Question

In general terms, net operating loss is a loss that results when a company’s expenses exceed...

In general terms, net operating loss is a loss that results when a company’s expenses exceed its income.

Respond to the following in a minimum of 175 words:

  • What are the tax implications of a net operating loss?
  • For how long can an organization carry forward a net operating loss? Explain your reasoning.
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Homework Answers

Answer #1

Net Operating Loss is incurred when the expenditure of businessexceeds the income and taxpayer has negative taxable income.

In case, the business has Net operating Loss, it has no tax liability in the year in which they incur a loss.

A loss can be carried forward for up to 20 years to reduce the burden of future taxes. The intention behind the Net operating Loss carryforward regime is to give taxpayers the ability to smooth out changes in business income and taxes, over the business cycle.

Allowing losses to offset from future income helps to reduce the distorting effects of taxation, and promote investment.

Incase of any doubt, please comment below. I would be happy to help.
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