We realize any discussion of income tax can be PTSD triggering. We’ll try to be gentle.
When you pay your income tax, you pay a little at a time (assuming you work as a standard W2-style employee; if you drive for Uber or write mystery novels, you might not relate to this part). Your paycheck comes and a portion of your wages has been withheld. When mid-April rolls along and income taxes are due, you’ve basically paid it. You might owe a little or get a little back, but you essentially pay as you go.
Corporations do things differently. They generally pay in chunks, quarterly or annually. So there can be lag in time between when something taxable happens...and when the company actually sends money in.
That’s where deferred tax comes into play. It represents the amount owed that hasn't been paid yet. The funds have to be set aside on the company’s books, because it’s not really the company’s money at that point. The money's now just waiting to go to the government.
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Finance: What is Deferred Compensation?8 Views
Finance allah shmoop what is deferred compensation Well you don't
get it today You get it next year at some
point you know differed If you've gotten paid today it
would have binford but then it was deford's so well
yeah it's money you don't get right now Yeah so
whywould compensation be deferred Well lotsa reasons think about a
bonus that a sales person might earn through out the
year like they get two grand in bonus money payable
next year for each month that they sell over four
pounds of yellowcake uranium powder Bob here did it in
january messed around in february and march and was a
good boy in april may and june and then on
lee hit one more sales goal ahead of christmas doing
four pounds in uzbekistanian november So bob had five months
hitting his sales bonus target and we'll have owed to
him ten grand in bonus money e compensation that was
deferred and noting that all bonuses are paid in january
of the following year like it's deferred to the following
year So from the company's perspective they show deferred compensation
as a line item or a thing on their balance
Sheet is a liability And then they converted to being
an expense when they pay everything out the first month
of the next year so come january Bob will be
very happy with his healthy bonus That is you know 00:01:29.357 --> [endTime] assuming he's still around to enjoy it there No
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