Net Operating Loss Carrybacks

Net operating loss carrybacks

The application of losses to offset earnings in previous years.

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Net Operating Loss Carrybacks

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 deductions 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 made 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.