What is the definition of 'net operating loss' (NOL) carryforward?

The definition of 'net operating loss' (NOL) carryforward refers specifically to the ability of a taxpayer to use a net operating loss in one tax year to offset taxable income in subsequent tax years. NOLs typically arise when a business's allowable tax deductions exceed its taxable income, leading to a negative taxable income. This provision is beneficial because it provides relief to businesses that may have experienced a bad year, allowing them to reduce their future tax liabilities by carrying forward those losses.

When a business incurs an NOL, it can carry that loss forward to future years, effectively decreasing taxable income in those years, thereby lowering the amount of tax owed. This is especially helpful for businesses that expect to earn a profit in the future after experiencing a loss. The NOL carryforward mechanism allows for the resilience of businesses by enabling them to manage their tax liability over time rather than losing the value of the loss entirely in the year it occurred.

The other choices do not accurately describe the NOL carryforward; for instance, the option about carrying losses back refers to a different provision that allows taxpayers to apply losses to previous taxable years. The option regarding a deduction for unreimbursed expenses pertains to different tax deductions that individuals or businesses may claim. Lastly,