carryforward

(redirected from Loss Carry-Forwards)

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 ?
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.
However, it is possible that a portion of the distributions will represent capital gains earned by the Fund but offset by capital loss carry-forwards, which will be taxable at ordinary income tax rates.
Though the Fund had net realized gains as of the end of October, 2006, these gains would be offset by tax loss carry-forwards for book purposes but not for tax purposes.
The Company expects that its net operating loss carry-forwards (NOLs) will allow most of its profits and cash to drop to the bottom line.
Higher operating costs combined with the extinction of tax credits and loss carry-forwards, which resulted in tax payments of $21.
Because the Fund has substantial capital loss carry-forwards from losses, it is not likely that there will be long-term capital gains to distribute for some time - at least until the capital loss carry-forwards are exhausted.
A provision for income taxes was not required in the first quarter of 2005 because of the effect of tax loss carry-forwards that have since been utilized.
The Fund has substantial capital loss carry-forwards from prior years and does not expect to generate net capital gains in 2006 that would exceed these capital loss carry-forwards.
Taxable gains from the transaction will be largely offset by net operating losses, capital loss carry-forwards and tax credits related to Dynegy's self-restructuring activities of the past several years, thereby minimizing cash taxes associated with the Midstream transaction.
The primary reason for this is that the Company has in excess of $50 million of tax loss carry-forwards (or "NOL's), and the Board of Directors believes that the best way to realize the value of those NOL's is to acquire or merge with another business that has earnings that would otherwise be taxable but that can be sheltered from tax using our NOL's.