In: Accounting
In planning for its annual charitable contributions, a corporation should take into account any net operating loss carryforwards since such items reduce the corporation’s taxable income base for purposes of the annual deduction limitation. T/F
Answer of this question is TRUE
Explanation
For income tax purposes, a net operating loss (NOL) is the result when a company's allowable deductions exceed its taxable income within a tax period. The NOL can generally be used to offset the company's tax payments in other tax periods through an Internal Revenue Service (IRS) tax provision called a loss carryforward. A loss carryforward refers to an accounting technique that applies the current year's net operating loss (NOL) to future years' net income to reduce tax liability. For example, if a company experiences negative net operating income (NOI) in year one, but positive NOI in subsequent years, it can reduce future profits using the NOL carryforward to record some or all of the loss from the first year in the subsequent years. This results in lower taxable income in positive NOI years, reducing the amount the company owes the government in taxes.