 So excess business loss limitation. So your loss from a trader business may be limited. Use form 461 to determine the amount of your excess business loss. If any, your excess business loss will be included as income online AP of schedule one form 1040 and treated as an NOL net operating loss that you must carry forward and deduct in subsequent years. So when you hear this term of an NOL, so now you have a loss and you're not getting a tax benefit from the loss. They've limited the loss for whatever reason. And now you have this NOL. So whenever you have a loss that you're not being able to get a benefit from, you can imagine like why would this happen? Well, if it was a new business, it's quite likely that I have a loss for like the first two to five years for depending on the type of business. But in the future years, the investments that I put in those ground level years to get the business set up is hopefully gonna generate more revenue into the future. So if you have those years that you have losses that you don't get the benefit from the losses, then you're really not getting any tax benefit for the things that the ground work that you had to lay down in order to generate the revenue in the future. So the idea should be, hey, look, obviously the IRS isn't gonna pay you possibly for losses, typically is the general idea. But you would like to be able to match up the losses that you had to the revenue that you're going to be generating in the future years. That seems kind of fair to do. So it used to be that you might have thought, well, can I carry it back or carry it forward? Currently we have the NOL that you must carry forward. So if you had income in the following year, then you might still get a tax benefit from the loss that was disallowed in the current year. Note that if you're using tax software, this carry forward kind of structure is where you really wanna be careful as a tax preparer to make sure that you're picking up the carry forwards properly. And oftentimes I would recommend trying to put the tax return in the prior year tax year software if you have a new client to restructure the prior year so that the rollover will, the software will help you with these rollovers. All right, so for more information about the excess business loss limitation, you can see form 461 and its instructions. Net operating losses, NOLs. If your deductions for the year are more than your income for the year, you may have an NOL, a net operating loss. You can use the NOL by deducting it from your income in another year or years. Examples of typical losses that may produce an NOL include but are not limited to losses incurred from the following, your trade or business. That's what our major focus is on here. The Schedule C, a casualty or theft resulting from a federally declared disaster, moving expenses or rental property. So a loss from operating a business is the most common reason for an NOL. The Schedule C, most common reason you have a loss on your business on the Schedule C. So for details about NOLs, you can see publication 535, 536. You can find on the IRS website, irs.gov. It explains how to figure an NOL, when to use it, how to claim an NOL deduction and how to figure an NOL carryover. Obviously software helps with those components as well. So not for profit activities. If you do not carry on your business to make profit, there is a limit on the deductions you can take. You cannot use a loss from the activity to offset other income activities you do as a hobby or mainly for sport or recreation come under this limit. For details about not for profit activities, see chapter one of publication 535. So when you're setting up the business, the idea is gonna be, well, is it a profit seeking endeavor? Are you doing it to generate revenue? Or is it kind of a hobby that happens to have income as well? The classic example of this was the horse racing back in the day. I guess for some reason the rich people liked to have own horse racing horses and whatnot, which apparently was quite expensive and not exactly profitable, although there was income involved sometimes. So they would run long, long extended periods of losses as a business, as if it was a business endeavor when it really looks like a quite expensive hobby possibly. So you can imagine different businesses where you're gonna have that line where it's, is it a hobby or not? Like if you were a photographer on the side or something and you take a lot of nice vacations and travel around, is it, but you might have another income or something, then you could be in one of those gray areas as to, okay, is it an actual hobby or is this a business? And you wanna be able to make sure that you delineate that line because you don't need to be scared of having losses per se if you do have a business intention, but you wanna be able to prove that you do have a business intention in the event of an audit. Other types of businesses are pretty more straightforward. Obviously if you do tax preparation or something like that, nobody does tax preparation as a hobby generally, right? So I mean, so the IRS is less likely to say, ah, you know, your tax business, it looks like you're doing that for the joy, the simple joys of life, you know, although tax preparation can be fun, you know, but it's not, that's probably not usually the case, but if you're buying horse flesh, if you're a horse racer, or if you're traveling the world as a photographer on the side or something like that, and you have a lot of losses for multiple years, you can imagine the IRS being more likely to say, hey, look, I'm sitting in here in the office, that doesn't look like a business. So again, it might be a business thing, but you wanna make sure that you structure it and make the argument. So anyways, the chapter explains how to determine whether your activity is carried on for profit and how to figure the amount of loss you can deduct.