Deferred Tax Asset definition explanation

What is Deferred Tax Asset?
An asset on a company’s balance sheet that may be used to reduce any subsequent period’s income tax expense. Deferred tax assets can arise due to net loss carryovers, which are only recorded as assets if it is deemed more likely than not that the asset will be used in future fiscal periods. Read more for examples and further explanation including related video clips and also comments

Example explains Deferred Tax Asset
It must be determined that there is more than a 50% probability that the company will have positive accounting income in the next fiscal period before the deferred tax asset can be applied.

If, for example, a company has a deferred tax asset of $25,000 on its balance sheet, and then the company earns $75,000 in before-tax accounting income, accounting tax expense will be applied to $50,000 ($75,000 – $25,000), instead of $75,000.

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