NOL carryback tax breaks might be the most powerful cash move you’re not using. If you’ve recently won a government contract and you’re scrambling to find funding—stop right there. Before you go begging your bank, maxing out lines of credit, or giving away equity, you need to ask one simple question:
Did you lose money last year?
If the answer’s yes, you might be sitting on a check from the IRS. You just haven’t claimed it yet.
Why Government Contractors Need to Pay Attention to This
We’ve worked with dozens of government contractors who hit the jackpot on paper—a $1.2M VA contract, a $3M FEMA job, a federal IT support deal. They were hyped, then quickly humbled when the pre-payroll costs hit and the government payment cycle dragged on for 60–90 days.
Enter: NOL carryback tax breaks.
Here’s the gist: If your business had a net operating loss (NOL) in the past year or two, you can carry that loss back to a year when you were profitable—and get a refund on the taxes you already paid.
And this isn’t theory. One of our clients, Chris, had a $400K loss last year ramping up staff and equipment. We filed an NOL carryback to 2019 and 2020, when he was killing it with taxable profits. The IRS sent him a refund of $167,000. That paid for his materials, insurance, and the first month of payroll before the feds even cut their first check.
What Is an NOL Carryback?
Let’s make it simple.
NOL = Net Operating Loss. Your expenses were higher than your income for the year.
Carryback = Retroactively applying that loss to past years where you had a profit and paid income tax.
Refund = Money the IRS owes you based on that recalculated return.
You’re not gaming the system. You’re just using the law to correct your past tax payments. It’s a legit strategy—especially useful when you’re trying to mobilize fast after winning a government job.
How NOL Carryback Tax Breaks Work
Step 1: Identify the Loss
You review your most recent tax return. If your deductions and costs exceeded your income, that’s an NOL.
Step 2: Find the Profitable Years
Usually, you can carry back that loss 2–5 years. You go back to a year where you paid taxes—and basically tell the IRS, “Hey, if I had this loss back then, I shouldn’t have owed as much.”
Step 3: File the Right Forms
This is critical. If you’re within 12 months of the loss year ending, you can file a quick refund claim using Form 1139 (corporate) or 1045 (individuals).
Get it right, and the IRS usually issues the refund within 90 days.
Who Qualifies for NOL Carryback Tax Breaks?
If you’re running an S-Corp, C-Corp, LLC, or even as a sole proprietor—you may qualify. The key is that your business had a legitimate tax loss and paid taxes in prior years. That’s the combo.
These breaks apply across industries, but they’re especially valuable for federal contractors who:
Took on big startup costs
Hired fast or expanded too quickly
Invested in equipment or compliance
Experienced delayed revenue
Benefits of Using NOL Carryback Tax Breaks to Fund Contracts
1. It’s Fast
No underwriting. No loan officer. No SBA checklist. Just cash coming back from overpaid taxes. In some cases, faster than a line of credit.
2. It’s Non-Dilutive
You don’t give up equity. You don’t owe interest. This is YOUR money coming back to you.
3. It Improves Your Financial Position
Need to qualify for bonding? Showing a pending IRS refund strengthens your working capital on paper. Lenders love it. So do federal auditors.
Common Mistakes That Leave Refunds on the Table
Let’s go through a few red flags I see every week:
Mistake 1: Only Carrying Losses Forward
Most CPAs will automatically carry forward your NOL. That’s great for long-term tax savings—but useless if you need money now. Carryback is the liquidity play.
Mistake 2: Missing the 12-Month Quick Refund Window
If you wait too long, you lose the chance to fast-track your refund. That’s a delay you can’t afford if you’re trying to fund a contract.
Mistake 3: Misfiled Forms
The IRS won’t call you to tell you your form was wrong. They’ll just sit on it. A wrong form can delay your refund for months.
Turning Loss Into Leverage
One client, Maya, runs a small environmental consulting firm. She took a big loss in 2023 setting up her DCAA-compliant accounting system and hiring for a new EPA contract. We carried that loss back to her profitable 2018 and 2019 tax years. Total refund? $122,000.
She used that money to:
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Hire a proposal writer for the next round of bids
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Prepay bonding costs for a $2.1M contract
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Pay herself back for a personal loan she fronted the business
That’s the power of nol carryback tax breaks when used strategically.
Common Mistakes That Leave Refunds on the Table
Let’s go through a few red flags I see every week:
Mistake 1: Only Carrying Losses Forward
Most CPAs will automatically carry forward your NOL. That’s great for long-term tax savings—but useless if you need money now. Carryback is the liquidity play.
Mistake 2: Missing the 12-Month Quick Refund Window
If you wait too long, you lose the chance to fast-track your refund. That’s a delay you can’t afford if you’re trying to fund a contract.
Mistake 3: Misfiled Forms
The IRS won’t call you to tell you your form was wrong. They’ll just sit on it. A wrong form can delay your refund for months.
Turning Loss Into Leverage
One client, Maya, runs a small environmental consulting firm. She took a big loss in 2023 setting up her DCAA-compliant accounting system and hiring for a new EPA contract. We carried that loss back to her profitable 2018 and 2019 tax years. Total refund? $122,000.
She used that money to:
Hire a proposal writer for the next round of bids
Prepay bonding costs for a $2.1M contract
Pay herself back for a personal loan she fronted the business
That’s the power of nol carryback tax breaks when used strategically.
How to Maximize Your Refund
Let’s break down a few advanced tactics:
File Across Multiple Years
If one year doesn’t fully absorb your NOL, apply the remainder to the next eligible year. Don’t let leftover loss sit idle.
Match Refund Timing to Cash Needs
Use projected IRS refund timelines to support your financing strategy. For example, show a pending refund to a lender when applying for contract-based factoring.
Partner With Icarus Fund
General accountants might overlook this strategy. Icarus Fund knows government contracts and NOL carrybacks—a rare combo that can get you 2–3x more back and faster.
Don’t Sleep on This
Look, if you’ve got an NOL and you’re not carrying it back, you’re leaving free money with the IRS. This is one of the few times the government actually pays YOU—use it.
The businesses we’ve seen thrive in federal contracting didn’t wait until they were desperate for capital. They looked at the tax code, identified opportunities, and moved before the pain hit.
NOL carryback tax breaks aren’t just a tax trick—they’re a strategic advantage.
Let’s Put Your Tax Refund to Work
You might already have a refund waiting for you. Let’s find it.
👉 Schedule a Free 15-Minute NOL Strategy Call
We’ll look at your last few years of returns, check eligibility, and estimate your refund potential.
Or download our “NOL Carryback Tax Breaks Checklist for Contractors” and start prepping your docs today.
Stop leaving money on the table. Start building your next contract with your own capital.
