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. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
  5. International Accounting Standards ...

    An older set of standards stating how particular types of transactions ...
  6. Taxable Income

    The amount of income that is used to calculate an individual's ...
RELATED FAQS
  1. When is an options straddle deep in the money?

    A straddle is an options position where an investor or trader has a position in both a call option and a put option with ... Read Full Answer >>
  2. How can I use equity options to protect my stock portfolio from downturns?

    Equity options, or stock options, could serve as protection and help to mitigate risk for a long stock portfolio. Stock options ... Read Full Answer >>
  3. What types of options positions create unlimited liability?

    Selling naked calls creates unlimited liability. Therefore, these types of option strategies are considered appropriate for ... Read Full Answer >>
  4. What is the difference between carrying value and fair value?

    Carrying value and fair value are two different accounting measures used to determine the value of a company's assets and ... Read Full Answer >>
  5. What are the fundamental differences in U.S. GAAP and International Financial Reporting ...

    Public accounting rules in the United States are governed by the generally accepted accounting principles, or GAAP, which ... Read Full Answer >>
  6. Are gross sales and taxable gross sales the same thing?

    The terms gross sales and taxable gross sales are not the same thing, and the difference can mean a huge difference in the ... 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

    Understanding Notional Value

    This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position.
  6. Options & Futures

    The Risks Of Writing Covered Calls

    While writing a covered call option is less risky than writing a naked call option, the strategy is not entirely riskfree.
  7. Options & Futures

    How Low Can Oil Prices Go?

    Record low oil prices are a welcome development for consumers, but oil companies are struggling with choosing market share over profitability.
  8. Taxes

    Top 4 Ways to Invest Tax Free

    When you're ready to invest, start by looking at these 4 tax-advantaged ways to build your portfolio and your future.
  9. Options & Futures

    SEC-Regulated Options Brokers

    Investopedia provides a List Of SEC-Regulated Options Brokers
  10. Taxes

    Missed The Tax Return Deadline? Here's What To Do

    Most important: Do it now.

You May Also Like

Hot Definitions
  1. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  2. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  3. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  4. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  5. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
  6. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
Trading Center