A net operating loss (NOL) can be carried forward to future years to offset the taxable income and ultimately resulting in reduction of our tax liability. As per Federal Rules, Net operating losses can be carried forward indefinitely until the loss is fully recovered, but they are limited to 80% of the taxable income in any one tax period. The Smith company has loss of $200,000 in 2021 which can be carry forward to upcoming years. Tax rate is 21%