Deferred Tax Asset

Definition: A deferred tax asset is created by overpaying taxes during a given time period.  This usually occurs as a result of timing differences based on how the company depreciates its assets.  This deferred tax asset reduces the company's tax liability in the future.

Advice: Deferred tax assets are good because they reduce the liability in the future.  Because this has value, they're recorded as an asset.

Investors should give these a little consideration when analyzing a company's financials because high deferred tax assets and liabilities may signal that the company is too aggressive in its accrual accounting.

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