(redirected from Loss Carryforwards)


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.


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 ?
Nasdaq:VNDA) reported today that it has received a private letter ruling (PLR) from the Internal Revenue Service (IRS) regarding certain income tax issues associated with the availability of Vanda's net operating loss carryforwards for tax purposes.
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.
Loss carryforwards (which are carried to the first S post-disposition tax year); and
Because of the basis increase, the unused loss carryforwards became deductible.
Second, deferred tax liability is determined by multiplying the gross amount of taxable temporary differences by the enacted marginal tax rate, and a deferred tax asset is determined by multiplying gross deductible temporary differences and operating loss carryforwards by the enacted marginal tax rate.
The Company reserves the right to limit the exercise of rights by certain stockholders so as to not jeopardize or endanger the availability of the Company's net operating loss carryforwards under Section 382 of the Internal Revenue Code.
The company's net deferred tax asset represents primarily the estimated tax effect of net operating loss carryforwards.
Ideally, if A had current or suspended capital loss carryforwards, he could use them to offset the capital gain.
Companies reported capital loss carryforwards, foreign tax credits and other potential future tax benefits that require unique types of future taxable income for realization or which have relatively limited carryforward or carryback periods.
Another hurdle is the question of whether a presumptive approach should apply to all future tax benefits--net operating loss carryforwards as well as deductible temporary differences.
The projected increase to income taxes is due to fourth quarter changes in foreign exchange rates that reduce the value of Terra's net operating loss carryforwards.
For consolidated groups with the right fact pattern, this could produce a higher-than-anticipated absorption of net operating loss carryforwards in 1999.