If my S-corp has a loss, does that reduce my personal taxes?

Only to the extent of your basis in the S-corp stock and loans you've made to the corporation. If your basis is $30,000 and the S-corp has a $50,000 loss, you can deduct $30,000 currently and the remaining $20,000 is suspended until you restore basis through additional contributions, additional loans, or future income. The suspended loss doesn't disappear — it carries forward.

Can I carry my business loss back to prior years to get a refund?

Generally no — for NOLs arising in 2018 and later, the carryback provision was eliminated for most businesses. An exception was created temporarily by the CARES Act for 2018–2020 NOLs, which allowed a 5-year carryback. For current-year losses, carryback is generally not available. Losses are carried forward indefinitely to offset up to 80% of future taxable income.

What's the 80% limitation on NOL deductions?

When you use an NOL carryforward to offset income in a future year, you can only offset 80% of that year's taxable income. If you have $200,000 in NOL carryforward and $100,000 in taxable income this year, you can deduct $80,000 (80%) of the income, leaving $20,000 taxable. The remaining $120,000 of NOL carries forward to the next year. This means a large NOL from a very bad year can take many years to fully utilize.

What's the excess business loss limitation?

In addition to the NOL rules, non-corporate taxpayers face an excess business loss limitation: for 2025, you can only deduct up to $313,000 ($626,000 married filing jointly) of net business losses against non-business income (wages, investment income). Losses above that threshold aren't currently deductible — they're treated as NOLs and carry forward. This limit is indexed for inflation.

Does an NOL affect the QBI deduction?

Yes — the QBI deduction is limited to 20% of qualified business income (QBI). If the business has a loss, QBI is negative. Negative QBI from one activity reduces QBI from other activities in the same tax year, and any remaining negative QBI is carried forward to reduce future QBI deductions. This interaction means a significant business loss in one year can reduce the QBI deduction in future profitable years.

Tax planning

Net Operating Loss (NOL): What Happens When Your Business Loses Money

When business deductions exceed income, you have a net operating loss. An NOL can offset income in other years — but TCJA 2017 changed the rules significantly. No carryback for most businesses, indefinite carryforward, and an 80% income limitation now apply.

Written by Matt Reese, CPA · 6 min read · Published April 2026·Share on LinkedIn

Key Takeaways

A net operating loss occurs when allowable tax deductions exceed gross income. For individuals, NOLs typically come from business losses on Schedule C, S-corp or partnership losses on Schedule K-1, or casualty losses.
Post-TCJA (for losses arising in 2018 and later), NOLs can be carried forward indefinitely but can only offset 80% of taxable income in any carryforward year. The 2-year carryback was generally eliminated.
For pass-through entities (S-corps, partnerships), losses can only be deducted to the extent of the owner's basis in the entity. Losses in excess of basis are suspended until basis is restored.
The excess business loss limitation also applies: for 2025, non-corporate taxpayers can only deduct up to $313,000 ($626,000 for married filing jointly) in net business losses against non-business income. Losses above that become an NOL.

What creates a net operating loss

An individual has an NOL when their allowable deductions exceed their gross income. For business owners, the most common sources are:

Schedule C net losses (sole proprietorship or single-member LLC)
Pass-through losses from S-corps and partnerships (on Schedule K-1)
Business-related casualty losses
Business bad debts

Not all deductions contribute to an NOL. Personal deductions, standard deduction, capital loss deductions, and certain other items are excluded from the NOL calculation. The IRS rules for computing an NOL require specific adjustments that your CPA handles on a loss year return.

An NOL isn’t money lost — it’s a tax asset. A $100,000 NOL carryforward can offset future income at whatever rate applies then. Tracking it carefully preserves a real future deduction.

The TCJA 2017 rule changes

Rule	Pre-TCJA (losses before 2018)	Post-TCJA (losses 2018 and later)
Carryback	2 years — file amended return, get refund	Eliminated for most; 5-year carryback exception under CARES Act for 2018–2020
Carryforward	20 years	Indefinite
Annual deduction limit	100% of taxable income	80% of taxable income (creates minimum tax in recovery years)
Excess business loss limit	N/A	$313,000 single / $626,000 MFJ (2025, indexed for inflation)

Pass-through entity losses: the basis hurdle

For owners of S-corps and partnerships, a business loss flows through to the personal return — but only up to the owner’s basis. This creates a layered limitation:

Limitation level	What it means	Applies to
1. Basis limitation	Can't deduct more than basis in entity	S-corps, partnerships
2. At-risk limitation	Can't deduct more than amount 'at risk'	S-corps, partnerships
3. Passive activity limitation	Passive losses only offset passive income	Passive investors
4. Excess business loss limitation	$313k/$626k limit on net business losses vs. non-business income	All non-corporate taxpayers
5. NOL limitation	Losses carried forward limited to 80% of future taxable income	All taxpayers with NOLs

Each limitation must be applied in order. A loss that passes the basis test might still be suspended under the at-risk or passive activity rules. A loss that gets through all four gates may still face the excess business loss limitation or the 80% NOL cap in future years.

