Net Operating Losses (NOLs)
Future Tax Benefits from Losses
When tax deductions exceed taxable income, a company may generate a net operating loss. Under current U.S. tax rules, many NOLs may be carried forward to reduce future taxable income, creating deferred tax assets.
- Creates deferred tax assets.
- Subject to tax law limitations.
- May require a valuation allowance if future profitability is uncertain.
Summary
Net operating loss carryforwards create deferred tax assets because they reduce future taxable income.