Deferred Tax
The future tax consequence of temporary differences between a company's book income and its taxable income.
What is Deferred Tax?
Deferred tax assets and liabilities arise when accounting rules (GAAP) and tax rules produce different amounts of income or expense recognition in a given period, creating temporary differences that will reverse in future periods. A deferred tax liability means the company will owe more taxes in the future (e.g., using accelerated depreciation for tax purposes but straight-line for books). A deferred tax asset means the company paid more taxes now than accounting income would indicate and will benefit from a future tax reduction (e.g., carry-forward losses). Deferred tax items appear on the balance sheet and are closely watched because large deferred tax liabilities indicate deferred, not avoided, obligations to the government.
Example
Amazon uses accelerated depreciation on its massive warehouse and data center infrastructure for tax purposes, while using slower straight-line depreciation on its financial statements. This creates a deferred tax liability that appears on its balance sheet, representing taxes that will be owed in future periods.
Source: Investopedia — Deferred Tax