Info 1: deferred tax liabilities
definition
Info 2: how deferred tax liabilities
works
Info 3: deferred tax liabilities vs pre-tax
Info 4: example of deferred tax liabilities
Opening information:
The deferred tax liabilities sentence breaks into three words deferred, tax, and liabilities. Deferred means postpone, tax means levy or fees, and liabilities means debt. Deferred tax means postponing fees as debt.
so now let’s have a look at what is a deferred tax, how the deferred tax works in the public market, and what is the difference between deferred tax and pre-tax, finally one brief example of deferred tax.
Info 1: deferred tax liabilities definition
Anox is a textile business that produces hundreds and thousands of designs every year but with the same and only one brand symbol.
This makes the trust and creditworthiness of their customers and being more loyal anyway, and this institution is run by Mr. Smith. he is a great entrepreneur who already runs other two businesses in oil and Shoes.
However the yearly revenue of the Anox business is 12 billion dollars, and net income would be 2 billion dollars after all deductions including the interest payment and tax expenses.
But the money that is received by the other dealers, wholesalers, and outside business owners for the future delivery products of dresses is not quite exposed to the current year’s income tax. Where such an amount is 120 million dollars as income.
Moreover, this 120 million dollars which is Holden by the Anox company would need to pay 25 percent of the tax on such received amount. But they are not obligated to pay now despite their decision to pay the tax at a future time of next year.
The 25 percent amount is shown as 30 million dollars in the liabilities of the company Anox balance sheet because the tax is postponed to the next year.
Here the amount of 25% which is 30 million dollars is what is named as deferred tax in the Anox industry. So now let’s dive into how the deferred tax works in the public market among all public Corporations.
Info 2: how deferred tax liabilities work
The deferred tax doesn’t represent any of the specific things or objects, instead, it’s an amount that is postponed to the future time to pay to the ruled government in earned money.
Therefore any of the income which is earned by any amount of the Corporation without a filled Service or delivery of that income is trapped into tax in future years for such earned income.
Supposedly if the income that is acquired by the institution is provided for the Services or products in the same Current year, then such income becomes the Current year’s profits where one must pay the taxes not considered as tax deferred.
If any of the stock Investors who purchased the equity of the business shares and not held for more than a year, are forced to pay tax on the investment again, but when the gains are reinvested into other stocks.
which that profits need to be paid in the future year after the sale of purchased securities, and that postpone tax in the invested return because of investment is what is determined as deferred tax.
Next, the public Corporations who aren’t able to deliver their service within the expected or determined time frame but for the received amount, which they only pay taxes after the obligation is fully fulfilled to their customers in the future year.
So the received amount of taxes are held in the postponed way, which are called deferred tax liabilities. Most people confuse the deferred tax and pre-tax, so let’s jump into the key difference in it anyway.
Info 3: deferred tax liabilities and pre-tax
The difference between deferred tax and pre-tax is that deferred tax shows that any amount of tax payment which are postponed from the current time to a future time is reported as deferred.
On the other side, pre-tax shows of the amount tax which is paid before taking any kind of legal deduction or expenses on the earned income is what shows pre-tax.
So the key difference between the deferred tax and pre-tax is before and after. To make you more clear about the deferred tax let’s see into one clear example below.
Info 4: example of deferred tax liabilities
Say the company U is the tech industry which manufactures the more advanced level television for their loyal customer and new future customers.
However this industry made 34 billion dollars in revenue but they paid taxes without the use of any standard deduction, and they also 230 million dollars from outside dealers to deliver the new television next year.
Here the 34 billion dollars tax payment shows pre-tax, and 230 million dollars shows the deferred tax.