How to take into account expenses of previous years when calculating income tax

Business lawyer > Accounting > Accounting and reporting > Losses of previous years - all entries in accounting

All commercial organizations strive to make a profit from all activities carried out. For each reporting period, the accountant must prepare appropriate documents reflecting profits and losses. But when, after double-checking previously compiled and approved papers, a previously unrecorded loss is identified, it must be recorded for the current year using special postings. Below you will find postings of losses from previous years.

Determination of loss at the end of the year

Throughout the calendar year, the company uses entries to record the following transactions:

• Score 90 reflects profitability
• Account 91 – expenses incurred

To summarize the financial results of the company, it is necessary to close both of these accounts. For the past year, those economic activities whose account 90 is less than the amount in account 91 are considered unprofitable - i.e. expenses exceeded income.

The Tax Code itself does not contain an exact list of documents that confirm the write-off of losses for early years. This is usually evidenced by primary documentation:

• invoices
• accounts
• statements

Therefore, all accounting documents are suitable. The exceptions are:

• accounting cards
• tax registers

Company losses in trading on video:

Taxpayers are not required to justify losses (Article 252 of the Tax Code). To recognize expenses when calculating tax, two conditions must be present:

• Economic feasibility of this circumstance
• Confirmation of losses in company documentation

The amount of income tax to be paid in the coming reporting periods depends on whether losses are recorded correctly in accounting. In accounting it is calculated at the end of the period. To determine it, it is necessary to compare the costs incurred with the amount of cash receipts received. The final result is calculated from the sum of the results for all types of activities carried out by the enterprise, and other receipts and disposals.

General rule

For example, an accountant made a mistake when calculating the income tax base in December 2021.
The same error led to an understatement of income taxes and distorted accounting data. The bug was discovered in December 2021. The accountant must reflect the corrections as follows:

• in accounting – in reporting for 2021;
• in tax accounting - in the income tax return for 2019.

If it is impossible to determine the period when the error was made or the tax base was underestimated and the tax was underpaid, the error is corrected in the period when it was discovered (clause 1 of Article 54 of the Tax Code of the Russian Federation).

Reflection of losses in accounting

To correctly reflect all financial results, it is necessary to use special account 99 (Order of the Ministry of Finance of the Russian Federation No. 94). During the year, periods are gradually closed, after which interim reports are drawn up. As a result, a short-term reduction in the current tax base may be established.

It is possible to determine exactly how much the tax burden is allowed to be reduced only at the end of the year, when the final size of the tax base is established. To reflect losses in accounting records, the entries described in Table 1 are made.

To transfer losses to other periods, you will need to close account 99. For this purpose, use the posting Dt 94 Kt 99.

Important! All results of the enterprise’s activity in subaccounts of accounts 90 and 91 are reflected throughout the year. Therefore, the resulting values ​​will increase in ascending order.

An exception is the balance sheet reform carried out at the end of the reporting year. In this case, they are reset using the entries:

• Dt 90.1 Kt 90.9
• Dt 90.9 Kt 90.2 (90.3)

In account 91, the reformation is carried out in a similar way. Therefore, the loss accumulated at the end of the interim reporting periods remains untouched - all financial results are simply reflected in account 99.

Losses in a consolidated group of taxpayers

A special procedure for writing off losses from previous periods is provided for by tax legislation for former participants in consolidated groups of taxpayers. This procedure depends on whether the former member was reorganized (recreated during the reorganization) while it was part of the consolidated group.

For profit tax purposes, losses of previous years are taken into account by the former member of the consolidated group according to general rules, taking into account the provisions of Article 50 of the Tax Code of the Russian Federation. The only exception: the maximum period for carrying forward losses is increased by the number of years of being part of the consolidated group.

