NOL Planning for Startups: Maximize Tax Losses in 2026

For the 2026 tax year, NOL planning for startups has become more critical than ever. Net operating losses offer powerful tax strategies that can transform startup finances when leveraged properly. Understanding how to maximize, carry forward, and strategically deploy your NOLs can mean the difference between financial survival and optimized growth for your early-stage business.

Table of Contents

• Key Takeaways
• What Is a Net Operating Loss (NOL)?
• How Do NOL Carryback and Carryforward Rules Work?
• How to Maximize NOL With 100% Bonus Depreciation
• Understanding the 80% NOL Limitation Rule
• Strategic Timing: When to Trigger NOLs for Maximum Impact
• Documentation and Basis Tracking for NOL Compliance
• Uncle Kam in Action: Tech Startup Saves $47,200 With NOL Strategy
• Next Steps
• Frequently Asked Questions

Key Takeaways

• NOL planning for startups enables tax loss deductions that reduce future taxable income by up to 80% annually.
• The 2026 reinstatement of 100% bonus depreciation creates significant NOL opportunities for capital-intensive startups.
• Strategic carryback and carryforward election timing can unlock immediate tax refunds or preserve losses indefinitely.
• Proper documentation and basis tracking prevent costly IRS audit exposure and maximize deduction security.

What Is a Net Operating Loss (NOL)?

A net operating loss (NOL) represents the amount by which your allowable business deductions exceed your gross income during a tax year. For startups specifically, NOLs are common during initial operating phases when you’re investing heavily in infrastructure, equipment, and market development while revenue is still ramping up.

The IRS recognizes that businesses operate at a loss during growth phases. Rather than penalizing startups, the tax code allows you to carry these losses forward to offset future profitable years. This mechanism creates tremendous strategic value for early-stage companies.

Why NOLs Matter for Startup Tax Planning

Startups frequently operate at losses during their first 3-5 years. This isn’t a failure—it’s a normal investment phase. The challenge is managing these losses strategically so you maximize their tax benefit when the business becomes profitable.

Without proper NOL planning, startups leave thousands in tax savings on the table. By understanding carryback and carryforward elections, bonus depreciation strategies, and limitation rules, you can:

• Generate immediate tax refunds by carrying losses back to prior profitable years
• Preserve losses indefinitely for use in future profitable years with 80% annual limitations
• Amplify losses through bonus depreciation on capital equipment purchases
• Prevent ownership change limitations from eliminating your tax asset value

How NOLs Are Calculated

Calculating your NOL for 2026 starts with your business tax return (Form 1120S for S Corps, Form 1120 for C Corps, Schedule C for sole proprietors). The calculation is straightforward:

NOL = Total Business Deductions − Total Business Income

If this calculation results in a negative number, you have an NOL available for tax planning. The IRS allows you to deduct this loss against other income sources or future years’ income, subject to specific limitations and timing rules.

How Do NOL Carryback and Carryforward Rules Work?

The IRS provides two mechanisms to use your NOLs: carryback and carryforward. Understanding when to use each strategy is fundamental to NOL planning for startups.

NOL Carryback: Immediate Refund Strategy

Carryback allows you to use your 2026 NOL to offset income from prior years, specifically 2024 and 2025. This strategy generates an immediate tax refund if you paid taxes in those years.

Here’s how the carryback timeline works for 2026 NOLs:

Tax Year	Carryback Priority	Refund Timeline
2024	First year (applied first)	30-60 days after filing amended return
2025	Second year (if 2024 income exhausted)	30-60 days after filing amended return
2026 and forward	Carryforward begins (subject to 80% limitation)	Reduces taxes on future profitable years

If your 2026 NOL exceeds the income in both 2024 and 2025, the remaining loss carries forward indefinitely to future years. This two-step process maximizes your refund potential while preserving unused losses.

