Business loss is a state that occurs when a company fails to generate enough revenue to cover all expenses associated with the operation of the business. This disparate relationship between profit and loss often results in the ability to claim the loss as a tax deduction, although that is not always the case. Companies generally prefer to avoid business losses if at all possible, and will usually take action to eliminate or at least reduce the amount of the loss.
Along with businesses, individuals may also experience a business loss. People who choose to support themselves with freelance work may incur such a loss when their efforts do note generate enough business volume to cover all the expenses associated with offering those services. Like businesses, a freelance professional may or may not be able to claim such a loss as a deduction on a tax return, based on currently applicable tax laws.
Investors may also experience a business loss. This occurs when a stock or other type of security fails to maintain a value equal to the purchase price. If during the course of a calendar year the option price falls below the amount paid for the option initially, the investor begins to lose money on that investment. When this happens, it may be possible to use the loss to offset the gains made with other investments and thus minimize the overall tax burden.
Even though there may be some slight tax advantages associated with a business loss, the loss is rarely viewed as a positive event. This is because businesses normally are not able to operate at a loss forever. While it is true that many new businesses go through a period of several years of loss, the expectation is that eventually the company will begin to operate at a profit. Once it is clear the business will not become profitable, the company is shut down and the asset liquidated as a means of partially repaying investors and backers.
In terms of business operations, any portion of the business loss that remains after taking all allowed tax deductions may be classified as a net operating loss. However, it is important to note that tax laws vary greatly around the world and the incidence of a loss may not automatically lead to a full or even partial deduction of the loss. When there is an apparent lack of sufficient income to offset the expenses of a business venture, it is always a good idea to consult a tax professional.