how can businesses use loss carryforwards 
to use nol carryforwards effectively businesses should claim them as soon as possible the losses are not indexed with inflation and as a result each year the claim effectively becomes smaller for example if a business loses 100 000 in the current tax year although it may carry the loss forward for the next 20 years it is likely to have a larger impact the sooner it is claimed as a result of inflation it is most likely that 100 000 will have less buying power and less real value 20 years from now example of a loss carryforwardimagine a company lost 5 million one year and earned 6 million the next the carryover limit of 80 of 6 million is 4 8 million the full loss from the first year can be carried forward on the balance sheet to the second year as a deferred tax asset the loss limited to 80 of income in the second year can then be used in the second year as an expense on the income statement it lowers net income and therefore the taxable income for that year to 1 2 million a 200 000 deferred tax asset 5 million 4 8 million will remain on the balance sheet 