Loss Carryforward

AAA

DEFINITION of 'Loss Carryforward'

An accounting technique that applies the current year's net operating losses to future years' profits in order to reduce tax liability. Generally accepted accounting principles (GAAP) specify that loss carryforwards can be used in any one of the seven years following the loss.

INVESTOPEDIA EXPLAINS 'Loss Carryforward'

For example, if a company experienced a negative net operating income (NOI) in year one but positive NOI in one of the next two to seven years, the company could reduce its tax expense for one of those years by applying the loss experienced in the first year.

In the past, some equities have had large options redemptions that have caused share prices to plummet dramatically. Due to the increased amount of shares outstanding, investors who sell off their shares during that time will incur capital losses. Investors can carry forward these losses in order reduce tax liabilities on future capital gains.

RELATED TERMS
  1. Net Operating Income - NOI

    A company's operating income after operating expenses are deducted, ...
  2. Tax Umbrella

    The use by a company of the losses it sustained in previous years ...
  3. Alternative Tax Net Operating Loss ...

    The excess of deductions allowed over the income recognized for ...
  4. Generally Accepted Accounting Principles ...

    The common set of accounting principles, standards and procedures ...
  5. International Accounting Standards ...

    An older set of standards stating how particular types of transactions ...
  6. After Tax Operating Income - ATOI

    A company's total operating income after taxes. This non-GAAP ...
RELATED FAQS
  1. How is a savings account taxed?

    In the United States, the Internal Revenue Service considers interest earned in a savings account to be taxable income. Taxpayers ... Read Full Answer >>
  2. What are the differences between absorption costing and variable costing?

    Absorption costing includes all costs, including fixed costs, in figuring the cost of production, while variable costing ... Read Full Answer >>
  3. How can I find out which income tax bracket I am in?

    U.S. federal tax brackets are based on filing status (single, married filing jointly, married filing separately or head of ... Read Full Answer >>
  4. What financial ratios are most useful for an investor to evaluate the liquidity of ...

    An insurance company, like any other nonfinancial company, needs access to liquidity in case it needs to fulfill its debt ... Read Full Answer >>
  5. Can a Limited Liability Company (LLC) issue stock?

    A limited liability company, or LLC, cannot issue stock. Instead, an LLC is structured to have single or multiple owners ... Read Full Answer >>
  6. What is the relationship between degree of operating leverage and profits?

    The degree of operating leverage directly reflects a company's cost structure, and cost structure is a significant variable ... Read Full Answer >>
Related Articles
  1. Investing

    Zooming In On Net Operating Income

    NOI is a long-run profitability measure that smart investors can count on.
  2. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  3. Active Trading

    Seek Out Past Losses To Uncover Future Gains

    Tax loss carry-forwards can help reduce the tax burden of owning a profitable fund.
  4. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  5. Investing Basics

    Explaining Write-Downs

    A write-down is a reduction in the book value of an asset because it is overvalued compared to the market value.
  6. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  7. Economics

    Why Working Doesn't Add Up For Many Women

    A type of tax deduction for Japanese stay-at-home wives puts a barrier on women working full time in the country.
  8. Taxes

    Tea Party Vs. Republican Party: Who Will Win In 2016?

    What agendas define the rift between the Tea Party and the Republican establishment, and which side will win the presidential nomination in 2016?
  9. Home & Auto

    What Are The Tax Advantages Of Buying A Home?

    Don't forget these deductions and credits that homeowners can use to reduce their tax bill.
  10. Taxes

    Corporate Tax Rates: The Highs and the Lows

    The United States is No. 2 in the world for its high corporate tax rate. There are ways around paying it, and many nations with lower rates are worse off.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center