A net operating loss usually is carried back up to three preceding years to offset income there before it can be carried forward and used in a future year, unless the taxpayer makes an irrevocable election to carry it forward only. Three data entry screens and two worksheets deal with NOLs in a 1040 return:
- 1045 Screen. This screen is for the first two pages of Form 1045 Application for Tentative Refund, and Schedule B (pages 4 and 5). This page requests a refund of taxes paid in prior years to which you are now carrying back a current-year NOL.
- NOL Screen. This screen is for Schedule A that is page 3 of Form 1045 (2 in UltimateDR14). Once you begin data entry here, the software generates all pages of Form 1045, unless you select 20YY NOL is being carried back later or outside of the software (in earlier software, Calculate 1045 page 2 only) at the top of the NOL screen. To waive carrying an NOL back and produce an ELECTION page to that effect, check the box Election to carry forward ONLY at the top of the NOL screen (this election can also be made on the ELEC screen in earlier software, but do not make the election in both places).
- Schedule A – NOL. This is for page 3 of Form 1045 (page 2 in Drake14).
- Schedule A calculates and displays your current-year return NOL, based on data already entered in the return. Data entry fields are all overrides.
- Check the box at the top of the NOL screen (20YY NOL is being carried back later or outside of the software or Calculate 1045 page 2 only in earlier software) to produce Schedule A by itself.
- Schedule B – NOL Carryover. This is for pages 4 and 5 of Form 1045 (pages 3 and 4 in UltimateDR14).
- Schedule B is to carry back a current-year NOL.
- Complete Schedule B for the years the IRS requires you to carry back a current-year NOL.
- Clear the option at the top of the NOL screen 20YY NOL is being carried back later or outside of the software (Calculate 1045 page 2 only in earlier software) or the software will not produce Schedule B.
- LOSS screen.
- Shows what NOLs were generated and used in past years.
- Lets you correct or supply missing prior year NOL information. Note: Never enter current-year NOL data on a LOSS screen.
- Does not display the current-year NOL to be carried forward. That appears on the worksheets below.
- Wks CARRY worksheet (WK_CARRY in UltimateDR15 and prior). This displays any current and prior-year NOL available to be carried forward. The carryforward will appear on next year’s LOSS screen when the return is updated. WKs CARRY must be enabled on the Setup > Options > Form & Schedule Options tab.
- Wks NOL (WK_NOL in UltimateDR15 and prior) worksheet. This worksheet is what next year’s LOSS screen will look like when the return is updated, including the carryforward.
- Wks NOLCO (WK_NOLCO in UltimateDR15 and prior) worksheet. This displays any prior-year NOL to be carried forward. The carryforward will appear on next year’s LOSS screen when the return is updated.