How to Recoup Taxes

Individual taxpayers can potentially recoup taxes from prior tax years, when the taxpayer suffers a net operating loss in the current tax year.

An individual taxpayer in the United States may be able to recoup taxes paid in prior years when that taxpayer suffers a net operating loss in the current tax year. In recent years, legislation, such as the Homeownership and Business Assistance Act of 2009, has expanded the ability of taxpayers to recoup prior taxes. Recouping income taxes is known as the "carry-back" of losses and can result in substantial refunds when losses are carried back to periods in which the taxpayer had taxable income.

Things You'll Need

• Form 1045, Application for Tentative Refund
• Schedule A, Form 1045
• Current-Year Form 1040, Individual Income Tax Return
• Form 1040 for year(s) you wish to recoup taxes

Instructions

Completion of Forms

1. Identify your net operating loss carry-back from your current-year individual income tax return, federal Form 1040. This amount is the line for "Taxable Income," plus the amount of any deductions relating to the line for "Exemptions."

2. Verify that there are no adjustments to your net operating loss, by completing Schedule A of Form 1045. This schedule contains a list of possible adjustments to your net operating loss. Complete this schedule to determine the adjusted value of your net operating loss.

3. Input the adjusted value for your net operating loss on Form 1045 in the box called "Net operating loss (NOL)."

4. Recompute your tax liability on your prior-year's Form 1040 after reducing your adjusted gross income for that year by the value of your current-year net operating loss deduction. For this, you need to use Form 1040 for the year into which you wish to carry back the losses.

5. Input the recomputed values from your recomputed prior-year Form 1040, along with the original values on the Form 1045. The difference between the recomputed total tax and the original value is the amount of taxes you will recoup.

Tips & Warnings

• Make sure you complete all additional informational boxes on the Form 1045 in accordance with the specific instructions. These include your personal contact information, as well as specific questions regarding your application for refund.

• Taxes can be extremely complicated. There may be extenuating circumstances not discussed in this article. You should always consider consulting a tax advisor before making any tax decisions.

• Taxpayers may recoup prior taxes paid either through filing Form 1045, "Application for Tentative Refund," or through filing Form 1040X, "Amended U.S. Individual Income Tax Return." In the majority of circumstances, filing Form 1045 will result in a quicker refund and may be substantially less complicated to complete. As a result, filing Form 1045 is outlined in this article.

References

• Tax Almanac: Rev. Proc. 2009-5
• Internal Revenue Service: Instructions for Form 1045
• Internal Revenue Service: Instructions for Form 1040-X
• Internal Revenue Service: Form 1045