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Simple English definitions for legal terms
carryforward
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A quick definition of carryforward:
Carryforward: When you have a loss on your taxes, like when your business doesn't make enough money, you can't always use all of the deduction in one year. But you can carry it forward to use in a later year, usually up to five years later. This is called a carryforward, and it helps you reduce your taxes in the future.
A more thorough explanation:
Definition: Carryforward refers to an income-tax deduction, especially for a net operating loss, that cannot be taken entirely in a given period but may be taken in a later period, usually the next five years. It is also known as loss carryover, tax-loss carryover, or simply carryover.
Example: Let's say a company has a net operating loss of $50,000 in a given year. However, due to certain limitations, the company can only deduct $30,000 of that loss in that year. The remaining $20,000 can be carried forward to the next year and deducted from the company's taxable income.
Explanation: This example illustrates how carryforward works. The company has a net operating loss that cannot be fully deducted in the current year, so it carries forward the remaining amount to the next year. This helps the company reduce its taxable income in the future and potentially lower its tax liability.