What is Loss Carryforward?
The term 'loss carryforward' refers to an accounting practice whereby companies utilize their current year's net operating loss against future year's net operating profit to reduce the taxes owed in those future profitable years. Also called tax loss carryforward, this can be utilized by individuals, corporations, or funds.
How Does Loss Carryforward Work?
For example, if a company has a net operating loss in the current year of $1,000,000, they can carry that forward so that if their net operating income for the following year is $2,000,000, the company would have a tax liability on only $1,000,000 ($2,000,000 less the $1,000,000).|
For an individual or a company, the carryforward period is 20 years.