ShmoopTube

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finance a la shmoop what is a tax loss carry forward

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all right well feel bad about losing money in your business last year

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well this law will help make you feel a whole lot better you had been going [guy sinking in bath]

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along swimmingly making ten million bucks a year in your hot tub pimp out

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biz where you are the premier provider of turbo Jets neon lights spa caddies [fancy hot tub]

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massaging floor inserts and literal wet bars but then Kanye launched a competing [alcoholic beverages]

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business called hot and wet by Kanye and the next year well you lost six million [Hot and Wet by Kanye building]

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bucks well on your 10 million of taxable profits in a year you had been paying 30

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percent tax or 3 million bucks in taxes to show net income or earnings of 7

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million dollars well you lost 6 million dollars last year so you paid no tax and

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no the government doesn't rebate you 30% in taxes like they don't write you a

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check for 30% of 6 million or 1.8 million years that you lose money

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running your business but they do allow you to carry forward that loss into the

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next year or the next or the next usually up to 7 years total in most

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cases so that tax loss of 6 million bucks then comes in handy the following

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year when Kanye's hot tubs are found to be administering second-degree burns to [Hot and Wet news paper]

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its buyers and you once again make 10 million dollars in taxable profits only

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this time you have 6 million dollars of tax loss carry forward that gets first

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subtracted from the 10 million before you have to even think about taxes so in

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this case you pay taxes on just 4 million dollars or 30% of 4 million or

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just 1.2 million in taxes to net 2.8 million in net income essentially the

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government splits your losses and lets you take the taxable part of losses into

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the future so that the lows are not so low and well as far as Kanye is

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concerned the highs are not so high [Kanye in court]

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