Scribd
Upload
8 views2 pages

Key Points: Postponement of Taxes: Tax-Free Growth: Investment Options

Tax deferral is a strategy that allows taxpayers to postpone paying taxes on income or investment gains, enabling money to grow tax-free until withdrawal, typically in retirement. Common tax-deferred investment options include IRAs and 401(k)s, which can lead to significant tax savings and faster compounding of earnings. Additionally, corporate tax deferral methods and deferred tax accounting concepts involve temporary differences between accounting and taxable income, resulting in deferred tax assets and liabilities.

Uploaded by

sinargalaksigasindo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
8 views2 pages

Key Points: Postponement of Taxes: Tax-Free Growth: Investment Options

Tax deferral is a strategy that allows taxpayers to postpone paying taxes on income or investment gains, enabling money to grow tax-free until withdrawal, typically in retirement. