Definition
A deferred tax liability is a tax amount that a company will have to pay in the future due to differences between accounting rules and tax rules. It occurs when a company pays less tax now but is expected to pay more tax later.
Example
For example, a company may use one depreciation method in its financial statements and a different method for tax purposes. As a result, it pays less tax today. The tax that will need to be paid in the future is recorded as a deferred tax liability.
Caution
A deferred tax liability is not an immediate payment obligation but represents a future tax obligation. Investors should consider it when evaluating a company’s long-term financial position.