Deferred Tax Liability
A future tax obligation created when book income exceeds taxable income temporarily, representing taxes that will be paid when timing differences reverse.
Deferred Tax Liability
A future tax obligation that arises when taxable income is lower than accounting income in the current period, creating a taxable temporary difference that will increase taxes payable in future periods.
For example, when a company uses accelerated depreciation for tax purposes but straight-line for financial reporting, the temporary difference might create a $200,000 deferred tax liability representing future tax payments.
Deferred tax liabilities prevent companies from permanently avoiding taxes through timing differences. They represent the future tax consequences of temporary differences between book and tax bases of assets and liabilities. Common sources include accelerated tax depreciation, installment sales, and certain revenue recognition differences.