Carryback

Carryback refers to a tax provision that allows a taxpayer to apply a current year’s net operating loss (NOL) to previous tax years’ income, thereby generating a refund for taxes paid in those prior years.

This mechanism is primarily used to offset taxable income from prior periods, which can help reduce the overall tax liability. For instance, if a business incurs a loss of $100,000 in the current year, it can carry back that loss to offset income from the previous two years, potentially resulting in a tax refund if the prior years were profitable.

Carrybacks are subject to specific rules and limitations set by tax authorities, and taxpayers must file amended returns for the years they wish to apply the losses to.