carriedforward

Carriedforward is a term used in taxation and accounting to describe the application of unused tax attributes from one period to offset taxable income or tax liabilities in a future period. The most common forms are loss carryforwards and tax credit carryforwards. A loss carryforward allows a taxpayer with a net operating loss in one year to reduce taxable income in future years. A tax credit carryforward allows unused tax credits to be applied against future tax payable. The rules and limits for carrying forward losses or credits vary by jurisdiction and by the type of attribute; some losses expire after a number of years, while others may be carried forward indefinitely. Some systems also permit carrybacks, applying losses or credits to prior years.

In accounting, carriedforward attributes often appear as deferred tax assets on the balance sheet, reflecting the expected future tax benefits from those losses or credits. The recognition and measurement of these assets follow accounting standards and typically require an assessment of whether it is more likely than not that future taxable income will be available to realize the benefit. If realization is uncertain, a valuation allowance is recorded to reduce the asset.

Examples: A company with a $500,000 net operating loss can carry it forward to offset future profits, reducing future tax payments. An unused $20,000 tax credit may be carried forward to offset tax in future years until exhausted.

See also: carryback, deferred tax asset, tax loss carryforward, tax credit carryforward.