Q. I’ve invested thousands of dollars in sound systems, instruments and equipment for my band. Can I use the expenses in past years to offset income in 2012? D.B., via email
A. It depends on whether your activity was enough to rise to the level of a business. If it did, you can generally carry back a net operating loss (NOL) for two years and then forward for up to 20 years. You can elect to forgo the carryback period and carry a loss forward, but you must make a timely election on the tax return for the year of the loss.
Tip: On the other hand, the rules are less favorable for an activity treated as a hobby. Expenses are deductible only up to the amount of the hobby income. In other words, you can’t claim a tax loss from a hobby activity.