What's the Difference Between a Net Operating Loss Carryforward and a Carryback?

A net operating loss (NOL) occurs when your deductions exceed your income for the year, and you have options for using that loss to reduce taxes in other years. A carryforward applies the loss to future tax years, reducing your taxable income once your business returns to profitability. A carryback applies the loss to a prior tax year, which can generate a refund of taxes you already paid — you essentially refile that year's return using the new loss. Under current tax law, businesses can generally carry forward NOLs indefinitely, but they can only offset up to 80% of taxable income in any given year. Carrybacks are limited — they're generally only available for farming losses and certain insurance companies under current rules, though special legislation has sometimes expanded this temporarily during economic downturns.