Timing is a Key Factor

Business losses can sting, particularly when they are large and unexpected. But there are numerous ways the tax code can help mitigate the effects of business losses and minimize the financial damage. A key factor is timing. The earlier in the year a business owner recognizes that a loss may occur, the more likely changes can be made in the current year to minimize the financial loss before it has a significant impact. 

When a business is facing a loss, working with trusted advisors is essential to help quantify the loss and explore strategies for minimizing the damage. The following are several approaches that should be considered early in the process. 

Offsetting Gains  

When a loss appears likely, one of the first things a business owner should discuss with advisors is whether the loss can be turned into a positive. Are there assets that have reached the end of their usefulness to the business – such as real estate or equipment – that could be sold? Selling unneeded assets would have the dual effect of bringing in cash to help the business over a rough patch, as well as potentially lowering or eliminating tax liability by using the current business losses to offset the income from the sale. 

Additionally, this may not be the time to be aggressive with depreciation, even with equipment purchases that may qualify for bonus depreciation. Pumping the brakes on depreciation, coupled with loss carryforwards, can help stretch the loss out over several years while evening out the company’s tax burden. 


Under current tax rules, taxpayers may carry forward business losses for up to 20 years. However, the losses may only be offset against 80% of your income. No longer may taxpayers completely offset income with past losses. The effect of a carryforward is that today’s business loss may be used to offset future years’ profits, minimizing tax liability in those years.  

Example: If a business incurs a loss of $100,000 in 2023 and has no taxable income in that year, it can carry forward the entire loss to 2024. If the business earns $50,000 in 2024, it can use the loss from 2023 to offset 80% of the 2024 profit, or $40,000. That would leave $60,000 from the original loss to be carried forward to offset future years’ profits. 

The rules around carryforwards are complex, so it’s essential to work with your tax advisor and plan ahead if you see that your company may incur a loss this year. 

Adjust Quarterly Estimated Tax Payments 

Most business owners make quarterly estimated tax payments, which enables some proactive tax planning and adjustment in the current year. If you know your business will incur a loss this year, adjust your quarterly estimated tax payments to reflect your lower income. This will free up some capital that you can put back into your business by hiring an employee or buying some equipment to help strengthen operations. 

Meeting with a tax advisor at least twice a year is advantageous, in that it gives you the opportunity for a regular review of margins and key performance indicators to see if you can soften your anticipated loss or turn it around. 

Time Expenses 

Deferring expenses to the new year will help minimize losses for the current year, particularly if any major purchases were planned. While that may hurt a bit this year because of the step down in bonus depreciation – to 60% from 80% – that will occur on Jan. 1, 2024, Sec. 179 expensing is still available. 

If your business is facing a loss this year, contact an Adams Brown advisor to discuss strategies for minimizing the impact.