Mo. Code Regs. tit. 12 § 10-2.710
Current through Register Vol. 49, No.12, June 17, 2024
Section 12 CSR 10-2.710 - [Effective until 7/31/2024] Net Operating Losses on Individual Income Tax ReturnsPURPOSE: This rule explains the proper Missouri income tax treatment of net operating losses by individuals.
(1) A taxpayer whose deductions for the year are more than his/her income for the year on his/her federal return (negative federal adjusted gross income) may have a net operating loss. The actual computation of the net operating loss is not identical to the computation of federal adjusted gross income or loss for the year. Therefore, the amount shown as a loss on Federal Form 1040 must be adjusted to arrive at the net operating loss for the year. Federal rules limit what can be deducted when figuring a net operating loss. A taxpayer must complete Schedule A of Federal Form 1045 in order to determine his/her actual net operating loss.(2) If it is determined that a net operating loss has been incurred, a deduction may be carried back three (3) tax years before the loss year and/or carried forward fifteen (15) tax years after the loss year until the net operating loss is used up. The net operating loss deduction is a business deduction in the year to which it is carried, regardless of whether the taxpayer is engaged in a trade or business in that tax year. If the taxpayer elected on his/her federal return to forgo the carryback period, s/he must also forgo the carryback period on the Missouri return.(3) In the year of the net operating loss, a taxpayer must perform the following to determine the amount to enter as federal adjusted gross income on the Missouri return. These procedures will prevent the potential double benefit from a net operating loss. (A) Complete Schedule A of Federal Form 1045 to determine the net operating loss.(B) Calculate the difference between the federal adjusted gross income and the net operating loss (the difference between the first line and the last line of Schedule A of Federal Form 1045). 1. If the net operating loss is greater than the federal adjusted gross income, enter the difference as a positive number on the federal adjusted gross income line on the Missouri return.2. If the federal adjusted gross income is greater than the net operating loss, enter the difference as a negative number on the federal adjusted gross income line on the Missouri return.(C) Complete the remainder of the Missouri return as required.(D) Attach a copy of Schedule A of Federal Form 1045 to the Missouri return.(4) If a net operating loss carryback creates a negative federal adjusted gross income for the year to which it is carried back to, the taxpayer must perform the following to determine the amount to enter as federal adjusted gross income on the Missouri return. (A) Complete Schedule B of Federal Form 1045 to determine how much net operating loss will be used up in the current tax year and the net operating loss carryover to be carried to the next tax year.(B) Calculate the difference between the federal adjusted gross income (after applying the net operating loss carryback) and the net operating loss carryover. 1. If federal adjusted gross income (after applying the net operating loss carryback) is greater than the net operating loss carryover, enter the difference as a positive number on the federal adjusted gross income line on the Missouri return.2. If federal adjusted gross income (after applying the net operating loss carryback) is less than the net operating loss carryover, enter the difference as a negative number on the federal adjusted gross income line on the Missouri return.(C) Complete the remainder of the Missouri return as required.(D) Attach a copy of Schedule B of Federal Form 1045 to the Missouri return.(5) Example: Taxpayer A owns a construction company that incurs a loss in 1994. When the taxpayer completes his/her federal return for 1994, federal adjusted gross income computes to -$185,000. The taxpayer computes his/her actual net operating loss on Federal Form 1045 as -$253,191. The taxpayer elects to carry the loss back three (3) years. (A) Net operating loss is created in 1994: Federal adjusted gross income = -$185,000 (From 1994 Federal Form 1040, line 32) Net operating loss = -$253,191 (From 1994 Federal Form 1045, Schedule A) Modified federal adjusted gross income = $68,191 for 1994 (Enter on 1994 Form MO-1040, Line 11)
(B) Net operating loss carryback to 1991: Federal adjusted gross income = $131,000 (From 1991 Federal Form 1040, line 32) Net operating loss carryback = -$253,191 Federal adjusted gross income after applying the net operating loss carryback = -$122,191 Net operating loss carryforward to 1992 =-$172,250 (From 1994 Federal Form 1045, Schedule B) Modified federal adjusted gross income = $50,059 for 1991 (Enter on 1991 Form MO-1040, Line 11)
(C) Net operating loss carryback to 1992: Federal adjusted gross income = $149,000 (From 1992 Federal Form 1040, line 32) Net operating loss carryback = -$172,250 Federal adjusted gross income after applying the net operating loss carryback = - $23,250 Net operating loss carryforward to 1993 = -$65,500 (From 1994 Federal Form 1045, Schedule B) Modified federal adjusted gross income = $42,250 for 1992 (Enter on 1992 Form MO-1040, Line 11)
(D) Net operating loss carryback to 1993: Federal adjusted gross income = $179,000 (From 1993 Federal Form 1040, line 32) Net operating loss carryback = -$65,500 Federal adjusted gross income after applying the net operating loss carryback = $113,500 Net operating loss carryforward = $0 (From 994 Federal Form 1045, Schedule B) Modified federal adjusted gross income = $113,500 for 1993 (Enter on 1993 Form MO-1040, Line 11)
(6) Example: Taxpayer B owns a retail store that incurs a loss in 1994. When the taxpayer completes his/her federal return for 1994, federal adjusted gross income computes to -$185,000. The taxpayer computes his/her actual net operating loss on Federal Form 1045 as -$180,000. The taxpayer elects to carry the loss back three (3) years. (A) A net operating loss is created in 1994: Federal adjusted gross income = -$185,000 (From 1994 Federal Form 1040, line 32) Net operating loss = -$180,000 (From 1994 Federal Form 1045, Schedule A) Modified federal adjusted gross income = -$5,000 for 1994 (Enter on 1994 Form MO-1040, Line 11)
(B) Net operating loss carryback to 1991: Federal adjusted gross income = $131,000 (From 1991 Federal Form 1040, line 32) Net operating loss carryback = -$180,000 Federal adjusted gross income after applying the net operating loss carryback = -$49,000 Net operating loss carryforward to 1992 = -$45,000 (From 1994 Federal Form 1045, Schedule B) Modified federal adjusted gross income = -$4,000 for 1991 (Enter on 1991 Form MO-1040, Line 11)
(C) Net operating loss carryback to 1992: Federal adjusted gross income = $149,000 (From 1992 Federal Form 1040, line 32) Net operating loss carryback = -$45,000 Federal adjusted gross income after applying the net operating loss carryback = $104,000 Net operating loss carryforward = $0 (From 1994 Federal Form 1045, Schedule B) Modified federal adjusted gross income = $104,000 for 1992 (Enter on 1992 Form MO-1040, Line 11)
(7) A nonresident taxpayer of Missouri must also follow the procedures outlined in sections (3) and (4) for the amount to enter on the federal adjusted gross income line on the Missouri return. When completing the Form MO-NRI to calculate the nonresident income percentage, if "Missouri Sources" line for "Missouri Nonresident Adjusted Gross Income" is equal to or greater than "All Sources" line for "Total Adjusted Gross Income," enter one hundred percent (100%) in the "Missouri Income Percentage" line. AUTHORITY: section 143.961, RSMo 1994.* Original rule filed Nov. 29, 1995, effective May 30, 1996. *Original authority: 143.961, RSMo 1972.