While Marcie is able to keep her staff employed full-time, interest in the hobby has its ups and downs. Marcie owns and operates a well-established bicycle shop. Sally’s total earnings over the ten years nets out to $100,000. Things start to turn around and she breaks even in year 4, followed by six profitable years-she has net income of $50,000 in each of years 5 through 8 and $100,000 each in years 9 and 10. Things are rough the first 3 years, and she loses $100,000 each of those years. Sally launches an electric vehicle start-up. Her net profits are $10,000 every year, for a total of $100,000 over the ten years. Each summer, Patty operates a putt-putt golf course. In order to demonstrate why NOL deductions are a standard part of every income tax regime, we will take a quick look at three hypothetical businesses and their operations over a ten-year period: We also examine the likely fiscal impact of the latest development, a temporary limitation on the NOL deduction, which will increase the state’s tax revenues now, but reduce them later. This article provides examples of why NOL deductions are necessary from a tax policy perspective, explains the mechanics of Illinois’ NOL calculation and how it’s evolved over time, and compares Illinois’ treatment to that in other states. NOLs allow those profits and losses to offset each other. Using a 12-month period to evaluate (and tax) a business’s operations is necessary, of course, but ignores the reality that it can take years for a new business to turn a profit, or for an entire industry to come out of a slump. What, exactly, is an NOL? Put simply, it’s a recognition that businesses have good years and bad ones. This large amount, and the fact that it is the largest tax expenditure available to businesses, makes the NOL deduction a frequent target of those seeking to increase state revenues by “closing corporate loopholes” or “making businesses pay their fair share.” NOLs are not loopholes, however, and are in place specifically so that businesses do pay their fair tax liability, neither less nor more. The NOL deduction reduced the state’s tax revenues by $383 million, according to the Comptroller’s 2019 Tax Expenditure Report. For a detailed discussion of the state’s largest tax breaks-the top six of which are available only to individuals or charities-see “The Cost of Illinois’ Largest Tax Breaks”, April 2021 Tax Facts. The Net Operating Loss (NOL) deduction is Illinois’ largest single corporate tax expenditure. By Kellie Cookson Net Operating Losses in Illinois and Around the Country: Matching Taxes to the Business Cycle
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |