A tax loss appears when a company spends more than the income it receives, that is, when the initial capital that was contributed to the company, instead of duplicating, absorbs surplus expenses.
Article 57 of the Income Tax Law (LISR) defines tax loss as: “the difference between the cumulative income for the year and the deductions authorized by this Law, when the amount of the latter is greater than the income.”
*Natural persons with professional activities that undergo tax losses have the right to diminish these with the generated fiscal utilities over the following 10 fiscal years.
A tax loss is the result obtained from the subtraction between the cumulative income of the performed fiscal year, and the authorized deductions corresponding to the same period. The income received by the company is that authorized by the law on the matter and is called cumulative income.
On the other hand, the expenses received by the company in the same fiscal matter are known as authorized deductions.
*The expenses made must fulfill certain requirements and some of these are simply not authorized as deductibles.
For it to be considered a tax loss, it is important for such deductions to be greater than the income, otherwise it would rather be a utility.
The corresponding operation is the following:
Cumulative income of the fiscal year - authorized deductions = tax loss.
The losses are personal of the taxpayer that generates them and cannot be transferred toanother person, not even as a consequence of the alienation of the business; these tax losses can only be reduced from the fiscal utility derived from the own activities to which this refers.
*For purposes of amortization, the Income Tax Law (LISR) permits the updating of such tax losses.
If the taxpayer does not reduce the tax losses of the previous fiscal years, despite the possibility of doing so, he or she will lose the right to do it in the following years, and even for the amount in which it could have been made initially.
How to use a tax loss?
Applies or amortizes interim payments of the following fiscal year to which the loss is generated. Every time the subject is a natural person, it must be applied to a single business and professional activity.
What is required to use tax losses?
- Have submitted the annual return of the year in which the loss was generated.
- In the regime of business and professional activity, the application of the tax loss must be defined once determined the fiscal utility of the period to which it corresponds.
If you are experiencing a tax loss, approach QuAdrans law and finance to be provided with advice from the accounting service of our certified accountants.
