Deferred tax asset / liability
Financial Accounting glossary · The Accounting Cycle & Financial Statements
Definition
Future tax benefit or obligation arising from temporary differences between book and tax bases of assets/liabilities, or from carryforwards.
Deferred tax asset / liability in plain English
Companies actually keep two sets of numbers: one for their financial reports ("book") and one for the tax authorities ("tax"), and the rules differ, so income can show up in different years for each. When that timing gap means you'll pay LESS tax later, you record a deferred tax asset (a future discount coming your way); when it means you'll pay MORE tax later, it's a deferred tax liability (a future bill). It's like knowing today that a coupon will save you money on next month's purchase (an asset) or that a delayed charge is going to hit your card later (a liability) — you note it now even though the cash moves later. "Carryforwards" fit here too: for example, a past business loss you're allowed to use to shrink a future tax bill is a deferred tax asset.
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