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IRS, your private equity funder

Times are tough and cash is tight.  If your business lost money last year, you have plenty of company.  There's only one good thing about a bad year. You can get back some tax refunds to help recapitalize your business. 

Your first likely source of tax refunds is the taxes you already have on deposit for 2008.  If your businessBlog is taxed on your 1040 -- that is, if you own an S corporation, a partnership or a sole proprietorship -- these taxes come from your W-2 withholding and from any estimated tax payments you have made.  If you based your 2008 payments on your 2007 income -- a standard way of computing estimated tax payments -- you may have a good refund coming.

If you expect a refund, get your information together promptly.  It's especially important to get your business tax information to your tax preparer right away.  If your preparer provides "organizers" to help you put together your business and personal tax information, complete them thoroughly and accurately.  The fewer times your preparer has to call you, the faster you will get your refund.  Electronic filing also speeds things up.

If you run your business in a C corporation, you may not even have to wait until your return is ready.  C corporations can file Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, as soon as their tax year is over.  You estimate on the form what your tax will be when the return is eventually filed; the IRS will refund your estimated 2008 overpayment -- probably within 4-6 weeks -- without waiting for the actual Form 1120. 

Once your 2008 return is done, you may be able to go back and recover some taxes from prior years.  You can carry back a "net operating loss" two years to recover prior taxes.  For individuals, a net operating loss is (roughly speaking) negative taxable income, but adding back your personal exemptions, standard deductions and your non-business losses in excess of your non-business income.  The computation is made on Schedule A, Form 1045.  The quickest way for an individual to get a refund from NOLcarrybacks is to file Form 1045.

C corporations carry back their negative taxable income, with some usually-minor modifications, on Form 1139.

Iowa has similar loss carryback rules for individuals and corporations.

Of course, complications can ensue; this is the tax law, after all.  You have to compute net operating losses separately for the alternative minimum tax and the alternative minimum tax credit, for example, and special limits can apply.  Also, pending legislation would extend the NOL carryback to five years, but possibly at the cost of 10 percent of your carryback. This all makes it a good idea to get your tax pro involved.


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