I am a self-employed contractor. In an effort to remain competitive, I've had to cut my price for a job from the normal fee of $1,800 to $1,500. Is this a deductible business loss?

I am a self-employed contractor. In an effort to remain competitive, I’ve had to cut my price for a job from the normal fee of $1,800 to $1,500. Is this a deductible business loss?

While reducing prices during this tough economy may be a sound business practice, it won’t create a tax loss. You include in income only the money you make; by reducing prices, you have less income to include but no tax loss.

However, if you find at the end of the year that your expenses exceed your business income, you may have a net operating loss (NOL). Under new legislation (passed by the House Ways and Means Committee on January 22, 2009), you can carry back 90% of the loss for 5 years to offset income in those years and receive an immediate tax refund (a measure pending in the Senate Finance Committee would not cap NOLs at 90%). Check JK Lasser news for details on the new NOL carryback provision when it becomes law.