLC’s losses truly work for you – providing future tax relief instead of becoming a tax nightmare.

Key Terms Explained (NOL, Carryforward, Pass-Through & More)

Before diving deeper, let’s clarify some key terms and concepts related to LLC losses and carryforwards:

• Limited Liability Company (LLC): A flexible business structure that provides legal liability protection to owners (members). For tax purposes, an LLC can choose how to be taxed: by default it’s a pass-through entity (sole proprietorship if one owner, or partnership if multiple), but it can also elect to be taxed as an S-corporation or C-corporation. The tax classification affects how losses are treated.

• Net Operating Loss (NOL): When a business’s tax-deductible expenses exceed its income for the year, it generates a net operating loss. In simple terms, an NOL means you had negative taxable income due to business losses. NOLs can potentially be used to offset taxable income in other years.

• Carryforward vs. Carryback: These refer to moving an NOL to a different tax year. Carryforward means using a loss in future years to reduce taxable income (carrying it forward in time). Carryback means applying a loss to a prior year’s taxes (carrying it back to get a refund for taxes already paid). Current federal law largely emphasizes carryforwards (using losses in the future), as carrybacks have been mostly eliminated for recent losses (with some exceptions).

• Pass-Through Entity: A business structure (like a partnership, S-corp, or sole proprietorship) where profits and losses “pass through” to the owners’ personal tax returns. The business itself doesn’t pay income tax; instead, the owners do. For LLCs taxed as pass-throughs, any loss flows to the owner(s), who may then use that loss on their personal taxes (subject to limitations). There’s no “NOL” kept at the entity level – it’s all on the individual’s side.

• Basis (Tax Basis): Essentially the amount of money you have invested in the business for tax purposes, including contributions and certain loans. It’s important because with pass-through LLCs, you cannot deduct losses beyond your basis. If your LLC loses more than you have at risk, the extra loss is suspended until you put in more money or the business earns profits (increasing your basis).

• At-Risk Rules: Related to basis, at-risk rules limit losses to the amount you personally stand to lose in the business. If part of your investment is protected (say, a loan where you aren’t personally liable), that portion might not count as “at risk.” Losses beyond the at-risk amount get deferred. These rules prevent investors from claiming tax losses in excess of their actual economic investment.

• Passive Activity Loss: A loss from business activities in which you do not materially participate (e.g., a rental property LLC or a business run mostly by others). Passive losses can only offset passive income, not active income like wages or business income from activities you do participate in. If you have passive losses that you can’t use in the current year (because you have no passive income to offset), those losses carry forward to future years, but still only to offset passive income.

Understanding these terms will help make sense of how LLC loss carryforwards work under different circumstances. Now, armed with the terminology, let’s look at the rules at the federal level, and then how states might treat your LLC’s losses differently.

Federal Tax Rules: How LLC Loss Carryforwards Work (IRS Regulations)

Federal law (IRS rules) provides the roadmap for how and when losses can be carried forward. The specifics depend on how your LLC is taxed:

1. LLCs Taxed as Pass-Throughs (Sole Prop, Partnership, S-Corp):
For a pass-through LLC, the LLC itself doesn’t claim a net operating loss deduction. Instead, the loss passes through to the owners’ personal tax returns. If the owner(s) have an overall negative taxable income due to the LLC loss (and any other income/deductions on their return), they may have a personal NOL. Here’s how it works:

• On the Owner’s 1040: Suppose your share of LLC loss is large enough that it not only wipes out your other income but still leaves a negative taxable income. You’ve got an NOL on your personal return. The IRS allows you to carry forward that NOL to future tax years. As of current law, you can carry it forward indefinitely until it’s used up.

• 80% Limit: One catch – in any future year, your NOL carryforward can only offset up to 80% of that year’s taxable income. This rule came from the Tax Cuts and Jobs Act of 2017 (the major tax reform law). For example, if in 2023 you have $100,000 of taxable income and you have an NOL carryforward of $120,000 from prior years, you can use $80,000 of it (80% of $100k) to offset most of your income. You’d pay tax on the remaining $20,000, and carry forward the unused $40,000 to future years. Prior to this rule change, it was possible to offset 100% of income with NOLs, but now a buffer remains – meaning you’ll always have at least 20% of income taxable in a profitable year if you’re using carryforwards.

• No Carryback (Generally): Currently, for most businesses, you cannot carry back an NOL to prior years. In the past, you could apply a loss to the previous two years (and claim a refund for taxes paid in those years). Now, the default is only carryforward. Exception: farming losses (and certain insurance companies) can still carry back losses 2 years under special provisions. Also, notably, during the COVID-19 pandemic, Congress temporarily allowed carrybacks again for losses in 2018, 2019, and 2020 (businesses could carry those back 5 years). That was a temporary relief measure; for current and future losses, expect carryforward only.

