What is a Deferred Tax Asset?

A deferred tax asset is income taxes that are recoverable in a future period. It is caused by the carryforward of either unused tax losses or unused tax credits. It is classified as an asset, and appears on the balance sheet.

Reasons for a Deferred Tax Asset

There are a number of reasons why a deferred tax asset occurs, such as overpaying taxes in the current period or differences between the accounting standards and tax laws. For example, a business might have a loss carryover, which it can use to reduce its taxable income in a subsequent period.