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Simple English definitions for legal terms
net operating loss
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A quick definition of net operating loss:
Net Operating Loss is when a company's expenses are more than its income, resulting in a loss. This loss can be carried forward to future years to reduce the company's taxes. It's like when you spend more money than you earn, and you have to use your savings to cover the difference. The company can use its "savings" (the net operating loss) to reduce its taxes in the future.
A more thorough explanation:
Net operating loss refers to a situation where a company's expenses exceed its revenue, resulting in a loss. This loss can be carried forward to future years to offset taxable income and reduce tax liability.
A company has $100,000 in expenses and $80,000 in revenue, resulting in a net operating loss of $20,000. This loss can be carried forward to future years to offset taxable income and reduce tax liability.
This example illustrates how a net operating loss can be used to reduce a company's tax liability in future years. By carrying forward the loss, the company can offset taxable income and reduce the amount of taxes it owes.