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 ?
At the same time, the $50,000 gain (longterm capital) allows T to take the $40,000 long-term capital loss carry-forward.
3 million due because of a tax loss carry-forward credit) in fiscal year 1991.
NORDIC BUSINESS REPORT-20 December 2004-Swedish tax board approves SEK605m tax loss carry-forward for NCC(C)1994-2004 M2 COMMUNICATIONS LTD http://www.
The possible future capitalisation and application of the tax value of the loss carry-forward will therefore have a positive effect on the company's earnings and cash flow," Trelleborg said.
NYSE: VG) said it has adopted a tax benefit preservation plan intended to preserve the long-term value of Vonage's $795 million in federal net operating loss carry-forwards, which represent a substantial asset to the company and its shareholders.
The Commission, however, is concerned that the measure may favour ailing companies in comparison to healthy companies, with regard to their loss carry-forwards.
Sweden's administrative court of appeal has ruled against the investment company Investment AB Kinnevik in a tax dispute relating to the size of the tax loss carry-forwards in the associated company SCD Invest AB.