Deferred taxes arise when the book and tax bases of assets and liabilities differ. Enter each temporary difference to calculate deferred tax assets and liabilities under ASC 740 and the deferred tax expense or benefit for the period.
How it works
Calculate deferred tax assets and liabilities from temporary differences between book and tax bases under ASC 740, with an optional valuation allowance and the resulting deferred tax expense or benefit.
Temporary difference = Book basis − Tax basis
Asset: difference > 0 → taxable (DTL); < 0 → deductible (DTA)
Liability: difference > 0 → deductible (DTA); < 0 → taxable (DTL)
Deferred tax = |Difference| × Enacted tax rate
Deferred tax expense = Ending net DTL − Beginning net DTL
Common uses
- Quarterly and annual income tax provisions
- Tax footnote disclosures and audit support
- Accounting coursework and CPA exam preparation
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Temporary differences | Property, plant & equipment | 4,200,000 | 3,100,000 | A Accounts receivable (allowance) | 2,870,900 | 3,041,000 | A Prepaid insurance | 60,000 | 0 | A Accrued vacation | 180,000 | 0 | L Warranty reserve | 95,000 | 0 | L Deferred revenue | 240,000 | 0 | L |
| Enacted tax rate | 25% |
| Valuation allowance (% of gross DTA) | 0% |
| Beginning net deferred tax liability | $95,000 |
| Net deferred tax liability | $118,725 |
| Gross deferred tax assets | $171,275 |
| Deferred tax liabilities | $290,000 |
| Valuation allowance | $0 |
| Deferred tax expense | $23,725 |
Assets with book basis above tax basis, and liabilities with book basis below tax basis, create taxable differences (deferred tax liabilities); the reverse creates deferred tax assets. Deferred tax expense excludes amounts recorded in other comprehensive income or from business combinations.
Interpreting the results
- Measure deferred taxes at the enacted rate expected to apply when the differences reverse, not the current-year rate.
- Record a valuation allowance when it is more likely than not that some deferred tax assets will not be realized.
- Permanent differences, such as non-deductible penalties, affect the effective tax rate but create no deferred taxes.
Frequently asked questions
What creates a deferred tax liability?
A deferred tax liability arises from a taxable temporary difference: an asset whose book basis exceeds its tax basis, such as property depreciated faster for tax than for books, or a liability whose book basis is below its tax basis.
What creates a deferred tax asset?
A deferred tax asset arises from a deductible temporary difference, such as an accrued expense or reserve recorded for books that is deductible for tax only when paid. Net operating loss and credit carryforwards also create deferred tax assets.
When is a valuation allowance required?
A valuation allowance is required when it is more likely than not, meaning a likelihood of more than 50%, that some or all of a deferred tax asset will not be realized. The assessment considers future taxable income, reversals of existing differences and tax-planning strategies.
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