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

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

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Jacob 1 year 1 Answer 333 views Silver 0

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  1. Deferred tax liability is a tax liability which is not actually paid to the government, when it arose, but is expected to be paid in the future. Deferred tax liability arises because when a company actually pays less in taxes to the IRS than they show as an expense on their income statement in a reporting period. Differences in depreciation expense between book reporting (GAAP) and IRS reporting can lead to differences in income between the two, which ultimately leads to differences in tax expense reported in the financial statements and taxes payable to the IRS.

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