An organization that is a former group member can reduce the tax base of the current tax period by the amount:

• its losses incurred before joining the consolidated group;

• losses of liquidated organizations of which it is a legal successor, if the organization, being part of a consolidated group, was reorganized in the form of a merger or accession. In this case, only those losses that the liquidated organizations incurred before joining the consolidated group are accepted;

• losses of a liquidated (reorganized) organization, the legal successor of which is an organization that is a former member of a consolidated group, if during the period of participation in such a group it was newly created as a result of reorganization in the form of division. In this case, only those losses that the liquidated organization incurred before joining the consolidated group are accepted.

This procedure is provided for in paragraph 6 of Article 283 of the Tax Code of the Russian Federation.

Current year losses

If at the end of the year it becomes known that the credit of account 99 is less than the debit of 99, this indicates that the past year was unprofitable for the company. Summarizing the results, the accumulated balance of account 99 is included in the array of retained earnings or unclosed losses, making 2 entries (Table 2).

Losses from previous years: postings

If a company has found an error in the documents in the current year, due to which the amount of profit was previously overestimated or the amount of loss was underestimated, then the methods for correcting such a deficiency depend on:

• moment of discovery of the defect
• how critical is the error itself?

Video lesson on reflecting losses from previous years:

There are two options for action here (Table 3).

In Art. 54 of the Tax Code establishes the following conditions for recalculating the tax base:

• If you were able to determine the period of occurrence of the error, you need to recalculate the database exactly for this time interval
• When the period has not been established for certain, amendments are made to the base of the current

Income tax: loss of previous years or clarification?

Echoes of the past

The procedure for taxpayers to act upon detection of errors in determining tax for past periods is regulated by two articles of the first part of the Tax Code.
Thus, Article 54 of the code established a simple algorithm: if the period of the error is known, then the base must be recalculated for that period. If the period is not known, we edit the current base. In other words, this article of the Tax Code of the Russian Federation answers the question: what period to rule? Article 81 of the Tax Code of the Russian Federation tells how exactly amendments are made. And it says that there is an obligation to file an updated return only when an error has led to an understatement of the tax amount. And if the error led to an overstatement of tax, then filing a return is the right, not the obligation of the taxpayer, but in order to reflect the overpayment, this must be done.

These general rules are probably known to every accountant and are successfully used when resolving issues with incorrect reflection of transactions for VAT, property tax, unified social tax, personal income tax, etc. But when it comes to income tax, many accountants believe that in some cases it is possible to do without submitting an amendment.

Why is clarification bad?

An updated declaration, as a rule, arouses increased interest on the part of tax authorities, especially if additional expenses are declared for this declaration, which leads to a reduction and, as a consequence, a tax offset or refund. In addition, making changes to tax reporting is a rather labor-intensive process, especially in large organizations. Therefore, the desire to avoid the need to change the declaration is quite understandable.

Insidious article

The reason for not filing an updated return if the income tax is overstated (which occurs due to the fact that in previous periods any expenses were not taken into account) is provided by subparagraph 1 of paragraph 2 of Article 265 of the Tax Code of the Russian Federation. It allows losses from previous tax periods that are discovered in the current year to be included in non-operating expenses. At first glance, the mechanism of Article 265 is perfectly suited for cases where, for some reason, expenses were not taken into account in the period in which they were incurred. For example, due to the fact that supporting documents were received next year.

Situation

Not always an updated declaration is associated with errors or incorrect work of the accounting department. Proof of this is a very common situation that every accounting department has probably encountered. End of the year, expenses are incurred to pay for any work or services. At the same time, documents confirming these expenses are received by the accounting department only in April of the following year. And the profit declaration has already been submitted, but these expenses are not reflected in it, since there were no supporting documents. As a result, the tax amount is overestimated, although the accounting department did not make any errors.

But let's read it more carefully: expenses include losses from previous tax periods. And as you know, a loss is a negative financial result. It turns out that under Article 265 it is possible to take into account only such expenses, which as a result led to a loss... However, this conclusion “collapses” if you read the introductory sentence of paragraph 2 of Article 265 of the Tax Code of the Russian Federation. It says that only those losses that are received in the reporting (tax) period are equated to non-operating expenses. But the size of the loss can be determined only after income and expenses for the period have been generated. That is, current losses (which could be included in current expenses) cannot be included in tax accounting!