• Excess Business Loss Limitation: A newer limitation (Section 461(l) of the tax code) may cap how much loss individuals can use in one year. If your total business losses exceed a threshold (around $540,000 for a married couple in 2023, lower if single), the excess is not deductible in the current year – instead, it gets converted into an NOL carryforward. In practice, this means ultra-large losses from pass-through LLCs might be partially deferred even if you have other income to offset. This rule is in effect through at least 2025. So if your LLC had a huge loss, you might hit this cap and be forced to carry forward the rest, even if you otherwise could have used it. Keep this in mind if you’re deducting very large losses.

2. LLCs Taxed as a C-Corporation:
If your LLC has elected to be taxed as a C-corp (or you have an LLC that’s by default a single-member but you explicitly chose C-corp taxation), the rules apply as they would for any corporation:

• A C-corporation calculates its taxable income separately and can incur an NOL at the corporate level. If a C-corp LLC’s deductions exceed its income in a year, the company has a net operating loss.

• The corporation (LLC) can carry that NOL forward to future years to offset its own taxable profits. Like individuals, corporations can currently carry forward losses indefinitely until used up.

• The same 80% of taxable income limit applies to corporations using NOL carryforwards in a given year (another result of the 2017 tax reform). So a profitable C-corp can’t wipe out all its income with past losses beyond that 80% threshold, but it can reduce most of its tax liability.

• No general carryback for new NOLs (post-2017). Corporations also lost the standard carryback provision after 2017 tax reform. Again, exceptions were temporarily made (e.g., in 2020 legislation) allowing some carrybacks during specific years, but under normal rules, a corporate NOL from 2021 onward is carryforward-only.

• One extra consideration for corporations: Ownership Change Limitations. If your LLC (taxed as a corporation) is going to bring in new owners or you plan to sell the company, be aware of Internal Revenue Code Section 382. This rule basically says if a corporation undergoes a significant ownership change (over 50% of ownership changes hands), its ability to use prior NOLs in the future can be severely limited. The logic is to prevent buying “loss corporations” just for their tax losses. The allowable annual NOL usage after a change is capped based on the company’s value at the time of change. So, while this is a bit arcane, it’s a legal gotcha: your NOLs are valuable, but if the company’s ownership shifts too much, the IRS limits the tax benefit going forward.

Bottom Line (Federal): The IRS absolutely allows LLC losses to be carried forward, either on the owner’s personal return (for pass-through LLCs) or within the entity (for C-corp LLCs). The current regime is indefinite carryforward but with an 80%-of-income usage cap each year (for post-2017 losses), and no routine carrybacks. Always check if any special laws (like disaster relief provisions) temporarily change these rules. Next, let’s see how things might change once state taxes enter the picture.

State-by-State Nuances: How State Laws Handle LLC Loss Carryforwards

When it comes to state taxes, one size does not fit all. Each state can have its own twist on loss carryforwards for your LLC. This is where things get tricky, because you may have one rule for the IRS and another for your state return. Here are some notable state-level insights:

– States Conforming vs. Not Conforming: Many states conform to federal tax law on NOL carryforwards, meaning they follow the same basic rules (indefinite carryforward, 80% limitation). For example, states like Florida and Illinois generally adopt federal NOL concepts (though Illinois, for instance, allows 12 years carryforward for certain older losses). However, plenty of states do not fully conform. As of recent years, about a dozen states still impose their own carryforward time limits (often 20 years, the old federal rule) and don’t impose the 80% cap that federal law has. That might sound more lenient (no 80% cap), but the trade-off is your loss expires after X years if unused.

– Time Limits in Some States: In certain states, your losses have a shelf life. For example, New York and New Jersey historically allowed unused NOLs to carry forward up to 20 years. Some states are even stricter: Pennsylvania allows 20 years but adds another twist (more on that next), and states like Rhode Island cap it at 5 years. Arkansas had a shorter window (recently extended to 10 years, up from an even stingier limit before). Always check your state’s rule – if you operate in a state with a time limit, you must use those losses before they expire or you lose them forever.

– Caps on Annual Usage: A few states limit how much NOL you can use in a given year, similar to the federal 80% rule but sometimes even stricter. A prime example is Pennsylvania – it has allowed corporations to carry losses forward 20 years, but until recently it limited NOL usage to at most 40% of that year’s income (they’ve adjusted this cap over time). So in PA, even though you had a 20-year window, you couldn’t use an NOL to wipe out more than 40% of your taxable income in any year (now that cap has been raised somewhat). New Hampshire imposes a dollar cap (e.g. only up to a certain dollar amount of NOL can be used per year). These caps mean you might pay some tax even with big loss carryforwards, and you need to project how much of your NOL will realistically be usable each year.

