What is deferred tax liability and asset?

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Deferred tax asset is an accounting term that refers to a situation where a business has overpaid
taxes or taxes paid in advance on its balance sheet. These taxes are eventually returned to the
business in the form of tax relief, and the over-payment is, therefore, an asset for the company.

Deferred tax liability is an account on a company’s balance sheet that is a result of temporary
differences between the company’s accounting and tax carrying values, the anticipated and
enacted income tax rate, and estimated taxes payable for the current year. This liability may be
realized during any given year, which makes the deferred status appropriate.