What is a Net Operating Loss (NOL)?
A Net Operating Loss (NOL) is a tax credit that occurs when a company's tax deductions exceed its taxable income. This can happen when a company has a bad year financially, or when it has significant expenses that it can write off.
When a company has an NOL, it can use it to offset future taxable income, which can reduce its tax liability in future years.
How is an NOL calculated?
An NOL is calculated by subtracting a company's tax deductions from its taxable income. If the result is negative, then the company has an NOL.
For example, if a company has $100,000 in taxable income and $150,000 in tax deductions, its NOL would be $50,000.
How long can a company carry forward an NOL?
In the United States, a company can carry forward an NOL for up to 20 years.
However, the rules for carrying back and carrying forward NOLs can vary depending on the tax laws in different countries.
Can an NOL be carried back to previous years?
In some cases, a company can carry back an NOL to previous tax years and receive a refund for taxes paid in those years.
However, the rules for carrying back NOLs can vary depending on the tax laws in different countries.
Nick Simpson
Founder @ WorkMade
I started working for myself at 9. My first tax bill showed up at 14. I didn’t understand it, and nobody around me could really explain it. If you’ve been there, you get it. Twenty years later, after creative directing for brands in New York and buying and selling a few companies, I kept seeing the same thing: smart, talented people losing money to a system that wasn’t built for how they work. That’s why I built WorkMade. Not to make taxes “easier to understand” but to make them disappear into the background, so you can get on with your life.