Definition - What does Loss Carryback mean?
Loss carryback is the act of placing the net operating loss for a current year for a previous year or years instead. This is a way for a business to reduce their taxes. Transferring the loss cuts the gains of the previous profitable year or years and thereby retroactively reduces the taxes owed for that period.
Insuranceopedia explains Loss Carryback
A business with a losing year can either post that loss to previous years or the next few years. The former practice is called loss carryback. It means that the business places opts to have its current losses count for the past year during which it made a profit. By placing the loss on that year, the business makes it appear on paper that it didn't earn much and is therefore eligible for state tax deductions.
Although this bears some superficial similarities to fraudulent practices like cooking the books, this business strategy is a legally recognized tax planning method.
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