Loss Carry-Back


Also found in: Legal.

Loss Carry-Back (Carry-Forward)

A tax provision that allows operating losses to be used as a tax shield to reduce taxable income in prior and future years. Losses can be carried backward for up to three years and forward for up to 15 years under current tax codes.

Carryback

In accounting, a way for a company to reduce its tax liability by applying a net operating loss to previous years in which it made a profit. If a company deducts more than its net income in a given tax year, it may take the difference between the deduction and the net income (a negative number) and apply it as a deduction on taxable income for the previous five years. For example, if a company makes $1,000,000 in one year, and loses $500,000 the following year, it may only be liable for a $500,000 profit on the year it makes a profit. That is, it may receive a tax refund on part of what it paid for the profitable year. See also: Future Income Tax.
Mentioned in ?
References in periodicals archive ?
The Gillard Government's loss carry-back initiative allows businesses in a loss position to use their legitimate tax deductions to refund tax paid in previous years.
Generally speaking, gross tax assets shall be admitted in an amount equal to the sum of (1) federal income taxes paid in prior years that can be recovered through loss carry-backs for existing temporary differences that reverse by the end of the subsequent calendar year; (2) the lesser of (a) the amount of gross deferred tax assets expected to be realized within one year of the balance sheet date, or (b) 10% of statutory capital and surplus as required to be shown on the statutory balance sheet of the entity for its most recently filed statement.
Gross deferred tax assets are admitted to an amount equal to the sum of federal income taxes paid in prior years that can be recovered through loss carry-backs for existing temporary differences that reverse by the end of the subsequent calendar year, and the amount of gross deferred tax assets expected to be realized with one year of the balance sheet date, or 10% of statutory capital.