Loss Carryback
Candlefocus EditorThe most common type of carryback is the NOL carryback. It’s different from a carryforward, which applies a tax loss toward future years' returns. A carryback provides an immediate benefit, while the benefits of a carryforward may not be seen until the future. This makes a carryback more attractive than a carryforward. Using a carryback may provide more immediate financial relief by generating a refund of taxes paid in prior years.
The way that NOL carrybacks work is that net operating losses are applied to the taxable income on previous years’ returns. This can substantially reduce the amount of tax owed, as the losses can offset income in those earlier years. The government offers NOL carryback provisions in the tax code, which have been increased, decreased, omitted, and reinstated various times over the years. It is important to stay up to date on the current state of carryback tax provisions. A carryback can be an extremely effective tax strategy for businesses, as it can offer an immediate benefit in the form of refunds from prior taxes paid. It can help to reduce the amount of taxes due, and provide extra financial security to businesses during times of financial hardship.