Tax benefits of NOLs: carryforward or carryback
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1. How are the tax benefits of net operating losses (NOL) disclosed on financial statements? Which is more beneficial to an organization, an NOL carryforward or an NOL carryback? Why? When would a company decide to forego a carryback?
2. Read an article about taxable and finanical income, or deferred tax assets and liabilities or NOL. What are your thoughts on the article?
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Solution Summary
The solution examines the tax benefits of NOLs. The carryforward and carryback are examined for net operating losses.
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ANSWERS
Question 1
First, business organizations can carry back their net operating losses up to three years to obtain refund of previously paid taxes OR to carry forward the operating loss up to fifteen years to reduce tax liability associated with income in the future.
Second, the tax benefits of net operating losses are disclosed on financial statements depending on how the company opts to exercise the tax benefits from the NOL. If it decides to carry it forward, then a deferred tax asset is included in its balance sheet and a discussion of the component of such deferred tax assets is also included in its ...
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