Tax Loss Carryback
A tax provision allowing businesses to apply current-year operating losses to previous profitable years, generating immediate tax refunds from previously paid taxes.
Tax Loss Carryback
A tax provision allowing businesses to apply current-year operating losses to previous profitable years, generating immediate tax refunds from taxes paid in those earlier periods.
For instance, if a company incurs a $2 million net operating loss in 2023, tax loss carryback provisions might allow it to offset profits from 2021 or 2022, potentially receiving a refund of up to $420,000 assuming a 21% corporate tax rate on reclaimed profits.
Tax loss carryback provisions vary by jurisdiction and have been subject to significant legislative changes. In the U.S., the Tax Cuts and Jobs Act eliminated most carrybacks, but the CARES Act temporarily reinstated five-year carrybacks for tax years 2018-2020 during the COVID-19 pandemic. Carrybacks provide immediate cash flow benefits during difficult times, unlike carryforwards which only offer future tax savings when profitability returns. The accounting for carrybacks creates current tax benefits rather than deferred tax assets.