Net Operating Loss (NOL)
AdvancedAlso known as: NOL A net operating loss (NOL) is a loss for tax purposes, when a business's allowable deductions exceed its taxable income for a year, which can often be used to reduce taxable income in other years. The term is used mainly in the United States. Businesses do not earn steady profits every year. NOL rules recognise this by letting a loss in one year reduce taxes in profitable years, so that tax is charged closer to the business's profit over time. For example, a company has a tax loss of 400,000 this year and taxable income of 600,000 next year. By using its NOL, it may pay tax next year on only 200,000. Under current US federal rules, NOLs arising after 2017 can generally be carried forward indefinitely, but can offset only up to 80% of taxable income in any year. Carrying losses back to earlier years is generally not allowed, although temporary exceptions have been made. Rules for state taxes differ. NOLs can be valuable assets, which is why acquirers look at them carefully. To prevent trading in losses, US rules limit how much of a company's NOLs can be used after a significant change in ownership. In the accounts, unused NOLs may be recorded as deferred tax assets.
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