– NOL Suspensions: Some states occasionally suspend the use of NOLs for budget reasons. For instance, California temporarily suspended the use of net operating loss deductions for certain years (during 2020–2022) for businesses and high-income individuals, in response to budgetary concerns. During that suspension period, California basically said: you can still accumulate NOLs, but you weren’t allowed to use them to offset income in those particular tax years. They also capped the use of business tax credits in that time. This was a short-term measure, but it shows that states can change the game in tough times. (California normally allowed NOL carryforwards up to 20 years, and has since lifted the suspension as finances recovered.)

– No State Income Tax, No NOL: If your LLC operates in a state without an income tax (for example, Texas, Washington, Nevada, Wyoming for personal income, or states with gross-receipts taxes instead of corporate income tax), then carryforward of losses on a state return is a non-issue – there’s no state tax to save on. However, be careful if you have multistate operations; you might have NOLs in one state but income in another.

– Separate Reporting vs. Combined: If your LLC is part of a group or you have multiple businesses, note that some states handle losses on a separate-entity basis (each entity’s loss is its own) versus combined reporting (where a group of affiliated companies might share losses). For a single LLC owner this usually isn’t relevant, but for larger setups it can be.

The Takeaway: Always check your state’s tax rules on loss carryforwards. Your LLC might get full federal benefit of a loss carryforward but find the state benefit is limited or expires sooner. Plan accordingly: if you’re in a state with a time limit and your LLC starts turning a profit, use those carryforwards before the clock runs out. And if you operate in multiple states, track your NOLs separately for each state – they often can’t be mixed and matched. State nuances can mean the difference between a valuable tax break and an unwelcome surprise.

LLC vs S-Corp vs C-Corp vs Sole Proprietorship: Loss Carryforward Comparison

How do loss carryforward rules stack up across different business structures? It’s important to know, because an LLC can actually mimic any of these for tax purposes. Below we compare how an LLC’s losses are treated versus other entities, assuming the same scenario (a business operating at a loss):

Comparative Insights:

• An LLC taxed as a pass-through (sole prop/partnership/S-corp) effectively passes losses to owners. Those owners then use the personal NOL rules to carry losses forward. The limitation is at the owner level (can’t use more than your personal income allows, 80% rule in future years, etc.). The LLC itself doesn’t accumulate an NOL asset – each owner does.

• An LLC taxed as a C-corp behaves like a regular corporation: the loss is a corporate asset. The company carries it forward and uses it against its own future profits. Owners do not directly benefit until the company turns profitable (and potentially that yields higher after-tax profits or dividends in the future).

• S-corp vs Partnership LLC: Both are pass-through. One subtle difference is how basis is calculated (S-corp shareholders have stock basis and can also count direct loans they make to the company; partners in an LLC get basis for their share of liabilities of the partnership as well). But both have the principle that you can’t deduct beyond basis, and any disallowed loss due to basis is carried forward indefinitely for that owner until basis is restored. Neither S-corps nor partnerships themselves carry an NOL on entity books – everything happens at the owner level.

• Sole proprietor vs single-member LLC: From a tax perspective, these are identical in how losses are treated. The only difference is legal (the LLC gives liability protection). Tax-wise, both file on Schedule C (or E/F for rentals/farms) and any loss goes into the individual’s overall tax calculation, possibly creating an NOL to carry forward. So if you’re a one-person business, whether you formed an LLC or not doesn’t change your ability to carry forward losses.

• Changing classification: If you start as a pass-through LLC and later convert to a C-corp (or vice versa), the ability to use prior losses can get complicated. Generally, if you convert to a C-corp, your past personal NOL carryforwards stay with you (they don’t become the corporation’s losses). And a new corporation starts fresh for NOLs. Similarly, if a C-corp LLC switches to S-corp, any existing NOLs from C-corp years are usually locked at the corporate level (they can’t be used during S-corp years, but could potentially come back into play if the company reverted to C-corp status within certain timeframes). The moral: plan ahead with a tax advisor if you anticipate changing your LLC’s tax status – you don’t want to inadvertently strand a valuable tax loss where it can’t be used.

