Table: Minnesota NOL Deduction Limits Tax Year NOL Deduction Limit 2018–2023 80 percent of taxable net income 2024 & later 70 percent of taxable net income
Action Steps • Always check the latest Minnesota Department of Revenue guides and instructions for your filing year. • Carry forward your NOL on your Minnesota return, not back. • If your business operates in multiple states, use Minnesota’s apportionment formula. • For complex situations—especially multi-year losses or ownership changes—consider working with a qualified tax advisor to get the best results for your business. • For every tax year, double-check the instructions you use—rules for NOLs and their application across federal and Minnesota tax returns can change and impact your company’s taxes.
Deductions for Ongoing and Start-Up Expenses Ordinary and Necessary Expenses (Ongoing)
Section 162 of the Internal Revenue Code lets you deduct ordinary and necessary expenses you pay to run your business. The U.S. Supreme Court (Commissioner v. Groetzinger, 1987) clarified that “carrying on a trade or business” means any activity done regularly and continuously with the goal of making a profit. If you do not have this intent, your activity may be treated as a hobby, and the Tax Cuts and Jobs Act of 2017 eliminated deductions for hobby expenses. It is up to you— the business owner—to show that you are trying to make a profit. Under Section 183, if you show a profit in three of the last five years, the IRS must prove your activity is not for profit, rather than you proving it is. Start-Up Expenses Section 195 of the Code allows businesses to deduct up to $5,000 of start-up expenses in the first year. If your start-up expenses are more than $5,000, the remaining costs can be spread out (“amortized”) over 15 years. To qualify, these expenses must be costs that would be deductible for an ongoing business under Section 162 and cannot be capital expenses for acquiring business assets.
Specific Business Types • Sole Proprietors
For an individual owner, the net operating loss (NOL) is figured based on gross income from all sources (on Form 1040), not just what shows on your business schedule (Schedule C). Not all deductions can be included when calculating an NOL—rules exclude net capital losses,
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