What is a deferred tax asset and why might one be created?

A Deferred Tax Asset is an accounting term on a firm’s balance sheet that is used to illustrate when a firm has overpaid on taxes and is due some form of tax relief. An asset that is used to reduce the amount of tax that a company will have to pay in a later tax period. It is often associated with a loss carryover, and is used as a future write-off if the next tax period is expected to produce positive earnings.

It is created to used accelerated depreciation for tax purposes and not for financial-reporting purposes.

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