Deferred Tax Asset
A future tax benefit arising when taxable income exceeds book income, representing tax savings to be realized in future periods when timing differences reverse.
Deferred Tax Asset
A future tax benefit that arises when taxable income is higher than accounting income in the current period, creating a deductible temporary difference that will reduce taxes payable in future periods.
For instance, if a company has $500,000 in warranty expenses on its books that aren’t tax-deductible until actually paid, and the tax rate is 25%, it would record a $125,000 deferred tax asset representing future tax savings.
Deferred tax assets originate from temporary differences between financial reporting and tax regulations, operating loss carryforwards, and tax credits. They represent future tax benefits but require assessment for realizability through a valuation allowance if it’s more likely than not that some portion won’t be realized.