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Weather, disease and variable prices for inputs and commodities cause farmer’s income to fluctuate from one year to the next. Farmers can minimize their income tax liability by managing the timing of their income and deductions to keep their taxable income level. In some cases, the leveling technique is not enough to avoid a spike in taxable income or a dip that causes taxable income to go below zero. The tax effect of the spikes can be minimized with income averaging rules. The tax effect of the dips below zero can be managed with the net operating loss (NOL) rules discussed in this fact sheet.
The concept of the NOL rules is quite simple. Taxpayers are allowed to carry business losses from the loss year to offset taxable income in other tax years. The loss can be carried back and/or forward.
Rural Tax Education
net, operating, losses, financing
Education | Higher Education | University Extension
Harris, Philip E., "Net Operating Losses" (2011). Rural Tax Education. 12.