Over 700 finance terms, Shmooped to perfection.
It sorta is what it says it is: If you have a tax loss - that is, a loss in operating profits in one year - you can "carry them forward" into next year. In fact, GAAP states that you have 7 years in which to use tax losses.
Do the math: Company X - Scooby Dude - pays 30% tax and it is based in The People's Republic of California. 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 their 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. Get it? Got it. Good.