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Simple English definitions for legal terms
loss carryback
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A quick definition of loss carryback:
Loss carryback refers to a tax deduction that cannot be fully used in a particular year but can be applied to a previous year's tax return, usually up to three years prior. This deduction is often used for net operating losses. It is also known as tax-loss carryback and is different from carryover.
A more thorough explanation:
Definition: Loss carryback is a tax deduction that allows a business to apply its net operating loss to a previous tax year, typically up to three years prior, in order to reduce the amount of taxes owed.
Example: Let's say a business had a net operating loss of $50,000 in 2020, but had a net income of $100,000 in 2018 and $75,000 in 2019. The business can carry back the $50,000 loss to either 2018 or 2019 and receive a refund for the taxes paid in that year. This can help the business recover some of the losses and improve its financial situation.
Loss carryback is a useful tool for businesses that experience a sudden downturn or unexpected losses. By carrying back the losses to a previous year, the business can reduce its tax liability and improve its cash flow. This can help the business stay afloat during difficult times and continue to operate in the long run.