Tax Loss Carryforward
A tax provision allowing businesses to apply current operating losses to reduce taxable income in future years, creating deferred tax assets that can reduce future tax payments.
Tax Loss Carryforward
A tax provision allowing businesses to apply current operating losses to reduce taxable income in future profitable years, creating a tax benefit that can be carried forward to offset future tax liabilities.
For example, if a technology startup incurs a $3 million net operating loss during its development phase, it may carry this loss forward to offset profits in subsequent years, potentially saving up to $630,000 in future taxes at a 21% corporate rate.
Tax loss carryforwards create deferred tax assets on the balance sheet, subject to valuation allowances if realization is uncertain. While carryforwards don’t provide immediate cash benefits like carrybacks, they can significantly reduce future tax burdens when profitability returns. Carryforward periods vary by jurisdiction—in the U.S., losses can generally be carried forward indefinitely but are limited to offsetting 80% of taxable income in any given year under current tax law.