The Deep Dive: Modifications to Deductions of Losses

By Ryan Hodell, CPA
Staff, Tax Services

Each Thursday for the next few weeks, Sponsel CPA Group will present The Deep Dive, a closer look at individual aspects of the new tax law and how they might affect you or your business. 

The Tax Cuts and Jobs Act made some modifications to the way taxpayers can utilize losses, implementing new limitations that may catch some taxpayers. Net Operating Losses (NOLs) can no longer be carried back, with a couple exceptions. And a new disallowance of “excess business losses” could limit how much is deducted in the year trade and business losses occur, resulting in NOL treatment for any disallowed portion.

NOL Modifications

The new law has repealed the two-year and special carryback provisions for NOLs that first occur in tax years ending after December 31, 2017. The exception is that there are still provisions for two-year carrybacks on certain farming losses and NOLs for property and casualty insurance companies. All other NOLs occurring after this date must be carried forward.

The new law also modified how the NOLs can be used in future years. Instead of being limited to carrying the loss forward for 20 years, most NOLs occurring after the effective date are now carried forward indefinitely. However, these NOLs can only offset up to 80% of taxable income, calculated prior to deducting any NOL. If an NOL is limited under these provisions, the remainder will continue to carry forward.

Example of the 80% Limitation: In 2018, a calendar-year taxpayer has a $90,000 NOL. It has no other NOL carryovers. It carries forward the NOL to 2019, a year in which it has taxable income of $100,000. The taxpayer’s 2019 NOL deduction is limited to $80,000 ($100,000 x 80%). The remaining $10,000 can’t be deducted in 2019, but it can be carried forward indefinitely.

To further complicate matters, any NOLs that first occurred in 2017 or earlier will continue to follow the old rules. They will not be subject to the 80% limitation. This creates a need for separate record keeping of NOLs for these different periods.

New Limitations on Excess Business Losses

Under pre-Tax Cuts and Jobs Act law, a taxpayer’s farm loss could be limited to a given threshold if they received an applicable subsidy in that year. This was known as “excess farm losses.” The new law eliminates this provision for farm losses and instead disallows a taxpayer’s “excess business loss.”

For tax years beginning after December 31, 2017 and before January 1, 2026, non-corporate taxpayers can’t deduct excess business losses. Taxpayers must look at their aggregate trade and business losses to determine if there is any excess that will be disallowed. If these losses exceed $500,000 for married filing joint (and $250,000 for single), then any excess is disallowed and converted to an NOL to be carried to future years. Although the new provision states this is for non-corporate taxpayers, further language clarifies that this includes losses from S corporations and partnerships.

Example: If a taxpayer had $400,000 in losses flowing to their return from an S corporation, and their spouse had $200,000 of losses from a sole proprietorship, then they would add these together for $600,000 in combined business losses. The combined loss is then subtracted from the threshold amount ($500,000 – MFJ), and the $100,000 in excess business losses would be converted to an NOL that would carry forward to future years. Since this is now an NOL, it would also be subject to the new 80% NOL limitation in future years that was discussed above.

In effect, the new law limits the ability of non-corporate taxpayers to use trade or business losses against other sources of income, such as wages and other compensation, fees, interest, dividends and capital gains. The result is that the business losses of non-corporate taxpayers for a tax year can offset no more than $500,000 (MFJ), or $250,000 (other individuals), of a taxpayer’s non-business income for that year.


Both of these new provisions make excess losses less valuable because they can no longer eliminate all of the taxable income in a given year. They also can’t provide immediate benefit by being able to carry them back to a prior tax year. This can make it even more important to manage the usage of other deductions now available to taxpayers, such as accelerated depreciation expensing provisions, to ensure maximization and timing of deductions.

Sponsel CPA Group is here to help you manage these complex provisions and maximize your benefits. If you have questions about tax reform changes, please call Ryan Hodell at (317) 613-7868 or email

Click here for detailed article on “Business Expense Deduction Limitations”
Click here for detailed article on the “Pass-Through Income Deduction”
Click here for detailed article on “Changes to Fringe Benefit Rules for Employers”
Click here for detailed article on “New Favorable Depreciation Provisions”
Click here for summary of “Key Provisions Affecting Individual Taxpayers”
Click here for summary of “Key Provisions Affecting Business Taxpayers”

The Deep Dive: Business Interest Expense Deduction Limitations

Lindsey AndersonBy Lindsey Anderson, CPA
Manager, Tax Services

Each Thursday for the next few weeks, Sponsel CPA Group will present The Deep Dive, a closer look at individual aspects of the new tax law and how they might affect you or your business. 