Example Scenario: How an LLC Loss Carryforward Works in Practice

Let’s bring this to life with a concrete example. This will show how a loss carryforward actually saves you money over a multi-year period:

Example: Alice started a consulting business as a single-member LLC in 2022. In her first year, her LLC had a loss of $50,000 (she spent more on startup costs, equipment, and expenses than the revenue she brought in). Alice had some income from a part-time job, but the LLC loss was big enough that on her personal 2022 tax return she ended up with a net operating loss of $30,000 (after offsetting all her other income, $30k of loss was left unused).

Now it’s 2023. Alice’s business has picked up and her LLC earns a profit of $60,000 this year. Normally, that $60k would all be taxable income. But because Alice has an NOL carryforward of $30,000 from 2022, she can use it to reduce her 2023 taxable income.

Here’s what happens on her 2023 tax return: She claims her NOL deduction. Under current rules, she can use that NOL to offset up to 80% of her 2023 taxable income. 80% of $60,000 is $48,000. So Alice deducts $48,000 from the $60,000 profit. This means she only has to pay income tax on $12,000 of profit instead of the full $60,000. The remaining $2,000 of her 2022 NOL ($30k minus $28k used) will carry forward again to 2024. Essentially, her prior loss saved her from paying taxes on $48,000 of income this year – a huge tax break, likely saving her around $10-15k in actual tax dollars (depending on her tax bracket).

If her state conforms to federal rules, she’d do a similar thing on her state return (though if Alice lives in a state with no 80% rule, she might even offset the full $60k on the state side). If her state had a 5-year limit, she’d note that now she has $2k left to use by that deadline.

This simple two-year example shows the power of carrying losses forward: the loss from a bad year effectively cancels out income in a good year. Over the two-year span, Alice’s taxable income better reflects her cumulative profit (which was $10k net over two years, since -50k + 60k = +10k). The tax law’s intention with NOL carryforwards is exactly that – to tax businesses on their average profitability over time, not hit them in the first profitable year after a streak of losses.

Another scenario: Imagine Bob and Carol run an LLC partnership that owns rental properties. In 2022, the LLC had a $20,000 loss (after depreciation and expenses). But rental losses are passive by default, and Bob and Carol have day jobs (active incomes) and no other passive income. They cannot use the $20k loss in 2022 against their salaries due to passive loss limits. Instead, that $20k gets suspended and carried forward to future years for each of them (split $10k each if they share 50/50). In 2023, the rentals turn a $15,000 profit. Now they can use those carryforward losses. Each of them uses $10k of prior losses to offset their shares of the 2023 rental income. In fact, the first $10k of profit each sees is sheltered by last year’s losses – meaning they pay tax only on any remaining income. If the profit was exactly $20k split evenly, the entire 2023 rental profit is offset (because they had that much in carryforwards). Any leftover unused losses would continue forward. This shows how even when losses are disallowed in year one (due to passive rules), they aren’t lost forever – they wait until there’s passive income to absorb them.

Through examples like these, you can see that carrying forward losses turns prior setbacks into future tax savings. Whether it’s a startup finding its footing or an investment slowly paying off, the tax system gives you a chance to even out the ups and downs. The key is to remember to use the loss when the time comes (and to follow the rules so you’re eligible to use it).

Financial and Legal Implications of Loss Carryforwards (What to Consider)

Beyond just the mechanics of carrying losses forward, there are broader financial and legal implications for your LLC to consider:

• Tax Planning and Cash Flow: An NOL carryforward can be viewed as a deferred tax asset – it has real financial value because it will save you taxes in the future. From a financial planning perspective, if your LLC has accumulated losses, you can project lower tax bills in upcoming profitable years. This might affect decisions like budgeting, investing in growth, or timing of income. For example, if you know you have large NOLs, you might not fear a big tax hit when you finally have a great year – the NOL will soften the blow. On the flip side, be aware of the 80% limitation: you’ll always have to pay tax on at least 20% of your income even with carryforwards, so plan for some tax outlay once you’re profitable.

• Attracting Investors or Buyers: If you plan to bring in investors or eventually sell your company, your loss carryforwards might be part of the conversation. A savvy investor will value a C-corp’s NOLs because they can shield future profits (making the company effectively worth more after-tax). However, remember the Section 382 limitation we discussed: if you sell a majority stake or have major ownership changes, the usage of those NOLs may be curtailed. This is more of a concern in C-corp scenarios. In a pass-through LLC, losses are personal to the owners and don’t transfer to a new owner. New investors in a partnership LLC don’t get a slice of old losses (they didn’t own the company when those losses occurred), whereas in a C-corp, the NOLs stay with the company but could be limited if the ownership change is significant. Legally, that means if you’re negotiating a sale, both parties will consider whether the NOLs are fully usable or not. It can even affect the price someone is willing to pay for the business.

