How can I offset losses in the balance sheet?
March 20, 2023 | 50,00 EUR | answered by Selma Rosenblatt
Dear tax consultant,
my name is Johann Köhler and I run a small business in the trading sector. Unfortunately, in my last fiscal year, I had to report losses, which concerns me greatly. I am wondering how I can offset these losses in my balance sheet to reduce my tax burden and improve my liquidity.
Regarding the current situation: My sales in the last year were significantly lower due to the difficult economic conditions, and my expenses were higher than expected. As a result, I incurred losses, which are now reflected in my balance sheet. I have already made all possible savings to reduce my costs, but I fear that the losses will continue to burden my financial situation if I do not take appropriate measures.
I have heard that there are various ways to offset losses in the balance sheet, such as offsetting them with profits from previous years or creating reserves. However, I am unsure which option is best suited for my company and how I can implement it.
Therefore, my question to you is: How can I offset losses in my balance sheet to reduce my tax burden and improve my liquidity? What specific steps do I need to take to offset the losses and stabilize my financial situation?
I look forward to your expert advice and thank you in advance for your support.
Best regards,
Johann Köhler
Dear Mr. Köhler,
Thank you for your inquiry regarding offsetting losses in your balance sheet to reduce your tax burden and improve your liquidity. It is understandable that you are concerned about the current losses in your company and are looking for ways to stabilize your financial situation.
First and foremost, it is important to understand that losses in the balance sheet can generally be offset with profits from previous years to achieve tax benefits. This is known as loss carryforward. So, if you have generated profits in previous years and are experiencing losses this year, you can offset these losses with the profits from previous years and thus reduce your tax burden.
Another way to offset losses is by creating reserves. Here, you can show losses in a reserve to offset them with profits in later years. This provides you with the opportunity to reduce your tax burden and improve your liquidity, as you do not have to immediately pay taxes on the losses.
To effectively offset the losses in your balance sheet, it is advisable to consult with an experienced tax advisor. A tax advisor can help you develop the best strategy for your company and optimize the offsetting of losses. Together, you can determine which option - loss carryforward or reserve formation - is most beneficial for your company and how to implement it.
It is important that you have all relevant documents and information ready so that your tax advisor can provide you with informed advice. Additionally, you should schedule regular meetings to monitor the implementation of the offsetting of losses and make any necessary adjustments.
Overall, it is important that you take proactive action and seek professional support to effectively offset the losses in your balance sheet and stabilize your financial situation. With the help of an experienced tax advisor, you can take appropriate measures to reduce your tax burden and improve your liquidity.
I hope that my response was helpful to you and I am available for any further questions.
Best regards,
Selma Rosenblatt
Tax Advisor
