Net Operating Losses

Not every business can be profitable year in and year out. What happens if your business suffers a loss from its operations that effectively wipes out more than your tax liability for the year? You may then have what is called a net operating loss. You may be able to use this loss to reduce taxes in prior and/or future years.

If your business expenses for the year outweigh your income, your loss may give rise to a net operating loss (NOL) that can be used to offset income in other tax years. Such loss can be carried back to offset income in prior years (producing an immediate tax refund); unused amounts can be carried forward to offset future income. There are limits on the carryback and carryforward years.

The net operating loss deduction is not an additional loss deduction. Rather it is the result of having deductions exceed your business income and applying this excess against income in other years.