NOL Carryforward: Long-Term Loss Strategy

Carryforward allows unused NOLs to reduce taxable income indefinitely. However, the Tax Cuts and Jobs Act (TCJA) implemented an important limitation: NOLs created after January 1, 2018 can only offset 80% of your taxable income in any given year.

This 80% limitation means that if your startup becomes profitable in 2027 with $500,000 in taxable income, you can only use $400,000 of NOLs that year (80% × $500,000). The remaining $100,000 of loss carries forward to 2028.

How to Maximize NOL With 100% Bonus Depreciation

One of the most powerful NOL planning strategies involves bonus depreciation. Thanks to the One Big Beautiful Bill Act (OBBBA), 100% bonus depreciation remains in effect for qualifying property placed in service during 2026.

What Property Qualifies for Bonus Depreciation?

For 2026 NOL planning, bonus depreciation applies to Section 1245 and Section 1250 property including:

• Equipment and machinery used in business operations
• Computer systems and software (in many cases)
• Furniture and fixtures in commercial spaces
• Qualified improvement property and leasehold improvements
• Vehicles and transportation equipment
• Manufacturing and production equipment

Strategic Timing for Equipment Purchases

Startups can strategically time equipment purchases to maximize 2026 NOLs. If your startup will have significant revenue later in the year, consider accelerating capital equipment purchases into early 2026 to create or amplify NOLs.

Example: A technology startup projects $800,000 revenue in 2026 but has $400,000 in operating expenses. Without capital purchases, they’d have $400,000 taxable income. If they purchase $600,000 in server equipment in January 2026 with 100% bonus depreciation, they create a $200,000 NOL instead ($400,000 income − $600,000 depreciation).

Understanding the 80% NOL Limitation Rule

The 80% NOL limitation, enacted in the Tax Cuts and Jobs Act and continuing through 2026, represents the most significant constraint on NOL utilization for modern startups. This rule prevents businesses from using losses to completely eliminate all taxable income in future years.

How the 80% Limitation Works in Practice

Calculate your NOL utilization limit using this formula:

Maximum NOL Deduction = Taxable Income (before NOL) × 80%

If your 2027 taxable income is $250,000 and you have $500,000 in accumulated NOLs available, you can deduct $200,000 of NOLs (80% × $250,000). The remaining $300,000 of NOLs carries forward to 2028.

Year	Taxable Income (before NOL)	80% Limitation Amount	NOLs Carried Forward
2027	$250,000	$200,000 (80%)	$300,000 remaining
2028	$350,000	$280,000 (80%)	$20,000 remaining

The Section 382 Ownership Change Limitation

Beyond the 80% annual limitation, startups must understand Section 382 rules. These rules dramatically limit or eliminate NOL usage if there’s a significant ownership change.

A Section 382 ownership change occurs when shareholders owning more than 50% of company stock change within a three-year period. For venture-backed startups, this typically happens during funding rounds when existing ownership percentages dilute below 50%.

If Section 382 applies, your 2026 NOL might be subject to an annual limitation amount (typically far below the 80% threshold), essentially eliminating the NOL’s tax benefit. This is why professional guidance before accepting outside investment is critical.

Strategic Timing: When to Trigger NOLs for Maximum Impact

Strategic timing separates founders who maximize NOL tax benefits from those who leave money on the table. For 2026 NOL planning, timing decisions involve multiple variables: revenue projections, capital expenditure schedules, owner compensation levels, and anticipated future profitability.

Pre-Profitability Acceleration Strategy

If your startup projects becoming profitable in 2027 or 2028, use 2026 strategically to amplify NOLs through aggressive equipment purchases, marketing spend, or discretionary R&D investments. These losses can then be carried back to 2024 or 2025 for immediate refunds.

This strategy works best if you had profitable years in 2024 or 2025. By creating larger 2026 NOLs, you maximize refundable losses and preserve excess NOLs for carryforward against future profits.

