When you open a business under an LLC in the state of Tennessee with your wife and have business losses of $300k, due to running out of savings to pay our workers so we had to dissolve the (dba) and shut the doors. Can you write off business losses against your personal income (W-2) until the losses are wiped clean?

The short answer is: it depends on how your LLC is taxed and whether you have enough "basis" to claim the losses.

If you and your wife are the only members of the LLC, the IRS likely treats it as a partnership by default. That means the losses pass through to your personal tax return on Schedule E. In theory, you can use those losses to offset your W-2 income. But there are three hurdles you have to clear first.

The first is basis. You can only deduct losses up to the amount you actually invested or loaned to the business. If you put in $300k of your own money, you likely have enough basis. If the losses came from unpaid vendor bills or wages you never personally guaranteed, that portion may not be deductible.

The second is the at-risk rules. Losses are limited to the amount you're personally at risk for, which is similar to basis but has some nuances around borrowed money.

The third is the passive activity rules. If you and your wife both materially participated in running the business, you clear this hurdle and can deduct the losses against W-2 income. If one of you was a passive investor, that person's share of losses can only offset passive income, not W-2 wages.

If you do qualify to deduct the full $300k and it exceeds your total income, the leftover becomes a Net Operating Loss, which you can carry forward to future tax years to offset future income.