Then it turns out that the entire paragraph 2 of Article 265 of the Tax Code of the Russian Federation is not about loss as a financial result of activity, but about expense. Then the “puzzle” will fit and non-operating expenses will include specific costs from past periods, or the amounts of expenses incorrectly reflected in the past. Note that such an interpretation will correspond to both Article 81 of the Tax Code of the Russian Federation (which does not require submitting an amendment when the amount of tax payable is overstated) and Article 54 (which says that amendments are made during the period of error). The fact is that the rules of Article 265 of the Tax Code of the Russian Federation can be considered as special (establishing rules specifically for income tax) in relation to Article 54 of the code.

YOU for your extra accountability

But, unfortunately, the highest court of the country did not agree with such an interpretation of the rules of paragraph 2 of Article 265 of the Tax Code of the Russian Federation. In the Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 09.09.08 No. 4894/08, the judges indicated that the term “loss” is directly defined in Chapter 25 of the Tax Code of the Russian Federation. And it means precisely the negative difference between income and expenses (clause 8 of Article 274 of the Tax Code of the Russian Federation). At the same time, there are no reservations that this definition is valid only for Article 274 of the Tax Code of the Russian Federation and does not apply to the remaining articles of Chapter 25 of the Tax Code of the Russian Federation. This means that Article 265 of the Tax Code of the Russian Federation deals specifically with loss as a negative financial result.

Thus, we find that the rules of paragraph 2 of Article 265 of the Tax Code of the Russian Federation are not applicable in cases where expenses of past periods have been identified. Therefore, if such errors are detected in declarations, the accountant must act according to the general rules of Articles 54 and 81 of the Tax Code of the Russian Federation. Namely: if the period of error is known, then in order to take into account additional expenses when taxing profits, you need to submit an updated declaration. If the period is unknown, then these expenses are taken into account in the current period, but not on the basis of paragraph 2 of Article 265 of the Tax Code of the Russian Federation, but according to the rules of the corresponding expense. And paragraph 2 of Article 265 of the Tax Code of the Russian Federation will be applied only if, as a result of correcting the declaration for the previous period, a loss resulted (or increased). In this case, the amount of this loss can be attributed to non-operating expenses of the current period.

So, let's summarize. To account for expenses relating to past periods, you always need to submit an updated declaration to the tax office*. Moreover, if this is not done, then after three years this expense will no longer be taken into account, which means that in disputes with the inspection, the overpayment will not be taken into account (see Determination of the Supreme Arbitration Court of the Russian Federation 06.18.08 No. 4894/08).

Examples

Situation 1.

After submitting the annual tax return, the accounting department received documents on last year's expenses.

Action:

An updated declaration is submitted for the tax period to which the expenses relate (according to the date specified in the documents).

Situation 2.

At the end of the year, the organization received a loss, which was reflected in the declaration. After submitting this declaration, the accounting department received documents on last year's expenses.

Action:

An updated declaration for the previous year is submitted, which reflects these expenses and the increase in loss. Expenses in the form of additionally identified losses are taken into account in non-operating expenses of the current period (clause 1, clause 1, article 265 of the Tax Code of the Russian Federation).

Situation 3.

After submitting the annual tax return, the accounting department received documents on last year's expenses. After submitting the updated declaration for the previous year, a loss arose.

Action:

Simultaneously with the updated declaration, we submit an application for a credit (refund) of the overpaid tax for the previous year. The amount of the resulting loss is taken into account in non-operating expenses of the current period (clause 1, clause 1, article 265 of the Tax Code of the Russian Federation).

