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 conflict with the Internal Revenue Act 592 of 2000, most signed mining agreements include indefinite carry forward loss provisions, further reducing declared profits.
5 per cent but also does not fall under FTR and can be adjusted against the carry forward loss if any.
As of year end 2007, Green Star also has a carry forward loss of approximately $11,000,000, which, depending on the timing of expiration dates and use, has an unbooked benefit of $3,520,000 to the Company as an offset against 2007 profits and future taxable earnings.
We do remark that our carry forward loss position in the US is not affected, but actual usage depends on our ability to implement our US strategy.
5) GSPI has a $7,400,000 carry forward loss, which has a deferred tax benefit of $2,960,000, which can be used to reduce taxable income when the company generates profits.
The accumulation of net loss over the development period has provided the Company more than a $20 million tax carry forward loss until 2014, thus enabling C-3D Digital to use its funds to finance corporate expansion.