Deferred Tax Asset

Deferred Tax Asset

A Deferred Tax Asset is an accounting term that refers to a situation where a company has overpaid taxes or has tax losses that can be utilized to reduce future tax liabilities. This asset arises due to temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements.

For example, if a company incurs a loss in a given year, it may carry that loss forward to offset future taxable income, effectively creating a Deferred Tax Asset. This asset is recorded on the balance sheet and will reduce taxable income in future periods, resulting in tax savings when the company is profitable again.