LT Deferred Tax Assets
DeferredIncomeTaxAssetsNetDeferredTaxAssetsNetNoncurrentDeferredTaxAssetsValuationAllowanceLong-term deferred tax assets are future reductions in income taxes a company expects to realize more than a year out, because of deductible temporary differences and tax carryforwards it has already accumulated. They are reported as a noncurrent asset, after any valuation allowance.
They arise when the company has recognized an expense in its financial statements before the tax return allows the deduction, as with warranty reserves, accrued compensation, or lease liabilities, or when it has unused tax losses and credits that can offset future taxable income.
Deferred tax assets are measured under ASC 740 at the enacted tax rates expected to apply when they are used. A company must record a valuation allowance against any portion it considers more likely than not to go unused, weighing evidence such as recent losses, the expiry dates of carryforwards, and expected future taxable income. Since ASU 2015-17, deferred tax balances are classified as noncurrent, so for most companies today the whole net deferred tax asset sits in this line.
Within a single tax jurisdiction a company offsets its deferred tax assets and liabilities and shows one figure, so a balance-sheet deferred tax asset is net of liabilities in the same jurisdiction. In XBRL filings the netted noncurrent figure is tagged DeferredIncomeTaxAssetsNet or DeferredTaxAssetsNetNoncurrent, and the valuation allowance disclosed in the tax footnote is tagged DeferredTaxAssetsValuationAllowance. The footnote also shows the gross components, such as operating loss carryforwards and accrued expenses.
The value of a deferred tax asset depends entirely on the company earning enough taxable income to use it. Large assets supported mainly by loss carryforwards are only as good as the company's prospects for future profits. Changes in the valuation allowance can move reported earnings sharply: releasing an allowance creates a one-time tax benefit, while establishing one creates a large tax charge. Analysts often exclude deferred tax assets from tangible or conservative measures of book value, especially at companies with a history of losses.
A: An expense recognized in the financial statements before it can be deducted for tax, or an unused tax loss or credit that can reduce future taxes. Common sources are accrued liabilities, reserves, and net operating loss carryforwards.
A: It is a reduction to deferred tax assets the company does not expect to use. Under ASC 740, one is required when it is more likely than not that some portion of the asset will not be realized.
A: ASU 2015-17 eliminated the split between current and noncurrent deferred taxes. Companies now present all deferred tax assets and liabilities as noncurrent on a classified balance sheet.
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