What are Net Operating Losses?
Net operating losses occur when the operating expenses of a business exceed the income for multiple years. Operating expenses are the costs of materials, rent, and overhead incurred when running a business. Income is all money that flows into a business, usually from the sales of materials or services. Business losses are incurred throughout the year, but the annual tax reporting process is often when net operating losses are identified. In order to encourage entrepreneurship and to accommodate the ups and downs of the economic cycle, most countries have special rules surrounding tax treatment of net operating losses.
