Net Operating Loss - NOL

Loading the player...

What is a 'Net Operating Loss - NOL'

A net operating loss (NOL) is a loss taken in a period where a company's allowable tax deductions are greater than its taxable income, resulting in a negative taxable income. This generally occurs when a company has incurred more expenses than revenues during the period.

The net operating loss for the company can generally be used to recover past tax payments or reduce future tax payments. The reasoning behind this is that because corporations are required to pay taxes when they earn money, they also deserve some form of tax relief when they lose money.

BREAKING DOWN 'Net Operating Loss - NOL'

If a company has a net operating loss, it can apply this tax relief in two ways: it can apply the net operating loss to its past tax payments and receive a tax credit; or it could apply the net operating loss to future income tax payments, reducing the need to make payments in future periods. The terms of the tax relief and how it can be applied varies by jurisdiction but usually the NOL can be applied to the past few years (two to three) and much more to the future (seven to 10) years.

RELATED TERMS
  1. Form 1045: Application For Tentative ...

    A tax form distributed by the Internal Revenue Service (IRS) ...
  2. IRS Publication 536 - Net Operating ...

    A document published by the Internal Revenue Service (IRS) that ...
  3. Future Income Tax

    Income tax that is deferred because of discrepancies between ...
  4. Net Of Tax

    An accounting figure that has been adjusted for the effects of ...
  5. Net Loss

    The result that occurs when expenses exceed the income or total ...
  6. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
Related Articles
  1. Investing

    Understanding Net Operating Loss

    Net operating loss is a term from the Internal Revenue Code that refers to a tax situation where tax deductions exceed income.
  2. Investing

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  3. Personal Finance

    Explaining Taxable Income

    Taxable income is the net of gross income and allowable deductions.
  4. Personal Finance

    7 Year-End Tax Planning Strategies

    Do you have a capital loss that could be booked and used to offset future tax liabilities? If so, it may be time to sell.
  5. Investing

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  6. Personal Finance

    What is the Effective Tax Rate?

    The effective tax rate is the average rate at which an individual or corporation is taxed per year.
  7. Retirement

    Top Tax Tips For Retirees

    Filing your taxes during retirement can be just as time consuming as when you were employed. We have some tips to help you out.
  8. Personal Finance

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  9. Personal Finance

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  10. Personal Finance

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
RELATED FAQS
  1. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  2. What are some examples of ways businesses can use a deferred tax asset?

    Discover some of the ways U.S. businesses can use deferred tax assets on current financial statements to highlight future ... Read Answer >>
  3. How are effective tax rates calculated from income statements?

    Learn how to read an income statement and how to find the information necessary to calculate a company's effective income ... Read Answer >>
  4. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
  5. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  6. How does the effective tax rate for an individual differ from that of a corporation?

    Read about the effective tax rate for individuals when compared with the effective tax rate for corporations, including how ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center