______________ * A situation where the period of expenditure is not known is impossible, since expenses must be documented (Article 252 of the Tax Code of the Russian Federation). And one of the required details of the document is the date (clause b, clause 2, article 9 of the Federal Law of November 21, 1996 No. 129-FZ “On Accounting”)

Covering losses from the reserve fund

Having decided to pay off arrears from the company’s reserve capital, notes are made (Table 4).

At the end, information about all uncovered losses for a certain year is included in the declaration in line 1370 (its value is written in parentheses).

Losses identified this year

Losses carried forward to the future should be distinguished from losses of previous tax periods identified in the current reporting (tax) period. The latter should be included in non-operating expenses (subclause 1, clause 2, article 265 of the Tax Code of the Russian Federation), if they do not fall within the scope of clause 1, article 54 of the Tax Code of the Russian Federation. They cannot be transferred to the future.

Losses from previous tax periods identified in the current reporting (tax) period include, for example, losses incurred due to the return of defective products in the next tax period after their sale.

Situation: does the cost of uninvoiced supplies of the previous tax period apply to losses of previous years? The documents were received in the current tax period.

Yes, it does.

An organization can take into account identified expenses as part of losses from previous years and not recalculate tax liabilities for the previous year. This is due to the fact that errors caused by late receipt of documents confirming expenses lead to excessive payment of income tax.

But in the situation under consideration, the period of occurrence of expenses is known. Expenses that related to the previous year, but were not taken into account in a timely manner, should be classified as an error made when forming the tax base for income tax. Such errors must be corrected in accordance with the provisions of paragraph 3 of paragraph 1 of Article 54 of the Tax Code of the Russian Federation. Consequently, the organization has the right to submit an updated declaration.

As a general rule, if in the current reporting (tax) period an organization has identified losses from previous years, it has the right to include them in non-operating expenses of the current period (subclause 1, clause 2, article 265 of the Tax Code of the Russian Federation). However, the list of losses, as well as the reasons for their occurrence, are not defined by Chapter 25 of the Tax Code of the Russian Federation. The regulatory agencies did not provide any explanations from which it would follow that organizations could include losses incurred due to late receipt of documents as part of non-operating expenses of the current period.

In arbitration practice, there are examples of court decisions that state that previously unaccounted expenses, the period of occurrence of which is unknown, are equated to losses of previous years (see, for example, resolutions of the Presidium of the Supreme Arbitration Court of the Russian Federation dated September 9, 2008 No. 4894/08, FAS Ural District dated February 4, 2009 No. F09-157/09-S3, Moscow District dated October 27, 2008 No. KA-A40/9127-08). According to the judges, the provisions of subparagraph 1 of paragraph 2 of Article 265 of the Tax Code of the Russian Federation can only be applied in these cases.

Postings for writing off losses

The decision on the method of writing off losses is made by the founders of the company themselves. Depending on the chosen method, different account assignments will be used (Table 5).

A company can take several different actions to write off last year's losses. Let's say, cover one part from current profits, and the other from future profits.

Special postings are needed to record coverage in foreign currency. So, if euros are received into the account, an entry is made: Dt 52 Kt 57. The commission paid to the bank for the transfer of funds is reflected by the posting Dt 91 Kt 76.

Remember! If the date of crediting foreign currency to the company’s foreign currency account and the date of acquisition of the currency do not coincide, then a difference in rates will arise.

It also needs to be reflected by making the appropriate entry:

• If the cost has increased – Debit 57 Credit 91
• If it has decreased – Debit 91 Credit 57

Postings to reduce last year's losses

To reduce losses from previous years, account assignment is required Dt 99.01.1 Kt 68.12 - the entry reflects the accrual of tax with a decrease based on the results of the year. Then the calculation is carried out on the basis of reducing the tax base by the amount of the written-off loss.

To confirm this operation, you can draw up a tax calculation certificate, which will present:

• The maximum amount of loss by which the tax base is allowed to be reduced
• Amount of loss recorded
• Balance of outstanding losses to be closed in subsequent periods

These data are also recorded in Appendix No. 4 of sheet 02 of the declaration.

