How to Calculate Deferred Taxes

There are a few different methods for recording your net income before taxes, which result in deferred taxes because of accrual accounting. Taxes that are deferred impact the both the net income and book value of a company. Deferred taxes are a representation of the difference between taxes from net income and pretax income.

What You'll Need:

• Calculator

1. You'll first need to understand the difference between deferred tax assets and deferred tax liability. Deferred tax assets come from taxes that have been paid. Deferred tax liabilities come from tax payments that have been included on the income statement, but have not been included on the cash flow statement.


2. Determine the reason for your deferred taxes. Typically, they usually begin on the income statement of the company. An accelerated deprecation is commonly the reason behind the situation. Any asset that has a larger book value than the tax basis will carry a deferred tax liability. In reverse, if the asset has a smaller book value than the tax basis, it will carry a deferred asset. For example: If the accounting income for a company is $200 and the tax expense is equal to 20% of the accounting income. The total tax expense is equal to $200 x .20. So, the total tax expense for this company is $40.


3. Using the same example to calculate the deferred tax. The difference between the  $200 gross income and the $160 in taxable income is $40, which is the amount of the deferred tax liability.


4. If the above amount had previously been paid toward the company's taxes, the amount would then be considered a deferred tax asset.