Hi! Thanks for writing! I am thinking that your question is less about the business-specific term “Deferred Tax Liability” and more about personal taxes and deferring tax. I’ll answer both ways!
Investopedia defines a business deferred tax liability as “an account on a company's balance sheet that is a result of temporary differences between the company's accounting and tax carrying values, the anticipated and enacted income tax rate, and estimated taxes payable for the current year. This liability may be realized during any given year, which makes the deferred status appropriate. Because there are differences between what a company can deduct for tax and accounting purposes, there is a difference between a company's taxable income and income before tax. A deferred tax liability records the fact the company will, in the future, pay more income tax because of a transaction that took place during the current period, such as an installment sale receivable.” In other words, a business has a lot going on in a year, and some of the financial actions it takes affect what and when taxes are reported and paid.
From a personal standpoint, most taxpayers are looking to pay as little tax as they legally must pay each year. If the taxpayer can legally reduce the year’s tax bill with deductions or credits, that’s great. It’s also nice if you can legally defer or put off paying some of the tax you owe this year to a later tax year in the future. In the U.S., the primary method of legal tax deferment is though qualified retirement plans like IRA’s and 401(k)s. Each year, taxpayers who meet the requirements can defer some of their tax liability. Retirement plans are truly “win-win” situations – taxpayers get to put off paying some tax AND they are saving for your retirement; the government knows that it will eventually get the tax payment AND is happy that one more citizen is saving for retirement and depending a little less on the government for help in old age.
You can read more about the tax benefits of retirement plans here. Best wishes to you!
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