Deductible Expenses That Keep on Working

Most tax deductible expenses are incurred and deducted against your income in a single tax year. There are several deductions, however, that you can carry from one year to the next. Capital Losses, Business Losses and Charitable Contributions are three common examples.

Capital Losses: You can carry forward a capital loss from the sale of stocks or other securities until they are used up or until the day you die. Capital losses can be used to offset any capital gains you may have in the current year. You can then use up to $3,000 of a capital loss each year to offset regular income. If your capital losses are greater than your capital gains plus $3,000 of income, you can carry forward what remains to offset gains and income in future years.

Business Losses: These losses usually apply to self-employed clients. Business losses can be carried back two years or forward for twenty years. One of the reasons for the generous carry back and carry forward deductibility is the recognition a self-employed person who has a net loss for the year may need cash fast. That person can file amended returns and secure a quick refund for taxes paid in the prior two years. Then any remaining losses can offset income in the current year and future years until exhausted.

Charitable Contributions: Your annual charitable contributions may only be deducted up to an amount equal to a percentage (20-50%) of your adjusted gross income. Should your contributions ever exceed this level you will be able to carry the remainder of the contributions forward to offset taxable income over the next five years. If you think you have a carry forward or carry back deduction, please call to discuss your situation and appropriate next steps.