The Carryback Election Decision

Not every startup should elect carryback. Consider declining carryback if:

• 2024 or 2025 tax rates were lower than your projected 2027+ rates
• You anticipate Section 382 limitations from future funding rounds
• Generating a refund creates cash flow issues with lenders or investors
• You expect significantly higher profits in 2027 or 2028

By declining carryback, your entire 2026 NOL carries forward to offset 80% of future years’ income, stretching the tax benefit over multiple profitable years.

Documentation and Basis Tracking for NOL Compliance

Documentation is the foundation of defensible NOL planning. The IRS scrutinizes NOLs closely, particularly in startups claiming large first-year losses. Weak documentation can result in lost deductions, penalties, and interest on back taxes.

Critical Documents for 2026 NOL Defense

• General Ledger: Complete transaction-by-transaction accounting of income and expenses
• Equipment Invoices and Purchase Orders: Proof of property cost basis and placed-in-service dates
• Bonus Depreciation Election: Form 4562 showing Section 1245 property elections
• Depreciation Schedule: Detailed asset list with cost, method, and annual deduction amounts
• NOL Calculation Workpaper: Step-by-step math showing how you arrived at your NOL amount
• Carryback/Carryforward Election: Filing statement showing your NOL utilization plan

Basis Tracking System for Startups

Basis tracking prevents the most common NOL planning errors. Maintain a detailed spreadsheet tracking:

• Asset description and serial number
• Purchase date and acquisition cost (original basis)
• Placed-in-service date (critical for bonus depreciation eligibility)
• Depreciation method (MACRS, bonus, Section 179)
• Annual depreciation deduction amount
• Accumulated depreciation (cumulative through 2026)

This basis tracking system serves multiple purposes: it supports your 2026 NOL calculation, prevents duplicate deductions, supports future gain/loss calculations on asset disposition, and provides the documentation needed if the IRS examines your returns.

 

Uncle Kam in Action: Tech Startup Saves $47,200 With NOL Strategy

Client Snapshot: A software-as-a-service (SaaS) startup founded in early 2024 by two technical founders seeking venture capital to accelerate product development and market entry.

Financial Profile: The company generated $850,000 in early customer revenue during 2025 but invested aggressively in product development, hiring, and infrastructure. 2025 operating expenses totaled $1,200,000, creating a $350,000 NOL. The founders projected 2026 revenue of $2.1 million with expenses of $1.4 million, resulting in $700,000 taxable income.

The Challenge: Without proper NOL planning, the startup faced $147,000 in federal income taxes on its 2026 profits (at a 21% corporate rate). The founders had received a $500,000 seed investment and were preparing for a Series A round, with new investors diluting ownership below 50%. The startup was also considering whether to elect carryback on its 2025 NOL or preserve it for future use.

The Uncle Kam Solution: Our team implemented a comprehensive NOL strategy combining multiple techniques:

First, we analyzed the 2025 NOL carryback option. Since the founders had no 2023 prior-year taxes and minimal 2024 income, carryback offered no immediate refund benefit. Instead, we elected to carry the 2025 NOL forward.

Second, we optimized 2026 capital equipment purchases. We identified $400,000 in server infrastructure, development tools, and office equipment that could be placed in service during 2026. By accelerating these purchases to Q1 2026, we claimed 100% bonus depreciation, creating an additional $400,000 deduction.

Third, we structured the timing of discretionary 2026 expenses. By deferring $75,000 in consulting expenses and conference sponsorships to January 2027, we reduced 2026 taxable income before NOL application.

Fourth, recognizing the upcoming Series A dilution and Section 382 risk, we obtained a Section 382 protective appraisal to document the startup’s value. This documentation reduced the likelihood of aggressive IRS Section 382 assertions in an audit.

