How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask R. Klein, EA Your Own Question

R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2880
Experience:  Over 20 Years experience
Type Your Tax Question Here...
R. Klein, EA is online now
A new question is answered every 9 seconds

I quit my full time job three years ago to start a business.

Customer Question

I quit my full time job three years ago to start a business. Since then I have had no income, but using my own savings and money borrowed from family and friends to pay for both the living expenses and business expenses. For the past three years I have had net operating losses for business expenses, which are reported in form 1040 schedule C, and I elected to carry the NOL forward. But I noticed that my tax software (Turbo Tax Deluxe version) only reports the current year's NOL, ignoring the previous years’ NOL.

My question is, can I file it as is (I requested for extension, and must now file by Oct. 15), assuming eventually I can offset my future income (possibly, next year) with all the NOL accumulated throughout the past years, or should I manually change the number in this year’s 1040 to reflect the accumulated losses? If I need to change, how do I indicate that I have accumulated NOL?
Submitted: 9 months ago.
Category: Tax
Expert:  R. Klein, EA replied 9 months ago.

R. Klein, EA :

Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

R. Klein, EA :

When you say you have an NOL, my first question is, do you have a Net Operating Loss, or a loss in your business? There's a BIG difference for a sole proprietor.

R. Klein, EA :

A few questions: What type of business do you have? How big was the loss on Schedule C in 2011? 2012?

Customer :

OK I don't know the difference between NOL and loss in business. Here is some more info.

Customer :

I develop algorithms and software for data processing based on my research. This is pretty typical of a startup company in our area, except that I have not received outside venture capital investment yet, and have not generated revenue yet., but getting close. The loss was in the 30 to 50 k range for the past three years or so, (I don't have the exact number with me now.) The expenses are mainly in hiring oversea engineers and travel, and hiring legal professionals in filing patents.

R. Klein, EA :

SO each year you spent more than 30K more than income you earned.

R. Klein, EA :

Did you have ANY sales yet or is everything you are doing "getting ready" for sales?

Customer :

I actually don't have income, I borrow money from private sources plus using my own savings. Yes, each year the loss is in 30 - 50 k range.

R. Klein, EA :

So you have no customers and you are just setting up with all this work and expenses you have now?

R. Klein, EA :

I would say that it would be not just an idea, but a VERY good idea that you consult a tax expert sooner rather than later.

R. Klein, EA :

I see a definite problem if these expenses generate losses or NOLs because it is incorrect accounting based on what I have heard so far.

R. Klein, EA :

Most of these "expenses" need to be capitalized, not expensed. It means losses will be disallowed in the past, but you will have future deductions once you start sales.

R. Klein, EA :

There are complex accounting rules with intangible assets, such as algorithms.

Customer :

eventual, the algorithms will be a software product, or patent rights.

R. Klein, EA :

Yes, patents are amortized over 15 years to be exact.

Customer :

So, I should ask a tax expert to redo all my taxes for that past years.?

R. Klein, EA :

I would recommend filing a return, even if it has no amounts on Schedule C. It will be easier to amend it once it is filed on-time.

R. Klein, EA :

Oh definitely.

R. Klein, EA :

It sounds like you have a major error on your hands. One that has an impact bot going backward AND forward.

R. Klein, EA :

I don't think you have any NOLs

Customer :

I do plan to file by Oct. 15 using the numbers produced by my tax software as is. If so, can I hire an tax expert to redo it, say next year, as I expect to have some income from this business next year.

R. Klein, EA :

You may do that.

R. Klein, EA :

But your tax software is following the rule of GIGO

Customer :

I wish I could have more detailed instructions on how to correct the problem, so I can know what to talk to the tax expert later. Sorry for asking a question for a complicated problem. I did not rate the answer as OK but I do not mean the service is "poor" as the button indicates. Hope you don't mind.

R. Klein, EA :

I'm sorry that we have not met your expectations yesterday.

R. Klein, EA :

The How to Correct the problem question requires you to have a substantial base of knowledge of accounting rules. In terms that you might relate to, it would be like you trying to explain a component of your algorithm to me via this chat using only lay terms.

R. Klein, EA :

It is not possible for me to explain all the components and discuss all of the choices when determining how much of your development must be considered a capital asset without actually seeing all your entries in your books.

R. Klein, EA :

The big picture you need to know is that you don't have this large Net Operating Loss because of the proper accounting treatment needed for the type of expenses and business you have. This is something that you should visit with an accountant or tax advisor in person to discuss because there are many ramifications.

R. Klein, EA :

Large NOLS for many years without any source of income are indeed a red flag to the IRS computers. These types of entries ARE picked for examination, In addition, while you may think it is OK to have negative income, what you are really doing is setting yourself up for higher taxes in the future because you won't have the deductions when your income is higher.

R. Klein, EA :

This is NOT a do-it-yourself accounting project. TurboTax will only process the information you put into it. If you don't put in the data correctly, TurboTax will not spit out the BEST answer. It will give you AN answer. In this case, it's not just put this number in Box Z. You MUST know the accounting rules BEFORE you put numbers in boxes Z, Y and X.

R. Klein, EA :

So the BEST answer I can give you is: Consult a Professional in person. The professional needs to see your books and discuss many questions with you. There AREchoices to be made and everything is NOT black & white--put it in a box.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.