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Deferred Tax

Accounting

Deferred tax in accounting: how temporary differences between book values and tax bases create deferred tax assets and liabilities.

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Deferred tax is the accounting recognition of future tax effects caused by temporary differences between the carrying amount of an asset or liability in the financial statements and its tax base.

Those differences do not usually mean tax has been avoided or ignored. They mean book accounting and tax accounting recognize income or expense in different periods.

What deferred tax captures

  • future taxable amounts that can create deferred tax liabilities
  • future deductible amounts that can create deferred tax assets

Core relationship

$$ \text{Deferred Tax} = \text{Temporary Difference} \times \text{Applicable Tax Rate} $$

Common sources

  • different depreciation timing for book and tax purposes
  • accrued expenses deductible later for tax
  • revenue recognized in different periods for accounting and tax
  • provisions or allowances treated differently by tax law

Why it matters

Deferred tax keeps the balance sheet and income statement aligned with the future tax consequences of current-period accounting.

  • Temporary Difference
  • Originating Timing Difference
  • Accrued Expense
Revised on Monday, May 18, 2026
Accrued Taxes
Deferred Tax Asset