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Will I get a tax refund if my business loses money?

Updated By ProfitDrawer

Short answer

Not from the loss alone. A business loss lowers your taxable income: the Schedule C loss goes to Schedule 1 of Form 1040 alongside other income such as wages. You get a refund only when your withholding, estimated payments and refundable credits are more than your total tax. For 2025 returns, a loss too large to use can become a net operating loss carried forward. A ProfitDrawer bookkeeping spreadsheet shows your profit or loss for the year.

How a business loss works on a 2025 return (filed in 2026):

  • Your net loss on Schedule C, line 31, goes to Schedule 1 (Form 1040), line 3, after you apply the at-risk and passive activity loss rules, which can make it smaller.
  • A very large loss can be limited by the excess business loss rule (Form 461). The disallowed part is treated as a net operating loss (NOL) that you carry forward to a later year.
  • NOLs arising in tax years after 2020 can generally only be carried forward, not back (some farming losses are an exception). The NOL deduction for losses after 2017 is limited to 80% of taxable income figured without it.
  • A refund is the amount you overpaid on your return. If you had wages with tax withheld, a business loss that lowers your total tax can increase that overpayment.
  • If the activity is a hobby rather than a business run for profit, you generally cannot use its loss to offset other income.

Keep receipts and records for a loss year just as for a profitable one. General information, not tax advice.

Source: IRS Instructions for Schedule C (Form 1040) (2025) · Updated

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General information, not tax, legal or financial advice. Check the rules for your state and your situation.