Vernoia, Enterline + Brewer, CPA LLC

A new law creates an alternative business calculation under the New Jersey gross (personal) income tax as a mechanism that permits taxpayers who generate income from different types of business entities to offset gains from one type of business with losses from another and permits taxpayers to carry forward an alternative business loss for a period of up to 20 taxable years. Currently, New Jersey only allows losses from one category of income to offset gain from the same category of income and does not allow any loss carryover.

Beginning with the 2012 tax year, taxpayers will be permitted to net gains and losses derived from one or more of the following business-related categories of gross income: net profits from business; net gains or net income derived from or in the form of rents, royalties, patents, and copyrights; distributive share of partnership income; and net pro rata share of S corporation income. Also, a taxpayer who sustains a loss from a sole proprietorship may apply that loss against income derived from a partnership, subchapter S corporation, or rents and royalties, but may not apply losses from those categories to income that is not related to the taxpayer’s conduct of the taxpayer’s own business, including salaries and wages, the disposition of property, and interest and dividends.

The tax savings will be phased in over five years beginning with the 2012 tax year on the basis of a “business increment.” The business increment is determined by subtracting alternative business income from regular business income.

If you think you may be able to benefit from the new business loss deduction and carryover rules, we can assist you in making that determination and preparing you to take the deductions. Please call (908) 725-4414 to arrange an appointment with VEB CPA at your earliest convenience.

To comply with IRS requirements, please be advised that, unless otherwise stated by the sender, any tax advice contained in this message is not intended or written to be used, and cannot be used, by the recipient to avoid any federal tax penalty that may be imposed on the recipient, or to promote, market or recommend to another any referenced entity, investment plan or arrangement.