Fill out the Forms and Decide on a Plan

• 1). Fill out an income tax form, as is normally done every year. The figures calculated here will be used to determine if a net operating loss exists. If no loss has occurred, there's no need to continue. If there is a loss shown on Form 1040 (line 41), Form 1040 (NR) (line 39) or Form 1041, Estates and Trusts (line 22), the filer may have a net operating loss for the year. Generally, the taxpayer will find he has a net operating loss if he has had losses involving regular employee expenses, casualty and theft losses, losses from a trade or business, moving expenses or losses from a rental property.
  
  
• 2). Determine whether a net operating loss exists. Start with deductions. These deductions include alimony, IRA contributions and the standard deduction. Do not include anything business-related in this figure, including rental losses and employee business expenses that have been claimed on the regular tax turn under itemized deductions
  
  
• 3). Recalculate based on any additions to income. These include non-business-related income and capital losses from the sale of stocks. The amount that can be claimed is limited by the capital gain; that is, the amount of profit a person makes from the sale of a stock. That is calculated by deducting the cost of the stock, including fees, from the final sale price of the stock. A person may only claim a loss equal to, or less than, the capital gain reported on the ordinary tax return. So, if a person has a capital gain of $100 on the sale of stocks, he may only deduct capital losses of $100 or less.
  
  
• 4
  To use a NOL as a carry-back, the taxpayer will have to recalculate past tax returns.Jupiterimages/Photos.com/Getty Images
  
  Decide how and when to apply the NOL. Generally, if a person has a net operating loss, that loss is applied to the current year, then to the previous two tax years (the carry-back period). If more loss exists, the amount may be carried forward for up to 20 years after the loss (the carry-forward period). Instead of carrying the loss back; however, the taxpayer may elect to carry the loss forward instead. If the taxpayer expects gains for upcoming years, it would be wise to use the NOL in conjunction with future gains to lessen the amount owed to the Internal Revenue Service. If the taxpayer chooses to use the carry-back option, past tax forms must be adjusted, which involves recalculating figures to recalibrate the amount of tax owed in that past year. This is a multi-step process, because current calculations relate to past tax calculations.