How NOL carryforwards work in practice

NOL carryforward — startup with losses in years 1–2, profit in years 3–5

Year 1: Net business loss (Schedule C)$(120,000) — becomes NOL carryforward

Year 2: Net business loss$(80,000) — adds to NOL carryforward

Year 2 NOL carryforward balance$(200,000)

Year 3: Taxable income before NOL$150,000

Year 3: NOL deduction (80% of $150,000)$(120,000)

Year 3: Taxable income after NOL$30,000

Year 3: Remaining NOL carryforward$(80,000)

Year 4: Taxable income before NOL ($200,000)

Year 4: NOL deduction (80% limit = $160,000; only $80,000 remaining)$(80,000)

Year 4: Taxable income after NOL$120,000

Year 4: NOL carryforward balance$0 — fully utilized

The 80% limitation extends the time it takes to fully utilize an NOL — you always leave at least 20% of income taxable in a recovery year. This prevents a business with a large loss from paying zero tax for years, but the NOL itself never expires.

Restoring S-corp basis to use suspended losses

If losses exceed your S-corp stock basis and are suspended, they stay suspended until basis is restored. Basis increases when:

The S-corp has taxable income (which passes through to you on the K-1)
You make additional capital contributions to the S-corp
You make direct loans to the S-corp (creates debt basis)

Note: bank loans guaranteed by the shareholder do not create basis — only loans you make directly from your own funds to the corporation create shareholder debt basis.

Track NOL and suspended loss carryforwards every year

NOL carryforwards and suspended pass-through losses are tax assets. If you switch CPAs or tax preparers without transferring these schedules, the deductions can be lost — the new preparer simply doesn’t know they exist. When changing CPAs, request copies of your NOL schedules, basis worksheets, and passive activity loss carryforward schedules. These are yours and you’re entitled to them.

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Frequently asked

Questions owners actually ask

If my S-corp has a loss, does that reduce my personal taxes?: Only to the extent of your basis in the S-corp stock and loans you've made to the corporation. If your basis is $30,000 and the S-corp has a $50,000 loss, you can deduct $30,000 currently and the remaining $20,000 is suspended until you restore basis through additional contributions, additional loans, or future income. The suspended loss doesn't disappear — it carries forward.
Can I carry my business loss back to prior years to get a refund?: Generally no — for NOLs arising in 2018 and later, the carryback provision was eliminated for most businesses. An exception was created temporarily by the CARES Act for 2018–2020 NOLs, which allowed a 5-year carryback. For current-year losses, carryback is generally not available. Losses are carried forward indefinitely to offset up to 80% of future taxable income.
What's the 80% limitation on NOL deductions?: When you use an NOL carryforward to offset income in a future year, you can only offset 80% of that year's taxable income. If you have $200,000 in NOL carryforward and $100,000 in taxable income this year, you can deduct $80,000 (80%) of the income, leaving $20,000 taxable. The remaining $120,000 of NOL carries forward to the next year. This means a large NOL from a very bad year can take many years to fully utilize.
What's the excess business loss limitation?: In addition to the NOL rules, non-corporate taxpayers face an excess business loss limitation: for 2025, you can only deduct up to $313,000 ($626,000 married filing jointly) of net business losses against non-business income (wages, investment income). Losses above that threshold aren't currently deductible — they're treated as NOLs and carry forward. This limit is indexed for inflation.
Does an NOL affect the QBI deduction?: Yes — the QBI deduction is limited to 20% of qualified business income (QBI). If the business has a loss, QBI is negative. Negative QBI from one activity reduces QBI from other activities in the same tax year, and any remaining negative QBI is carried forward to reduce future QBI deductions. This interaction means a significant business loss in one year can reduce the QBI deduction in future profitable years.

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Educational content only.This article is for informational purposes and does not constitute tax, legal, or investment advice. Every owner’s facts are different; consult a qualified CPA and advisor before acting. Tax and accounting services are provided through Matt Reese, CPA; investment advisory services are provided through Measured Risk Portfolios, a registered investment adviser. Matt Reese, CPA and Measured Risk Portfolios are separate entities; clients are not required to engage both.