Net Operating Loss - NOL

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DEFINITION of 'Net Operating Loss - NOL'

A period in which 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.

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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.

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