Deferred Tax Assets (DTAs)
Future Tax Benefits
A deferred tax asset arises when taxable income is higher than book income today, resulting in higher current taxes but lower taxes in future periods. The company pays more taxes now and expects future tax savings.
- Warranty expense recognized before tax deduction.
- Bad debt expense using the allowance method.
- Accrued expenses deductible when paid.
- Net operating loss carryforwards.
Note
Deferred tax assets represent expected future reductions in income taxes.
Summary
Deferred tax assets arise when taxes paid today exceed tax expense reported under financial accounting.