Can a Subchapter S Corporation Use the Net Operating Loss Carryback? | Sapling

Can a Subchapter S Corporation Use the Net Operating Loss Carryback?

Can a Subchapter S Corporation Use the Net Operating Loss Carryback?
Written By
Robert Shaftoe
Robert Shaftoe
Mar 26, 2011
1 minute read
U. S. Tax form
NOL carrybacks are generally capped at two years. Image Credit: smallroomphoto/iStock/Getty Images

Subchapter S corporations are treated as pass-through entities for tax reporting purposes in the United States at both the state and federal levels. The Internal Revenue Service sets federal tax reporting guidelines, while each state's department of revenue sets its own tax reporting guidelines. The S corporation's income is calculated, but not as taxable income. Individuals account for the company's income on personal income tax returns. Net operating loss carrybacks are accounting entries used in preparing tax returns to offset earlier taxable income with losses recorded during the current year. This allows taxpayers to incur lower tax expenses.

Application of NOL Carryback

Accounting for NOL carrybacks is complex, and tax statutes may vary by state. This is especially true for NOL carrybacks, as opposed to carryforwards, because many states heavily restrict their use. Thirty states disallow the carryback altogether. Per IRS rules, taxpayers may carryback NOLs two years, and forward 20 years. The subchapter S corporation, specifically, does not benefit from the NOL carryback, because of its pass-through nature. As an individual shareholder in the S corporation, you can calculate the NOL carryback using Form 1065 Schedule K-1 and apply it on your individual income tax return.

Robert Shaftoe

Robert Shaftoe started his career in asset management before moving to consulting, where he has spent the past 10 years. His specialties include securities valuation and complex financial analysis. He has substantial experience in working…

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