Tax Loss Carry-Forward
Categories: Tax, Accounting
It sorta is what it says it is: If you have a tax loss—you lose operating profits one year in your business—you can "carry it forward" into the next year. So if you suddenly do well one year, you can use the carried over tax loss to pay less taxes.
In fact, you have 7 years in which to use those tax losses.
Example
Do the math: a company called Scooby Dude pays 30% tax. It has been a taxpayer all along, profiting nicely from its van decal painting business. This year, it lost $1M on $5M of sales. It had just enough money in the bank to keep going.
When a popular political candidate adopted Scooby Dude to paint vans as part of her media blitz, SD made $3M in profits the following year. Normally SD would pay $900K (30% of $3M) in taxes, but because they had $1M in tax loss carry-forwards, they deduct the $1M loss from the $3M to show a taxable profit of $2M this year, on which they then pay 30% or $600K.