Tax Umbrella

DEFINITION of 'Tax Umbrella'

The use by a company of the losses it sustained in previous years to offset taxes on the profits it achieves in future years. Individuals can also use a tax umbrella so that their investment losses in previous years offset their investment gains in future years. A tax umbrella takes advantage of a tax law provision to reduce tax liability.

BREAKING DOWN 'Tax Umbrella'

Businesses and individuals are limited in how much of a loss they can use to offset taxes in any given year. Any loss that is left over can be used to offset taxes on gains in future years. A tax umbrella is also known as a tax loss carryforward.