Loss Carryforward

Loss Carryforward

An accounting technique with which a company applies net operating losses of the current year to future year's profits in order to reduce tax liability.

Notes:

If a company were to experience a negative net operating income in year one, but positive net operating income in one of the next two to seven years, the company could reduce its tax expense for one of those years by applying to it the loss experienced in year one. GAAP specifies that loss carryforwards can be used in any one of the following seven years after the loss was experienced.

See also: After Tax Operating Income - ATOI, Exempt Income, GAAP, International Accounting Standards - IAS, Loss Carryback, Net Operating Income - NOI, Taxable Income, Tax Liability