Net Operating Loss Carryforward Essay

Exclusively available on Available only on IvyPanda® Made by Human No AI

Every company seeks to reduce its costs and the scale of taxes paid while maintaining as much profit as possible and creating the most favorable plan for allocating funds and assets. There are many tools to do this, including Net Operating Loss (NOL) Carryforward, which allows losses from prior years to be carried forward, thereby reducing income taxes (CFI Team, 2022). In addition, there is a valuation allowance mechanism that balances deferred tax assets, which accomplishes roughly the same goal. Careful operation of these tools allows for minimizing costs for the company, even in the presence of significant losses.

However, in the context of the situation studied, I believe there is no need to plan such reserves and prepare such operations. Although the company had losses in the past, they were spread over only one year. There is no indication of how much the company has lost, which makes the analysis somewhat challenging. In addition, future losses would also only be spread over one year, which, moreover, would only be three years from the present time of the forecast. While the company should certainly prepare for such an event, planning in advance for valuation allowance has a significant downside. Because these funds must serve as an offset to deferred tax assets, their existence in and of itself reduces the company’s income level. Depending on the specific values of profits and losses, such a balance sheet disruption can be very sensitive to the organization. Consequently, given the circumstances and timings of unprofitable years, there is little need to create such funds. Nevertheless, they can be planned, but in a small amount that will not damage the current operations of the company.

Reference

CFI Team. (2022). Corporate Finance Institute. Web.

More related papers Related Essay Examples
Cite This paper
You're welcome to use this sample in your assignment. Be sure to cite it correctly

Reference

IvyPanda. (2023, July 2). Net Operating Loss Carryforward. https://ivypanda.com/essays/net-operating-loss-carryforward/

Work Cited

"Net Operating Loss Carryforward." IvyPanda, 2 July 2023, ivypanda.com/essays/net-operating-loss-carryforward/.

References

IvyPanda. (2023) 'Net Operating Loss Carryforward'. 2 July.

References

IvyPanda. 2023. "Net Operating Loss Carryforward." July 2, 2023. https://ivypanda.com/essays/net-operating-loss-carryforward/.

1. IvyPanda. "Net Operating Loss Carryforward." July 2, 2023. https://ivypanda.com/essays/net-operating-loss-carryforward/.


Bibliography


IvyPanda. "Net Operating Loss Carryforward." July 2, 2023. https://ivypanda.com/essays/net-operating-loss-carryforward/.

If, for any reason, you believe that this content should not be published on our website, please request its removal.
Updated:
This academic paper example has been carefully picked, checked and refined by our editorial team.
No AI was involved: only quilified experts contributed.
You are free to use it for the following purposes:
  • To find inspiration for your paper and overcome writer’s block
  • As a source of information (ensure proper referencing)
  • As a template for you assignment
Privacy Settings

IvyPanda uses cookies and similar technologies to enhance your experience, enabling functionalities such as:

  • Basic site functions
  • Ensuring secure, safe transactions
  • Secure account login
  • Remembering account, browser, and regional preferences
  • Remembering privacy and security settings
  • Analyzing site traffic and usage
  • Personalized search, content, and recommendations
  • Displaying relevant, targeted ads on and off IvyPanda

Please refer to IvyPanda's Cookies Policy and Privacy Policy for detailed information.

Required Cookies & Technologies
Always active

Certain technologies we use are essential for critical functions such as security and site integrity, account authentication, security and privacy preferences, internal site usage and maintenance data, and ensuring the site operates correctly for browsing and transactions.

Site Customization

Cookies and similar technologies are used to enhance your experience by:

  • Remembering general and regional preferences
  • Personalizing content, search, recommendations, and offers

Some functions, such as personalized recommendations, account preferences, or localization, may not work correctly without these technologies. For more details, please refer to IvyPanda's Cookies Policy.

Personalized Advertising

To enable personalized advertising (such as interest-based ads), we may share your data with our marketing and advertising partners using cookies and other technologies. These partners may have their own information collected about you. Turning off the personalized advertising setting won't stop you from seeing IvyPanda ads, but it may make the ads you see less relevant or more repetitive.

Personalized advertising may be considered a "sale" or "sharing" of the information under California and other state privacy laws, and you may have the right to opt out. Turning off personalized advertising allows you to exercise your right to opt out. Learn more in IvyPanda's Cookies Policy and Privacy Policy.

1 / 1