How to carry forward losses from previous years

The Tax Code gives any enterprise the right to transfer losses from the next tax payment period to future ones, distributing them in the desired way (Article 283). Thus, you can reduce the amount of income tax by the amount of calculated losses in subsequent time periods - in full or in parts.

New regulations for the transfer of losses incurred in past reporting periods were introduced in 2021. Federal Law No. 401 stipulates that it is allowed to distribute the entire amount for the future if it is no more than ½ of the tax amount for the current period. The duration of the transfer itself does not play a big role.

But this rule applies if the transfer is carried out during the tax period (i.e. year) - it does not apply to reporting periods. It is allowed to carry forward losses for any period over the next 10 years from the date of discovery of arrears.

Important! In Art. 283 of the Tax Code states that the transfer should be carried out in order of priority.

So, if the activity was carried out in the “minus” not in one, but in different tax periods, then when transferring it is necessary to proceed as follows:

• The loss for the first year is transferred first
• Further, in ascending order, the remaining periods that became unprofitable are recorded.

How to transfer losses in the 1C program, watch the video:

The taxpayer must keep all documents confirming the existence of losses for past years until the final write-off. This is necessary to resolve controversial situations with tax authorities until it is written off in full. If the write-off is carried out over several years, then each time before the tax burden is reduced, all evidence will be rechecked. Even after repaying the entire amount, they must be kept for another 4 years (Letter of the Ministry of Finance of the Russian Federation No. 03-03-06/1/278) in case of repeated inspections from the Federal Tax Service.

Documentary proof of losses

The right to take into account a loss corresponds to the obligation of taxpayers to keep documents confirming the amount of loss incurred during the entire period when it reduces the tax base of the current tax period by the amounts of previously received losses (clause 4 of Article 283 of the Tax Code of the Russian Federation).

Such documents include all primary accounting documentation that confirms the financial result obtained (Resolutions of the Volga Region Autonomous District of July 14, 2016 No. A12-47947/2015, Moscow District of May 23, 2016 No. A40-100692/2015).

The absence of documents confirming the amount of loss incurred implies the loss of the taxpayer's right to transfer losses from previous years, as not supported by documents, into the calculation of the tax base for income tax for the current tax period. Since the ability to take into account the amounts of loss is of a declarative nature, the taxpayer has the obligation to prove their legality and validity. Therefore, in order to decide on the possibility of accepting expenses for the purpose of calculating income tax, it is necessary to check the reality of such expenses and their documentary evidence.

The Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated July 24, 2012 No. 3546/12 clarifies that since the ability to take into account the amounts of loss is of a declarative nature and the taxpayer is obliged to prove their legality and validity, in the absence of documentary evidence of the loss with relevant documents, including primary accounting documents, During the entire period when he reduces the tax base by the amounts of the previously received loss, the taxpayer bears the risk of adverse tax consequences.

With a different approach, the tax authority must accept the declared amount of losses from previous years without justification, without checking their size, which makes it impossible to determine the real amount of the tax liability in the audited period.

LEGAL SUPPORT FOR BUSINESS

A similar position is reflected in the definitions of the Supreme Arbitration Court of the Russian Federation dated December 3, 2013 No. VAS-17101/13, dated August 9, 2013 No. VAS-10478/13, dated November 13, 2012 No. VAS-14298/12.

Inventory acts, certificates for them, as well as tax returns for previous tax periods are not evidence of the incurrence of costs that entail the formation of a loss by the company (Resolution of the Central District Administration of January 18, 2016 No. A35-8716/2014).

Important!

But what to do in situations where the taxpayer has had an on-site tax audit conducted, confirming the correctness of accounting for income and expenses for tax purposes, and the procedure for generating losses from previous years? During the audit periods, does the company need to re-submit documents confirming the amount of losses incurred? According to the regulatory authorities, it is impossible to do without supporting primary documents even in cases where the amount of losses is confirmed by the results of a previously conducted on-site tax audit (Letter of the Ministry of Finance of the Russian Federation dated May 25, 2012 No. 03-03-06/1/278, dated April 23. 2009 No. 03-03-06/1/276).

