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Miller & Company LLP Long Island
Sorting out your finances sometimes can seem like learning a new language. Everything accountants do have a valid, logical and legal reason — as well as a direct connection to real-world issues. A deferred tax asset is no different. A deferred tax asset is a line item on your balance sheet that you can use to reduce your taxable income for a given year. It’s the opposite of a deferred tax liability.
Deferred tax assets and deferred tax liabilities not only play a role in your taxes; they also impact your cash flow, now and in the future. Miller & Company LLP, NY Certified Public Accountants, a best rated CPA firm in NYC.
Although there are many reasons to have a deferred tax asset on your balance sheet (under Current Assets) and in your tax return, one of the more common is to cover future expenses on money you’ve earned in the current year. In this example, that future expense is a current asset since you have the money now to pay for the planned expense you haven’t yet paid.
WHAT EXACTLY IS DEFERRED TAX?
The concept of deferred tax assets and liabilities came about because the way you calculate your taxes differs from the way you calculate your financial statements. The two equations use different instructions or guidelines. As a result, a line item that you see as an expense on a financial statement (such as your profit and loss statement) may actually end up an asset on your taxes.
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