Many California taxpayers assume that if a loss reduces their federal tax bill, it will automatically reduce their California tax as well. Unfortunately, that assumption can lead to unpleasant surprises. California does not always follow federal rules when it comes to net operating losses (NOLs), and right now the gap between federal and state treatment is especially significant.
At the federal level, net operating losses are generally allowed to be carried forward and used to offset future taxable income, subject to certain limitations. For businesses and individuals who experienced losses in recent years, federal NOLs remain an important planning tool […]