Net operating loss (NOL),
Definition of Net operating loss (NOL):
Amount by which net operating expenses exceed operating revenue in an accounting period. In computing NOL, extraordinary gains and losses, as well as financial expenses (such as interest paid) and revenue (such as interest earned) are ignored.
For income tax purposes, a net operating loss (NOL) is the result when a company's allowable deductions exceed its taxable income within a tax period. The NOL can generally be used to offset the company's tax payments in other tax periods through an Internal Revenue Service (IRS) tax provision called a loss carryforward.
A net operating loss (NOL) may be carried forward to offset taxable income in future years in order to reduce a company's future tax liability. The purpose behind this tax provision is to allow some form of tax relief when a company loses money in a tax period. The IRS recognizes that some companies' business profits are cyclical in nature and not in line with a standard tax year.
How to use Net operating loss (NOL) in a sentence?
- NOLs may now be carried forward indefinitely until the loss is fully recovered, but they are limited to 80% of the taxable income in any one tax period.
- A net operating loss (NOL) exists if a company's deductions exceed taxable income.
- A NOL can benefit a company by reducing taxable income in future tax years.
- Section 382 limits the carryforward a company can use if it acquires another company with a previous NOL.
- The Tax Cuts and Jobs Act made significant changes to NOL rules for tax years beginning in 2018.
Meaning of Net operating loss (NOL) & Net operating loss (NOL) Definition