Definition of the word carry back

The term "carry back" originated in the context of income tax, specifically to describe the ability to transfer unused tax losses or credits from one year to another. In some tax systems, individual or corporate taxpayers are allowed to deduct certain types of expenses or adjustments from their gross income to calculate their taxable income for a particular year. If such expenses or adjustments exceed the taxpayer's income, they are said to have an "incoming year net operating loss" (or NOL). Under such systems, if a taxpayer cannot use their entire NOL in the year in which it arises, they may carry it back to one or more of the previous years (provided certain time limits are observed) and offset their taxable income in those years. After using a carryback NOL against income in each of the previous years, the corporation may then carry forward the remaining NOL, which can be used to reduce future years' taxable income or carried back again, subject to certain timing requirements. While the specific rules governing the carry-back deduction differ between countries and jurisdictions, the general concept of offsetting losses from one year against income from another has been an important part of income tax systems around the world for many years.