Tax Deferrals

Tax deferral refers to instances where a taxpayer can delay paying taxes to some future period. In theory, the net taxes paid should be the same. Taxes can sometimes be deferred indefinitely, or may be taxed at a lower rate in the future, particularly for deferral of income taxes. It is a general fact of taxation that when taxpayers can choose when to pay taxes, the total amount paid in tax will likely be lower.

One example is the use of qualified retirement accounts that allow the taxpayer to delay paying any tax on the contribution or on any gains until assets are distributed from the plan.  Accounting treatment for accelerated asset depreciation and amortization results in reducing income taxes in the early years of the asset ownership.