carryforward


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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 ?
In contrast, the rules for the general business tax credit (section 39) and net operating losses (section 172(b)) provide for a three-year carryback and a fifteen-year carryforward.
In determining need for a valuation allowance for a carryforward, the enterprise must consider both the guidelines provided by the FASB and the underlying tax law creating the carryforward.
172(b)(1)(H) election is made, Y will have an AMT liability of $12,000 for 2010, an NOL carryforward of $3 million, and an ATNOL carryforward of $3.
We agree with the Senate that the carryforward period should be lengthened (because it would reduce instances of double taxation), but not at the expense of the carryback.
Enactment of this revenue raiser would only serve to exacerbate the double taxation caused by expiring FTCs; carryforwards should be lengthened, but not at the expense of the carryback.
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 Department of Revenue w ill allow a NOL sustained in a two-factor year to be carried forward to any other two-factor year in the carryforward period regardless of the number of intervening years.
Thus, L reports no taxable income and has a $10 NOL carryforward.
All interest computations involving corporate account histories with examination adjustments, carrybacks, carryforwards, partial payments, and transfers of taxes between years and types of taxes are complex.
Observation: Investment interest expense that exceeds current investment income and is therefore not deductible has an unlimited carryforward for use against future investment income.
Initially, the taxpayer did not deduct these excess payments on its year 1 return, which reported a net operating loss (NOL) carryforward.
The rules for net operating losses under section 172(b), in contrast, provide for a three-year carryback and a fifteen-year carryforward.