What effect do net operating losses (NOLs) have on future periods?

Net operating losses (NOLs) play a significant role in a company's tax strategy, particularly by allowing a business to offset future taxable income. When a company experiences NOLs, it means that its allowable tax deductions exceed its taxable income within a given period. This situation provides the company with a valuable opportunity: it can carry the losses forward to future tax years.

By utilizing NOLs in this manner, the company can reduce its taxable income in the years following the losses. This effectively lowers the tax liability during profitable periods, providing a financial cushion and potentially improving cash flow. The ability to offset future income can lead to tax benefits that support business recovery and growth after experiencing financial difficulties.

This option is a key aspect of how NOLs can positively impact a company's future financial health, as it provides a strategic advantage in tax planning.