Net Operating Loss - NOL

A period in which a company's allowable tax deductions are greater than its taxable income, resulting in a negative taxable income. This generally occurs when a company has incurred more expenses than revenues during the period.

The net operating loss for the company can generally be used to recover past tax payments or reduce future tax payments. The reasoning behind this is that because corporations are required to pay taxes when it earns money, it deserves some form of tax relief when it loses money.

Investopedia Says:
If a company has a net operating loss, it can apply this tax relief in two ways or a through a combination of both. The company can apply the net operating loss to their past tax payments and receive a tax credit. It could also apply the net operating loss to future income tax payments, reducing payments they need to make in future periods. The terms of the tax relief and how it can be applied varies by jurisdiction but usually the NOL can be applied to the past few years (2-3) and much more to the future (7-10) years.

This term is really just fancy jargon for the company losing money. It makes sense that you should have to pay tax before you get "out of the hole". For example, say you lose $1 million in your first year of business and make $5 million the next year. It wouldn't be fair for you to have to pay tax on a profit of $5 million, because you are really only ahead by $4 million ($5 million profit - the $1 million loss).

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Excess of allowable Deductions over gross income with certain specific adjustments set forth in the Internal Revenue Code, which are generally designed to limit the net operating loss deductions of individual taxpayers to business losses. Corporations that incur a net operating loss pay no tax in the current year and can claim a refund for 2 prior years' taxes paid, then carry over the NOL to as many as 20 future years.

The excess of expenses over income. For tax purposes, a net operating loss is the excess of allowable deductions over gross income with certain adjustments. A taxpayer is allowed a deduction for the net operating loss in a year in which deductions do not exceed gross income. A taxpayer may carryback the net operating loss to three prior tax years, or carryover the net operating loss to 15 subsequent tax years. For individual taxpayers, the net operating loss is limited to business losses. I.R.C. §172.