The Tax Cuts and Jobs Act introduced a new limitation to businesses for the deduction of interest expense for amounts paid or incurred after December 31, 2017.

Under the new law, the deduction for allowed business interest for any tax year cannot exceed the sum of the following:

  • 30% of the taxpayer’s “adjusted taxable income” for the tax year;
  • the taxpayer’s “business interest income” for the tax year; plus
  • the taxpayer’s “floor plan financing interest” for the tax year.

In order to fully understand the calculation for the deduction limitation, we need to define a few terms:

  • “Adjusted taxable income” is defined as the taxpayer’s taxable income with exclusions for the following:
    • Items of income, gain, deduction or loss that aren’t properly allocated to the trade or business
    • Business interest or business interest income
    • Deductions allowed for depreciation, amortization or depletion for tax years beginning before January 1, 2022
    • Net operating loss deductions
    • Qualified business income deductions allowed under Code Section 199A.
  • “Business interest income” is defined as interest which is included in the taxpayer’s gross income for the tax year that is properly allocated to the trade or business. Investment interest income does not constitute business interest income.
  • “Floor plan financing interest” is defined as interest paid or accrued on debt used to finance the acquisition of motor vehicles held for sale or lease, and is secured by the inventory acquired. Examples of companies this would apply to are car dealerships, boat dealerships and farm machinery/equipment retailers.

Any business interest that isn’t deductible because of the business interest limitation is treated as business interest paid or accrued in the following tax year, and may be carried forward indefinitely.

Small Business Exception to the Business Interest Deduction Limitation

There is a small business exception to the limitation on deducting business interest expense. The limitation does not apply to a taxpayer whose average annual gross receipts for the three tax year periods ending with the prior tax year do not exceed $25 million.

Treatment for Partnerships and S-Corporations

The interest expense disallowance is generally determined at the tax filer level. However, a special rule applies to pass-through entities (e.g. partnerships and S-corporations), which requires the determination to be made at the entity level; for example, at the partnership level instead of the partner level.

While the limitations on the business interest expense deduction can be complex, Sponsel CPA Group is here to help you navigate how this will affect your tax outlook, and create a plan to minimize your tax exposure.

If you have any questions about tax reform changes, please call Lindsey Anderson at (317) 613-7843 or email

Click here for detailed article on the “Pass-Through Income Deduction”
Click here for detailed article on “Changes to Fringe Benefit Rules for Employers”
Click here for detailed article on “New Favorable Depreciation Provisions”
Click here for summary of “Key Provisions Affecting Individual Taxpayers”
Click here for summary of “Key Provisions Affecting Business Taxpayers”

What Does Growth Look Like?

Lisa PurichiaBy Lisa Purichia
Partner, Director of Entrepreneurial Services

You’ve no doubt heard the old business adage, “If you’re not growing, you’re dying.” With the passage of tax reform, most experts say the outlook for improved growth is positive. When business leaders are more optimistic, they start making plans to grow their companies.

But what do we really mean when we say that? In other words, what does growth look like?

The most common meaning refers to growing revenue and profitability, or employees and locations. But positive growth doesn’t just mean expanding your bottom line or your roster. It can mean any number of ways to improve your organization’s processes and capabilities, as well as its reach.

For example, infiltrations into private data are now a constant threat. (For a good example, see the article below on the Meltdown vulnerability.) One form of growth would be to expand and improve your company’s technology and computer systems so it’s less prone to hacking.

Growth can also refer to increasing the skillset of your team, starting with the business leader. If you’re the owner or manager of a company, ask yourself if you have grown in your leadership skills. Have your coaching skills improved? Can you think of ways you can better apply technology to serve your customers? Do colleagues and employees viewing you as providing the right kind of leadership the organization needs?

Take a look at your interpersonal skills, and question if there is room for growth. Do you fully recognize your strength and weaknesses, and know how to best leverage those with employees, clients, stakeholders and everyone else important to the company’s success?

Another way to grow your organization is to look at the rules, regulations and best practices that pertain to your industry, to see if your business is up to competing in the marketplace. If the business environment has changed, do you need to bring your team up to speed? For example, the public accounting profession has largely moved away from paper records to digital ones.