The Results:

• Tax Savings: By combining the 2025 NOL carryforward ($350,000) with bonus depreciation ($400,000) and expense timing ($75,000), the startup reduced 2026 taxable income from $700,000 to approximately $175,000 (after applying the 80% limitation). Total tax liability reduced from $147,000 to approximately $36,750, saving $110,250 in 2026 federal taxes. However, this required proper structure—the actual result was $47,200 in net savings after considering state taxes and NOL tracking costs.
• Investment: The startup invested $12,500 in comprehensive NOL analysis, Section 382 protective documentation, and professional tax structuring.
• Return on Investment (ROI): A 3.8x return on investment in the first year alone ($47,200 savings ÷ $12,500 investment), plus preservation of remaining NOLs for future years’ tax planning.

This is just one example of how our proven tax strategies have helped clients achieve significant savings through strategic NOL planning. Early coordination with tax advisors before funding rounds and major capital purchases can preserve millions in tax assets for startups.

Next Steps

If your startup is planning for 2026 or experienced losses in 2025, here’s what to do now:

• Calculate your estimated 2026 NOL by month. Track revenue and expenses closely to identify when NOLs are likely to occur.
• Document all capital equipment purchases with cost basis details. If you haven’t claimed bonus depreciation, you may be able to amend prior returns to claim it for equipment already owned.
• Schedule a consultation with our professional tax planning team before major decisions (funding rounds, equipment purchases, expense acceleration). This coordination prevents costly mistakes.
• Review your ownership structure and Section 382 risk if outside investors are joining the company. Professional Section 382 analysis can preserve millions in tax assets.

Frequently Asked Questions

Can I use my 2026 NOL to offset W-2 wages from other employment?

If your startup operates as an S Corporation or partnership and you draw W-2 wages, those wages are personal income, not business income. Your business NOLs can only offset your business’s taxable income, not your personal W-2 income. However, if you’re a sole proprietor filing Schedule C, business losses do offset your personal income including W-2 wages from other sources through your overall tax calculation.

What happens to my NOL if my startup gets acquired?

In a merger or acquisition, Section 382 rules typically eliminate or severely limit your NOL usage. The acquiring company cannot use the startup’s pre-acquisition NOLs unless strict Section 382 limitations are satisfied. This is why founders often negotiate earnout provisions or holding company structures to preserve tax assets in acquisition transactions. Professional tax planning before any acquisition conversation is essential.

Should I claim bonus depreciation on all 2026 equipment purchases?

Not necessarily. If you’re creating significant NOLs already, claiming bonus depreciation amplifies those losses but may not increase your tax benefit (due to carryforward limitations). Sometimes, spreading depreciation over time using regular MACRS method deductions preserves tax deductions for years when the 80% limitation doesn’t apply. A professional tax analysis of your multi-year projection helps determine the optimal election.

How long can I carry my NOL forward?

For NOLs generated in 2026 (and after 2017 generally), there is no expiration date for carryforward. However, you face the 80% annual limitation on taxable income. This means your NOL could take 10+ years to fully utilize if you generate continuous profits. The carryforward period is indefinite, but annual utilization is capped at 80% of taxable income each year.

What’s the difference between an NOL and a tax loss on Schedule C?

An NOL is specifically a business’s total deductions exceeding its income, calculated at the entity level (corporate or partnership). A Schedule C loss is a sole proprietor’s business loss carried to the personal tax return. For sole proprietors, the Schedule C loss immediately reduces personal taxable income. For S Corps and partnerships, the NOL is tracked separately and available for carryback and carryforward elections under IRC Section 172.

Can I still use Section 179 if I claim bonus depreciation?

Yes. Section 179 expensing allows up to $1.460 million of qualifying property to be expensed immediately. Bonus depreciation applies to other qualifying property. You can use both elections in the same year. For example, claim bonus depreciation on equipment over $1.460 million and Section 179 expensing on equipment up to the $1.460 million threshold to maximize first-year deductions.

Related Resources

• Comprehensive Tax Strategy Services for Startups
• Entity Structuring and Optimization Services
• Professional Tax Preparation and Filing
• Startup Tax Planning Success Stories
• IRS Form 4562: Depreciation and Amortization

Last updated: January, 2026