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 ?
Misonix also wrote down net operating loss carryforwards, which have a lower value due to lower taxes, which means it will take longer to use these tax benefits.
The Rights Plan is designed to protect the company's ability to use its valuable net operating loss carryforwards and certain other valuable tax attributes.
Alaska Communications (NASDAQ: ALSK) has announced that its board of directors has approved the adoption of a tax benefits preservation plan (or "the plan") in the form of a Section 382 Rights Agreement designed to protect and preserve the long-term value of certain tax assets primarily associated with net operating loss carryforwards, the company said.
Rite Aid Corporation today announced that its Board of Directors has adopted a tax benefits preservation plan (the "Plan") designed to preserve Rite Aid's ability to utilize its net operating loss carryforwards and other tax attributes (collectively, "Tax Benefits").
The House bill provides that loss carryforwards may offset only up to 90% of taxable income in any given year.
8m, as well as state net operating loss carryforwards and federal and state tax credits that can be carried forward to future years.
NORDIC BUSINESS REPORT-29 November 2006-KappAhl AB obtains tax loss carryforwards by acquiring companies(C)1994-2006 M2 COMMUNICATIONS LTD http://www.
Another potential adverse consequence of failing to file a return is being barred from claiming passive loss and net operating loss carryforwards in subsequent years.
In a typical case, the "debtor" issuing the instruments would be a tax-indifferent party that would not be paying taxes currently, owing either to its status as a tax-exempt entity or, in the case of a commercial enterprise, to large tax loss carryforwards.
Because of the basis increase, the unused loss carryforwards became deductible.
9m, to write off the value of the tax loss carryforwards that were shown on the balance sheet.
The earnings include an accrual for federal tax expense of $4 million on a fully taxed basis; however, the company will not pay such accrued federal taxes because of substantial net operating loss carryforwards.