carryforward

(redirected from Loss Carryforward)

Carryforward

In accounting, a way for a company to reduce its tax liability by applying losses to future tax years in which the company makes a profit. That is, carryforward allows companies to apply losses to profits that have not yet occurred and thereby reduce the taxes they pay on those profits. Carryforward is limited to seven years. For example, suppose a company loses $500,000 in year one, then nets $1,000,000 in year five. The company may carry forward the losses and only be liable for taxes on $500,000 of its profit in year five.

Independent contractors who file Schedule C with the IRS are required to use carryforwards, which is useful since most independent contractors lose money in their first few years of business. Some publicly-traded companies opt not to use it, as appearing to reduce profits may scare off potential investors who do not realize that the profits upon which taxes are paid do not equal the company's actual profits.

carryforward

1. A business operating loss that, for tax purposes, may be claimed a certain number of years in the future, often up to 15 years. Thus, a loss in one year would be carried forward to a future year and used to offset profits up to the amount of the carryforward. Carryforwards are especially useful to firms operating in cyclical industries such as transportation. Also called tax loss carryforward.
2. In taxation of individuals, net capital losses exceeding the annual limit of $3,000 that may be carried to succeeding years so as to offset capital gains or ordinary income. There is no limit on the amount of capital losses that may be used to offset capital gains in any one year, only on the amount of losses in excess of gains that may be used to offset income. Also called carryover.
References in periodicals archive ?
Since the AMT applies only when it is greater than the regular tax, it is unlikely the taxpayer will ever receive any tax benefit due to the AMT capital loss carryforward.
If the gain is capital gain, Larry can offset it with a capital loss carryforward.
Net Operating Losses [AB 1774 (Lempert) Amends Rev and TC 17276 and 24416]: This bill was amended by the primary budget bill, AB 511, Burton, to increase the net operating loss carryforward from its current level of 50 percent to 55 percent, for income years 2000-02, and 60 percent thereafter.
Under the ED, an asset is automatically recorded for a loss carryforward, and the asset is reduced by a valuation allowance only if it is more likely than not that the benefit will be lost.
Taking into account the Company's REIT tax net operating loss carryforward of approximately $7 million as of December 31, 2007, the Company estimates its REIT tax net operating loss carryforward as of September 30, 2008, at $13.
a loss carryforward, deferred deduction or loss inherent asset), and a group member then recognizes a loss on an S stock disposition that duplicates the inside loss.
The Seventh Circuit concluded that excluded COD income reduces the shareholder's S corporation loss carryforward.
For example, any loss attributable to redeemed stock basis (not permitted to be taken into account) is treated as a net operating loss carryforward or a capital loss carryforward, as applicable, for Secs.
Example: Assume that in addition to the warranty reserve, On-The-Edge has a $35,000 net operating loss carryforward expiring in year 10.
The Company also announced that the final accounting of substantially all of the bankruptcy related tax issues has been resolved, and that the Company's net operating loss carryforward has been determined to be $23 million, an increase of $15 million from the previous estimate.
The elimination of the tax loss carryforward will allow the Corporation to distribute all future net realized capital gains to Stockholders," he said.
Although a tax planning strategy may have adverse consequences, it still may be prudent if it will prevent a loss carryforward from expiring unused.