Net Operating Loss (NOL) Carryforward

Net Operating Loss (NOL) Carryforward

A Net Operating Loss (NOL) Carryforward refers to a tax provision that allows a business to apply its current year’s net operating losses to future tax years. When a company’s allowable tax deductions exceed its taxable income, the result is an NOL, which can be used to reduce taxable income in subsequent years.

For example, if a company incurs a loss of $100,000 in 2022 and has no taxable income that year, it can carry that loss forward to offset taxable income in 2023 and beyond. If the company earns $80,000 in 2023, it can apply $80,000 of the NOL to reduce its taxable income to zero, potentially resulting in no tax liability for that year. The remaining $20,000 of the NOL can be carried forward to offset income in future years.