No business owner wants to lose money. But, if it happens this year, there may be a silver lining — a tax break that enables the owner to recoup taxes paid in prior years. This is called a net operating loss (NOL) carryback, and Congress made things better for owners with losses in 2009.

Small business owners with net operating losses this year will be able to elect a three, four or five year carryback instead of the usual two year NOL carryback; the carryback offsets income in prior years to generate a tax refund for the owner now. This means potentially recouping taxes paid and receiving an immediate infusion of cash that can be used now to keep the business going.

Who is Eligible
The new rule applies only to “small businesses,” defined as businesses with average annual gross receipts of $15 million or less in the prior three years.

The New Carryback Period
Usually, the NOL carryback is limited to the two prior years. But, the American Recovery and Reinvestment Act of 2009 allows eligible businesses to opt for a three, four, or five year carryback for NOLs arising in 2009.

The Tip
Meet with your tax advisor as soon as possible to assess whether and to what extent you may want to use a longer NOL carryback period. If it makes sense, a refund request can be filed as soon as possible after the close of this year. This is done using a tentative refund application or by filing amended returns for the carryback years. Amending a prior tax return may trigger a tax refund for you and a rapid infusion of cash to start 2010.