carryforward

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Related to carry-forward: Carry Forward Losses

Carryforward

In accounting, a way for a company to reduce its tax liability by applying losses to future tax years in which the company makes a profit. That is, carryforward allows companies to apply losses to profits that have not yet occurred and thereby reduce the taxes they pay on those profits. Carryforward is limited to seven years. For example, suppose a company loses $500,000 in year one, then nets $1,000,000 in year five. The company may carry forward the losses and only be liable for taxes on $500,000 of its profit in year five.

Independent contractors who file Schedule C with the IRS are required to use carryforwards, which is useful since most independent contractors lose money in their first few years of business. Some publicly-traded companies opt not to use it, as appearing to reduce profits may scare off potential investors who do not realize that the profits upon which taxes are paid do not equal the company's actual profits.

carryforward

1. A business operating loss that, for tax purposes, may be claimed a certain number of years in the future, often up to 15 years. Thus, a loss in one year would be carried forward to a future year and used to offset profits up to the amount of the carryforward. Carryforwards are especially useful to firms operating in cyclical industries such as transportation. Also called tax loss carryforward.

2. In taxation of individuals, net capital losses exceeding the annual limit of $3,000 that may be carried to succeeding years so as to offset capital gains or ordinary income. There is no limit on the amount of capital losses that may be used to offset capital gains in any one year, only on the amount of losses in excess of gains that may be used to offset income. Also called carryover.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive ?

More than 40 states permit carryforward periods of 10 to 20 years and 18 states allow both carry-forward and carry-back periods.

Minimum wage bill would raise hourly rate by $2

Unlike the net operating loss carry-forward and the capital loss carry-forward, the alternative minimum tax credit does not have to be multiplied by the effective tax rate.

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"We are encouraging people to take action now and make the most of this one-time opportunity to use carry-forward pension relief before it disappears forever."

People who should take advantage of carry-forward tax relief are those who have disposable cash that can be locked away in a pension fund and who have not previously been paying up to the maximum on their personal pension.

Don't miss the chance to top up your nest-egg; Money TAXATION: The laws change next month

The carry-forward relates to the liquidation of the subsidiary Fastighets AB SIAB in 2002.

"The loss carry-forward will have a positive effect on taxes in the closing accounts for 2004.

Swedish tax board approves SEK605m tax loss carry-forward for NCC

The Swedish national tax board challenged tax loss carry-forwards amounting to SEK1,585m, but a county administrative court found in favour of Kinnevik.

"In its ruling, however, the administrative court of appeal found that tax loss carry-forwards were limited to SEK72m as a result of the ownership changes that occurred in SCD Invest AB during 1997," Kinnevik said.

Sweden's administrative court of appeal rules against Investment AB Kinnevik in tax dispute

If X were a loss corporation prior to 2001, generally its regular tax net operating loss (NOL) carry-forwards from that period could be carried forward as AMTNOLs beginning in 2001.