Loss Carryback

What Does Loss Carryback Mean?

Loss carryback involves applying a net operating loss from the current year to a previous year or years. This allows a business to reduce its tax liability. By transferring the loss, the taxable income from prior profitable years is reduced, thereby retroactively lowering the taxes owed for those periods.

Insuranceopedia Explains Loss Carryback

A business experiencing a loss in a given year can apply that loss either to previous years or to future years. The practice of applying it to previous years is known as loss carryback. This involves opting to attribute the current year’s losses to a prior profitable year. By doing so, the business reduces its reported earnings for that year, potentially qualifying for state tax deductions.

While this may superficially resemble fraudulent practices like manipulating financial records, loss carryback is a legitimate and legally recognized tax planning strategy.