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 ?
A company may receive a tax deduction from an option exercise before actually realizing the related tax benefit because it has a net operating loss carryforward.
Net Operating Losses [AB 1774 (Lempert) Amends Rev and TC 17276 and 24416]: This bill was amended by the primary budget bill, AB 511, Burton, to increase the net operating loss carryforward from its current level of 50 percent to 55 percent, for income years 2000-02, and 60 percent thereafter.
As a practical matter, the enterprise might be forced to reconcile a determination that it is a going concern with its determination that it does not expect sufficient total taxable income over the next 15 years to utilize the net operating loss carryforward.
The company's fiscal 1992 profit picture was helped by the utilization of a net operating loss carryforward in the amount of $10.
Specifically, under the proposed Interpretation, if a tax position (a) fails to satisfy the recognition threshold, (b) is claimed on a tax return, and (c) creates a realizable net operating loss carryforward, the enterprise would seemingly not be permitted to recognize the deferred tax asset of the net operating loss carryforward.
For example, any loss attributable to redeemed stock basis (not permitted to be taken into account) is treated as a net operating loss carryforward or a capital loss carryforward, as applicable, for Secs.
32 million in net operating loss carryforward credits.
The net operating loss carryforward and carryback provisions of section 172 permit taxpayers to ameliorate the unduly harsh and inequitable consequences of taxing income strictly on an annual basis.
Example: Assume that in addition to the warranty reserve, On-The-Edge has a $35,000 net operating loss carryforward expiring in year 10.
Amend section 1212(a) to extend the capital loss carryforward period to fifteen years in conformity with the net operating loss carryforward provision in section 172(b).
Similarly, if there are no future deductible amounts and there are sufficient future taxable amounts to use a net operating loss or tax credit carryforward before the carryforward period expires, it may not be necessary to schedule the future taxable amounts that would be offset by the net operating loss carryforward.