Noncorporate taxpayers: Watch out for the excess business loss limitation
Abstract: One advantage of operating a business as a sole proprietorship or pass-through entity (partnership, S corporation or limited liability company) is the ability of owners to deduct some business losses on their individual tax returns. In other words, business losses can offset nonbusiness income, such as wages, interest, dividends or capital gains. However, this article points out that the limit on excess business losses could reduce the deduction. It explains that taxpayers need to talk to their tax advisors about alternative tax-planning strategies for reducing or deferring taxable income.