A new NJ law which helps small businesses was signed by Gov. Christie on April 28, 2011.
S2754 will allow small business owners who pay their taxes through the personal income tax (S-Corps, LLC’s, LLP’s, sole proprietorships or partnerships) to carry forward net operating losses for 20 years. This carry forward provision is phased in over a five year period. The new law will also allow businesses to offset gains and losses from one category of income to another. Under the old law, losses from rental property owned individually could only offset other rental income, owned in a similar manner, for NJ purposes. Per the new law, if your firm is an S corporation, then you can offset a percentage of the losses from your investments in rental property from your S corp income. This is the case even though the rental property is not owned by an S corporation. If there is no income from which one can deduct the rental loss, the loss can be carried forward until there is business or rental income for up to twenty years.
What Percentage of my Business Losses Can I Deduct?
The first tax year in which one may deduct losses is 2012. Taxpayers may deduct 10% of their business losses from business income in 2012. In 2013 one may deduct 20%. In 2014: 30%. In 2015: 40%. And in 2016 and subsequent years, one may deduct 50%.
Are there Planning Opportunities?
If you are the owner of a start-up company in 2011 operating as a sole proprietor, partnership or S corp, or if you expect a loss from your rental property in 2011, you should make efforts to defer the loss to 2012. By choosing different depreciation elections or methods and/or deferring expenses to 2012, you may be able to shift some of the loss into 2012, when 10% can offset other business income. Speak to one of our tax advisors for planning now before losing your loss. For a copy of the complete law see
NJ Law S2754– Deducting Business Losses