Legal Definitions - net operating loss

Net operating loss refers to a situation where a company's expenses exceed its revenue, resulting in a loss. This loss can be carried forward to future years to offset taxable income and reduce tax liability.

A company has $100,000 in expenses and $80,000 in revenue, resulting in a net operating loss of $20,000. This loss can be carried forward to future years to offset taxable income and reduce tax liability.

This example illustrates how a net operating loss can be used to reduce a company's tax liability in future years. By carrying forward the loss, the company can offset taxable income and reduce the amount of taxes it owes.