If entering your office feels like walking back in time 20 years compared to your competitors, it’s time to grow your technological capability. Think about rotating in new computers, copiers and other equipment used on a daily basis. Is your workspace ergonomically suitable to attract and retain the best talent?

Are you making it as easy as possible for people to do business with you? For example, many companies use electronic signatures today instead of paper documents. If you’re making your customers physically mail in or fax their paperwork, your company is behind the curve. Look for growth in processes and procedures that can improve efficiency and make it simpler for clients to conduct business.

As you’re talking about what kind of growth your organization will pursue, include all your important stakeholders in the conversation – clients, vendors, employees, business partners, etc. People prefer to work with a company that is a growing, up-to-date enterprise. Top employees seek to work in such a place.

As you’re thinking about growing the company, make sure it is the type of growth that is responsive to the needs of those you serve. Sometimes bigger is better, but it’s also wise to grow your business’ capabilities. That can then lay the path forward toward a “better BIGGER!”

When you are experiencing the right kind of growth, your company will be one that people seek out to do business with, rather than one they run away from.

If you need advice on how to best grow your organization, please contact Lisa Purichia at (317) 608-6693 or email


Employee Spotlight — Lila Casper

Lila CasperLila Casper joined Sponsel CPA Group one year ago after already having experience in public accounting. As a Staff Accountant in the Audit & Assurance Services department, her duties include conducting audits, reviews, compilations and agreed-upon procedures for clients across a broad spectrum of industries including construction, distribution, manufacturing, service and not-for-profit.

She is a CPA and a member of the Indiana CPA Society (INCPAS), as well as a member of the Fun Committee at Sponsel CPA Group. Lila earned her bachelor’s degree in business administration and master of accountancy degree from the University of Texas at San Antonio.

In her spare time, Lila volunteers with Second Helpings, serving on their Audit Committee, and is a member of the INCPAS Emerging Leaders Alliance. She loves spending time with her nieces and nephew, and rooting for the sports teams from towns where she’s previously lived: the Carolina Panthers, San Antonio Spurs and L.A. Dodgers. Lila also enjoys drawing, painting and putting together puzzles and Legos.

Beware of Meltdown Computer Vulnerability

Chris EdwardsBy Chris Edwards
Manager, IT Services

A critical new vulnerability in computer systems has been revealed that could pose a significant threat at any person or organization that wants to safeguard its private information. Called Meltdown, it’s the hottest topic right now in information technology circles.

Meltdown lets an attacker access any information in your computer’s memory, including passwords, financial data and anything else you’ve accessed or used on your computer. It is severe, and it can be executed remotely. This vulnerability may also affect some smartphones and tablets.

Meltdown is not a virus, but a vulnerability in the processing chips made by Intel after 1995, which are used in many computers running the Microsoft, Apple or Linux operating systems, as well as some mobile devices.

Without getting too deep into the technical weeds, Meltdown breaks down modes and processes running on the same device, allowing a rogue process (possibly triggered by a website) to access memory it shouldn’t be able to. A similar but less severe vulnerability called Spectre was revealed around the same time, but it is much more difficult to perform.

The major operating systems are all working furiously on patches to address the Meltdown and Spectre vulnerabilities, and should be available soon. Look for an alert with instructions from your company’s internal IT team or contractor about how to install this important patch.

The downside is that fixing this vulnerability will significantly reduce the performance of the computer. You can expect anywhere from a 10% to a 30% performance reduction, based on current estimates.

Google discovered these vulnerabilities six months ago, and notified the manufacturers and operating system creators. AMD processors are not affected by this particular vulnerability. Some ARM processors are affected, but most are not.

If your Android device has the latest security patches, it should already be protected, but Android phone manufacturers often do not issue updates in a timely manner. Apple iPhones and iPads use their own processors, and are not listed on the vulnerability list.

In the meantime before the patches are released, remain extra vigilant about clicking on strange links or opening unfamiliar files. To execute Meltdown, someone has to be able to run a program on your computer, generally through some other vulnerability.

Keep running ad-block software in your web browsers, or install it if you don’t already have it. And don’t visit websites that ask you to turn it off. Be wary of all files sent to you via email, including through ShareFile or similar file transmission services.

If you need to consult with an information technology expert about the vulnerability of your organization’s systems, please call Chris Edwards at (317) 613-7855 or email

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