However, in judicial practice there are decisions that confirm the taxpayer’s right to carry forward losses from previous years if its amount is established based on the results of an on-site tax audit.

Comparison of accounting and tax accounting

If in the accounting system the amount of losses is recorded at a time, then the principles for entering losses into the accounting system are different. In tax documentation they are transferred to subsequent reporting periods, and in accounting, deductible differences are formed. Then tax assets deferred for a certain period appear.

If the accounting system takes into account all income and expenses, then some of them may or may not be indicated in the accounting system. The difference between accounting is called permanent and temporary. It forms deferred ones:

• Tax assets (TA)
• Tax obligations (NO)

The firm's performance determines the value used. If a debt to the tax authorities has accumulated, IT increases, which is reflected in account 77. The calculated debt provides information in IT.

Note! IT and ONA are determined based on the percentage of the accrued payment for the established temporary differences. The rate itself varies for each industry.

Most often, to hide identified losses, they are transferred to account 97. But not all costs are allowed to be transferred to subsequent periods. Tax legislation allows you to write off those costs that are considered direct expenses; transferring indirect expenses to account 97 will not be entirely correct. This method will not make it possible to reduce losses in the declaration - in it all other expenses are written off in full (Article 318 of the Tax Code).

Reflection of loss in accounting statements

In the declaration, losses for past years are confirmed in accordance with the provisions of Art. 315 NK. The tax is calculated with an increasing total - from the beginning of the reporting year for all periods of filing papers and paying taxes. Next, you need to make notes in Appendix No. 4 of the second sheet of the declaration:

• Line 140 indicates the amount of income tax received, which is payable, but can be reduced by the amount of the loss (in whole or in part)
• Line 010 records the remaining part of the loss, which could not be transferred to subsequent time intervals, and it fell at the start of the subsequent tax payment periods

The intolerable loss is formed during the previous 10 years.

The amount from line 010 is additionally recorded in lines 040-130 - a corresponding entry is made based on the year in which a certain part of the loss occurred. The number indicated in line 140 is duplicated with the value in line 100 of the second sheet.

The amount of loss by which the tax array will be reduced is recorded in line 150. In the current payment period, it should not exceed the value in line 140. It is also transferred to line 110.

If, when viewing the accounting and accounting records, a profit is revealed, and the figures in both statements are equal, then calculating and reflecting the amount of the tax burden in the accounting documents will not be a problem. If the financial results differ in them, then PBU 18/02 must be applied. This can happen in the future, resulting in a deductible difference in the tax and reporting periods.

If you find a loss at the end of the year, watch the video:

So, when a loss appears in an accounting or accounting system, you need to use PBU 18/02 to reflect it. This provision regulates the accounting of permanent and temporary differences that record different results of activities reflected in the reporting. The entries used are determined based on the period of discovery of the error over the past years and which type of activity it was formed from - main or indirect. Plus you will need to enter the appropriate values ​​into your tax return.

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How to reflect in tax accounting the expenses of previous periods identified in the reporting period

The term “expenses of past years identified in the reporting period ” is used both in tax and accounting, and is often replaced by the concept of “losses of past years identified in the reporting period .” Tax authorities, when considering such costs, require that detected distortions be reflected in the period in which they occurred but were not taken into account (Article 272 of the Tax Code of the Russian Federation). That is, the company adjusts the tax base of the previous period and submits a declaration with updated information. However, the Tax Code of the Russian Federation allows such expenses to be reflected in the current period if:

• it is impossible to determine the time at which the distortion occurred (which in practice happens extremely rarely);
• the identified distortions led to overpayment of income tax.

In such cases, the company can reflect losses of previous years in the accounting of the current year. For all other situations, the company will have to adjust the information in the declaration.