Carryback

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Carryback

Carryback

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 deduction 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 makes 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.

carryback

A business operating loss that, for tax purposes, may be deducted for a certain number of prior years, usually no more than three. A business uses a carryback to recover taxes paid on income earned in prior years. For example, if a firm experiences a year of large losses following a period of profitable operations, it may use the losses to cancel out profits from preceding years on which taxes have been paid. When the taxes a company paid on profits are canceled because of a carryback, the firm is issued a refund by the Internal Revenue Service. Also called carryover, tax loss carryback.
References in periodicals archive ?
Analysts' interpretation of investors' valuation of tax carryovers. Contemporary Accounting Research 16 (Spring): 1-33.
This order maximizes the use of the credits and credit carryovers, allowing the use of noncarryover credits first, and minimizes the loss of credit carryovers due to expiration.
"It's impossible to advertise such a carryover in time, so no-one would know about it.
real estate rental) is disposed, will the passive loss carryovers be re-characterized as losses "not from a passive activity."(9) As will be discussed later, this is a key point to remember in tax planning for the year in which the property is disposed.
Various elections are available which allow the taxpayer to plan the order in which the loss carryovers and basis are reduced and, in the case of reduction in basis, the properties affected.
(28) The five-year provision has the effect of "cleansing" the corporation of any built-in gain carryovers. The provision provides for a carryover only to the succeeding tax year, not all succeeding tax years.
Although the Institute believes that the rules for the three credits should be the same, we recognize that the proposal would limit the situations where the purpose of the FTC -- the elimination of double taxation -- is frustrated by unrealistically short carryover periods.
Capital Loss Carryovers. A corporation has a capital loss carryback/carryover when that corporation's capital losses exceed capital gains for the year.
Example 1: Corporation X has taxable income of $1 million before the charitable deduction, with no NOL or ATNOL carryovers. As illustrated in Exhibit 1, the charitable deduction limits for regular tax and AMT purposes differ slightly, based on the corresponding computation of taxable income.
In addition, taxpayers may need to consider state restrictions on types of income to which loss carryovers may be applied.
Further, most of the debtor's tax attributes are transferred to the estate, including net operating loss carryovers; capital losses carryovers; passive loss carryovers; and tax basis and character of assets.
* Expansion of FTC Carryovers. Section 904(c) of the Code currently provides that any foreign tax credits (FTCs) not used against U.S.