What is a deferred tax asset and what is its purpose?
A deferred tax asset (as its name suggests) is when a company pays more in taxes to the IRS than they actually owe (as shown as an expense on their income statement). This is an asset because it can be used to offet future tax expense in the future. Deferred tax assets can result from differences in revenue recognition, expense recognition, and net operating losses.
A deferred tax asset or liability is created when a corporation has a difference between the deduction for net income as shown on the income statement and a deduction for taxable net income. The total asset or liability amount is calculated as the taxable amount of that difference. The provision for deferred tax recognizes a future liability arising from past transactions and events. Tax legislation allows the company to defer settlement of the liability for several years.
For example, a deferred tax asset of 100,000 from the previous year could be applied to before-tax income of 250,000 this year, resulting in taxable income of 150,000 (250,000 - 100,000).
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1. A deferred tax asset is when a company pays more in taxes to the IRS than they actually owe. My past company recognized deferred tax when.....
2. A deferred tax asset is when a company pays more in taxes to the IRS than they actually owe. I studied this in my accounting and a scenario would be when a company.....
3. A deferred tax asset is when a company pays more in taxes to the IRS than they actually owe. In my experience, deferred tax recognized by a company because....
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