Tax Preparation: Kansas City Business Losses

A Kansas City CPA can help small and medium sized businesses determine if there is a basis for reporting a business loss for the tax year. The laws are very specific as to what types of business losses exist, under what circumstances they may be filed, and the time limitations on reporting these losses.

During tax preparation, Kansas City based businesses must scrutinize their total income versus the business activity deductions in order to investigate the possibility of a net operating loss. Simply put, the deduction total must exceed the income to qualify. However, not so simply, there are rules and regulations regarding the timeline on reporting these deductions and on which types of business can file in this way. For example, partnerships typically cannot report a net operating loss, but individual partners can divide their income, revenues, and expenditures in order to report a loss. Due to the stringent guidelines, it is important to secure the advice of a tax professional if a business may be projecting a loss.

Explore our informative articles to learn more about CPA in Kansas City, tax advice and planning.

Kansas City CPA: Determining Other Losses

As with any loss that is reported on business tax returns, it is critical to seek advisement from a tax professional, specifically a Kansas City CPA, to be sure that all factors are taken into consideration for your business’s optimal tax benefit from a loss, but also to avoid an IRS audit. If the criteria for a net operating loss fall short, this professional can determine if another type of loss exists, such as a hobby loss or a casualty loss.

A casualty loss is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. These are specific, legal distinctions for reporting a casualty loss.

• A sudden event is one that comes upon a business rapidly, not over time
• An unexpected event is one that has not been anticipated and could not have realistically been anticipated
• An unusual event is one that does not occur within normal business operations and that is not typical of the activity in which you were engaged

A hobby loss, which can often be justified in the case of non-profit organizations, occurs if your business or investment activity does not aim to make a profit, thus there is a limit on the deductions you can take. You cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, come under this limit.

While these sharp distinctions and strict rules may cause concern during tax preparation, Kansas City accountants will keep your company within its rights and within the IRS parameters for filing business losses.