Definition
A deferred tax asset is a tax benefit that a company can use in the future. It arises when a company has paid more tax or incurred losses that can reduce its tax payments in future years.
Example
For example, if a company suffers a loss this year, it may be allowed to use that loss to reduce its taxable income in the future. This future tax benefit is recorded as a deferred tax asset.
Caution
A deferred tax asset is useful only if the company is expected to earn enough profit in the future to use the tax benefit. If future profits are uncertain, the value of the deferred tax asset may be reduced.