Carry forward losses

Updated: Aug 20, 2021

The right to deduct past losses from present profits in lating liability to tax. Most tax systems collect taxes from companies and incorporated businesses which make profits, but do not make payments to ms making losses, presumably because it is believed that the fraudulent luction of apparent losses would be too easy. This asymmetry in the treatment of profits and losses tends to discourage investment. To minimize this discouragement firms are allowed to carry forward losses. This means that if a firm has made a loss in one period, if and when it returns to profit it will be allowed to deduct the loss carried forward in calculating its taxable income. It may thus pay a profitable business to acquire another business whose main asset is previous losses which can be carried forward for tax purposes.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.