Five Facts About the Trump Tax Return Disclosure | Tax Foundation
If a business makes $50 in June but loses $100 in July, we call that a $50 loss. A business that makes $50 in December but loses $100 in January is fundamentally the same thing, but straddles the tax year. Net operating losses (NOLs) allow businesses that lose money in one year and make money in another to smooth those ups and downs. We tax income (profits) not losses, and do so somewhat arbitrarily based on the calendar year. Otherwise, a taxpayer would have to pay income taxes despite not earning income, and would have an incentive to manipulate gains and losses to make them happen in the same year. Any taxpayer with business losses can take NOLs, and in 2014, 1.2 million taxpayers reported NOLs on their federal income tax form.