Loss Carryback

Loss carryback is an accounting term that describes a situation in which a business experiences a net operating loss and chooses to apply that loss to a prior year’s tax return. This results in a lower tax bill for the year to which this carried back loss has been applied because it reduces the tax liabilities for that previous year. The loss carryback can generate a tax refund for the business for that previous year because of this newly reduced tax liability. After the carried back loss is applied, it will be as though the business overpaid its taxes for that year. Typically, losses can only be carried back two years prior to the year in which the net operating loss occurred. Special circumstances allow for a three-year loss carryback