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Simple English definitions for legal terms
tax-loss carryforward
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A quick definition of tax-loss carryforward:
A tax-loss carryforward is a way for businesses to deduct losses from their income taxes. If a business has more deductions than income in a given year, they can carry over the remaining deductions to future years, up to five years. This is helpful for businesses that experience fluctuations in income and expenses, as it allows them to offset future profits with past losses.
A more thorough explanation:
Tax-loss carryforward is a deduction in income tax that cannot be fully used in a particular period but can be carried over to the next five years. It is also known as loss carryover, tax-loss carryover, carryforward, or loss carryforward.
For example, if a business incurs a net operating loss of $50,000 in a particular year and its taxable income for that year is zero, it can carry forward the $50,000 loss to the next year. In the next year, if the business has a taxable income of $70,000, it can use the carried forward loss to reduce its taxable income to $20,000 ($70,000 - $50,000).
Tax-loss carryforward is beneficial for businesses that experience losses in a particular year as it allows them to offset their future taxable income and reduce their tax liability.