Saving taxes by finding errors in previous CPAs tax returns by using the Net Operating Loss

By Jeffrey Brooks, CPA, CFP, MBA for Jbrooks Wealth Advisors, PC, a Professional CPA and CFP Firm 602-292-2009 Please consult with your professional tax CPA regarding your specific circumstances!

A second opinion is a great idea because many tax returns have errors such as missing key tax deductions. For example a business return might have failed to pick up tax deductions from outstanding credit card owed at the end of the tax year. Or maybe there was a taxable loss in the current year that could have been carried back to a previous tax years.

Net Operating Loss carrybacks do not cause an IRS audit but they do tend to be incorrectly prepared.

Let me give you an example of how we helped a client named Bob to get some cash back from a previous year when he was in the highest tax bracket.

Bob, a client  generated a net operating loss (NOL) in 2013 due to the tax savings ideas that we gave him to reduce his taxes!  Bob’s  return had been extended and my firm is  looking at carrying back the NOL to claim a refund. Since Bob was not subject to alternative minimum tax (AMT) in 2013, or in 2011 and 2012 (the two carryback years), is it necessary to take AMT into consideration for Bob?

Yes, it is necessary. This is because the net operating loss deduction (NOLD) reported on Line 21 of Form 1040 is an add-back to alternative minimum taxable income (AMTI). In Bob’s case, the first carryback year is 2011, and the NOL generated in 2013 becomes an NOLD on Line 21 of Form 1040 for 2011. Therefore, in 2011, the NOLD is added back to AMTI on Line 10 of  the Alternative Minimum Tax — Individuals form 6251.  Then on Line 11 of the 2011 Form 6251, Bob is allowed to deduct an alternative tax net operating loss deduction (ATNOLD). This is repeated in 2013 if the NOL was not fully used in 2011 and for any carryforward year as well (i.e., first carryforward year is 2014).

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009