What is a deferred tax liability and why might one be created?



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defferred tax

3 Answer(s)


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taking it literally, deferred means postponing into the future ie a tax liability (which is payable to the govt) not now but at a later stage , some months after the company books have been audited and closed. The difference that arises between the tax liability amount ,calculated for public reporting purposes (R) vis-s-vis calculations for submission of accounts(S) to the regulatory authorities(govt) will either be a deferred tax liability ( when R is less than S) or a deferred tax asset (when R is more than S). Some regulations/accounting norms set by the govt /regulatory bodies are at variance to accounting procedures used by companies.

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Deferred tax liability we can called reserve for tax to be paid to the govt.

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A deferred tax liability occurs when taxable income is smaller than the income reported on the income statements. This is a result of the accounting difference of certain income and expense accounts. This is only a temporary difference. The most common reason behind deferred tax liability is the use of different depreciation methods for financial reporting and the IRS.