The subject of business losses brings us back to weighing the pros and cons of LLCs, S-corps and traditional corporations.

When it comes to business losses, tax benefits of both and LLC and an S-corp include being able to pass losses through to your personal tax return just as you have passed the profits through.   Also, if you sell an S-corp, you may pay fewer taxes than if you were selling a traditional corporation.

With any business structure, if your expenses exceed your business income (called a non-capital loss), you have some flexibility on how you can use this loss. Non-capital losses can be used to offset other personal income, and can be carried forward up to seven years if you anticipate large future tax liability.

Additionally, non-capital losses can be used to recover tax you’ve already paid up to three years in the past. An accountant or tax professional can appropriately advise you on whether these options make sense for you and how to take advantage of them.

Capital losses occur when your assets (such as a business investment or real estate) decrease in value. Unincorporated entities are limited to claiming capital losses no greater than $3,000. 

With a corporation, there is no limit or restrictions to the amount of capital losses that can be moved back or carried forward to subsequent tax years.