- What is deferred tax liability?
- Why does deferred tax liability matter?
- How do you calculate deferred tax liability?
- How does deferred tax liability impact your taxes?
Deferred tax liability definitionDeferred tax liability (DTL) is when a tax is owed by a company but has not yet been paid. This discrepancy happens mainly because of the difference in how business accounting and taxes are structured. If your business uses the accrual-based accounting method, as most businesses do, you may have some revenue that’s billed in one tax year, but not actually earned until the next. The IRS handles this situation by allowing businesses to defer their tax liabilities to the tax year in which the revenue is realized. There are a few reasons a business might have deferred tax liabilities:
- When an installment sale is made, so sales revenue has been billed, but not earned in the same tax year.
- Similar to installment sales, credit sales can also impact when revenue is actually earned.
- Your assets depreciate, so there is a difference between your accounting income and taxable income.