Net Operating Loss (NOL) Utilization refers to the process of applying a net operating loss, which occurs when a company’s allowable tax deductions exceed its taxable income, to reduce taxable income in future or previous tax years.
NOLs can be carried forward to offset future taxable income, thereby lowering future tax liabilities, or carried back to offset taxable income from prior years, resulting in a potential tax refund. The carryback period is generally two years, while the carryforward period can extend up to 20 years, depending on the tax regulations in effect during the applicable years. For example, if a business incurs an NOL of $50,000 in 2022, it can apply that loss to reduce its taxable income in 2021 (carryback) or in future years (carryforward) to decrease its tax burden.
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