• Legal Compliance and Documentation: If you’re carrying forward losses, make sure to document everything carefully. Keep copies of the tax returns from the loss year and each subsequent year to track how much of the NOL was used. The IRS can ask for proof of the origin of an NOL even many years later. Legally, an NOL is not something you formally file a claim for until you use it, but your tax returns create the record. Also, consider that if your LLC is audited for the loss year, changes to that year’s loss will ripple forward and affect all the years where the NOL was used. So it’s wise to maintain proper bookkeeping and evidence of losses (receipts, financial statements) for as long as the NOL is in play (which can be many years).

• Different Layers of Tax (Federal vs State vs Local): We touched on state differences, but remember there might be city taxes, too (e.g., New York City has a separate tax system that might not allow certain carryforwards, etc.). Usually, local taxes on unincorporated businesses are simpler and often don’t allow carryforwards, but it’s worth checking if you operate in a locality with its own business tax. Legally, you have to comply with each jurisdiction’s rules where you file.

• Future Tax Law Changes: Tax rules on NOLs have changed before and could change again. For instance, that 80% limitation wasn’t there prior to 2018; it could be altered or removed in the future by Congress. The current indefinite carryforward could also be revisited (though it’s unlikely they’d revert to expirations, it’s not impossible). Always stay updated on tax law changes or work with a tax professional, especially if you’re carrying a large loss for many years. Legally, once you’ve earned an NOL, changes typically don’t retroactively take it away, but they can change how you can use it going forward. For example, if the law changed to allow carrybacks again or to impose a new limit, that would affect your strategy.

• Making the Most of Losses: Sometimes you have options on when to use losses. For example, if a special carryback is allowed (maybe due to a new law or you have an eligible farm loss), you might choose to carry back instead of forward to get an immediate refund. Or if you have both capital losses and NOL (ordinary) losses, know their differences: capital losses generally only offset capital gains (and a bit of ordinary income for individuals), while NOLs come from operating losses. If your LLC investment lost money when sold, that might be a capital loss, not an NOL, which has its own carryover rules. It’s beyond our scope here, but be aware not all losses are created equal for tax purposes.

In short, loss carryforwards are more than just a line on a tax form – they influence business strategy, have to be managed over years, and come with legal responsibilities to document and use them properly. Treat them with the importance they deserve. A knowledgeable tax advisor or CPA can help you navigate complex situations (for instance, multi-state NOL tracking, merger/acquisition scenarios with NOLs, etc.). Handled wisely, your LLC’s past losses can become a strategic asset for future profitability.

FAQs: LLC Loss Carryforwards

Q: Can a single-member LLC carry forward losses?
A: Yes. A single-member LLC’s losses go on the owner’s personal tax return. If the losses create a net operating loss for the owner, it can be carried forward under IRS rules indefinitely.

Q: Do LLC losses expire after a certain time?
A: No. Under current federal tax law, NOLs from LLC losses don’t expire – they carry forward indefinitely. (Older losses before 2018 had a 20-year limit, and some states still impose time limits.)

Q: Can LLC losses offset future income?
A: Yes. LLC losses can offset future taxable income. If your LLC (or you as the owner) has a profit in a later year, carried-forward losses will reduce the taxable portion of that profit (subject to the 80% rule).

Q: Can I carry back an LLC loss to a prior year?
A: No. Generally, you can’t carry back post-2017 LLC losses to prior years. The default is carryforward only. Exceptions exist for certain types of losses (e.g., farm losses) or special legislative provisions in limited years.

Q: Do I need to file an election to carry forward LLC losses?
A: No. There’s no special election needed to carry forward NOLs under current law – it happens automatically. In the past, you’d elect to waive a carryback, but today carryforward is the default rule for most losses.

Q: Can LLC losses offset W-2 income or other personal income?
A: Yes, if the loss is from an active trade or business. An LLC loss passed through to you can offset other income on your return (like W-2 wages), potentially creating an NOL. Passive LLC losses cannot offset non-passive income, however.

Q: Are there limits on how much LLC loss I can use in one year?
A: Yes. You generally cannot use NOL carryforwards to offset more than 80% of your taxable income in a year. Also, individuals face an excess business loss cap (around $270k single/$540k joint for 2023) on current-year losses, with any excess carried forward.

Q: If my LLC changes from an LLC to a corporation (or vice versa), can I still use the losses?
A: Yes, but with caveats. If you switch tax classification, prior losses stay with the original taxpayer. Personal NOLs from when you were a pass-through remain with you; they don’t transfer to a new corporation. And corporate NOLs generally stay with the corporation (with limitations if ownership changes). Plan conversions carefully to avoid losing tax benefits.