What Does Loss Carryforward Mean?
Loss carryforward is an accounting term that refers to the practice of reducing future profits to compensate for the current year's negative income or financial losses.
It is also known as a tax loss carryforward.
Insuranceopedia Explains Loss Carryforward
Loss carryforward is meant to reduce a company's future tax burdens. Businesses are allowed seven years to do this.
To illustrate how loss carryforward works, consider a comapny that loses $100,000 in one year but then gains $200,000 over the course of the following year. By practicing loss carryforward, only $100,000 of the profits from that second year will be taxed, while the rest will be attributed to the loss incurred during the previous year.
Depending on the type of business, loss carryforward may will either be required or optional.