This is known as a loss carryforward. In some instances, losses can also be carried “back” but the rules are complex so consult a tax advisor as to how to make use of this tax benefit.
There can be exceptions to this depending on the type of business you are running, so check with your accountant or on the IRS website before filing your taxes.
A tax deduction lowers your net taxable income, so it can shrink the total amount of taxes you owe. But deductions can be subject to various limitations which can impact how much value they have in overall tax reduction.
Used predominantly in Europe, it is considered a “consumption” tax. At each stage of manufacture, a tax is levied (“added”) to the cost of the item based on the materials or value added in the manufacturing step.
VAT taxes may also be collected at the point of final sale.
However your ability to deduct the loss against current income is restricted by your “basis” and your “risk of loss” in the business.
It’s a complicated set of rules, so consult a tax advisor to be sure you are eligible to take the deduction or review the regulations on the IRS site.
Under the rules, up to $500,000 of the cost can be written off in the first year, rather than taking depreciation expense over 3, 5, 7 or more years. This accelerates the tax benefit of making the capital purchase.
Check with you accountant as this is effective for 2017, but the rules may be subject to change in the future.
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