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 classic literature ?
Clumsily they carry forward the torch of the sun, until such time as the nation sees fit to take it up.
He came to me, and left with me, among some other things, a picture--a portrait painted by himself--a likeness of this poor girl--which he did not wish to leave behind, and could not carry forward on his hasty journey.
The first, great white hairless face, double chin, prominent stomach, which he seemed to carry forward consciously within a strongly distended overcoat, only nodded and averted his eyes peevishly; his companion--lean, flushed cheekbones, a military red moustache below a sharp, salient nose--approached at once Sophia Antonovna, greeting her warmly.
Under the general rules, such loss carry forwards would have been forfeited if there were significant changes in the shareholding.
Austin, Texas, USA, said the Internal Revenue Service (IRS) has concluded its examination of the company's tax returns, its net operating losses, and minimum tax credit carry forwards through 1996.