PHILADELPHIA, PA — As Philadelphia enters the 2024 tax season, the city’s Department of Revenue is reminding businesses about a recent legislative change that could impact their tax returns. The Philadelphia City Council has approved legislation allowing net operating losses incurred in tax years 2022 and beyond to be carried forward for up to 20 years.
This means businesses that suffered a net loss in 2022 can deduct those losses from profits generated in subsequent years, potentially reducing their tax liability. The Department of Revenue recommends filing a complete Business Income & Receipts Tax (BIRT) return if businesses intend to use this provision to offset losses from 2022 against profits from 2023.
However, it should be noted that losses incurred in tax years prior to 2022 can only be carried forward for three years. This underscores the importance of maintaining accurate financial records and understanding the nuances of the city’s tax code.
Filing the BIRT return online is straightforward. Businesses need to log into their Philadelphia Tax Center profile to access their BIRT account. From there, they can select the option for filing, viewing or amending returns. After entering the liability amount on the tax liability screen and following the on-screen instructions, the process is complete.
The current net income rate of the BIRT is 5.81%. All businesses operating in Philadelphia, including those engaged in commercial or residential real estate rental activity, are required to file a BIRT return or a “No Tax Liability” form. Even businesses that did not earn a profit must still file this tax, but payment is only required if gross receipts or profits exceeded $100,000.
Exemptions may apply for businesses whose Philadelphia taxable gross receipts are less than $100,000. These businesses do not need to file the BIRT return but must instead file a one-page No Tax Liability (NTL) form through their BIRT account on the Philadelphia Tax Center. Paper versions of the 2023 BIRT return and No Tax Liability forms are also available on the Department of Revenue’s website.
The NTL should be filed each year a business generates less than $100,000 in Philadelphia gross receipts. For those planning to carry forward their losses, filing a complete BIRT return is crucial to keep track of net operating loss carryforwards.
The extension of the carry forward period for net operating losses from three to 20 years represents a significant change in Philadelphia’s tax code. It provides businesses with an opportunity to offset future profits with past losses, potentially offering substantial tax savings. Businesses with questions or seeking more information can contact the Philadelphia Department of Revenue directly at (215) 686-6600. Click here to learn more.
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