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Categories: General Tax Terms

Net Operating Loss (NOL)

A Net Operating Loss (NOL) occurs when a taxpayer’s allowable tax deductions exceed their taxable income within a tax year. This results in a negative taxable income, which can be used to offset taxable income in future years or, in some cases, past years, thereby reducing tax liability.

For example, if a business has a taxable income of $50,000 in a given year but incurs $70,000 in allowable deductions, it will have an NOL of $20,000. This NOL can typically be carried forward to future years to reduce future taxable income or carried back to prior years to potentially claim a refund on taxes paid. The rules for carrying over or back an NOL may vary based on tax legislation and specific circumstances.

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