It’s not uncommon for businesses to sometimes generate tax losses. But the losses that can be deducted are limited by tax law in some situations. The Tax Cuts and Jobs Act of 2017 (TCJA) further restricts the amount of losses that sole proprietors, partners, S corporation shareholders and, typically, limited liability company (LLC) members can currently deduct — beginning in 2018. This could negatively impact owners of start-ups and businesses facing adverse conditions. Before the TCJA Under pre-TCJA law, an individual taxpayer’s business losses could usually be fully deducted in the tax year when they arose unless: The passive activity loss (PAL) rules or some other provision of tax law limited that favorable outcome, or The business loss was so large that it exceeded taxable income from...
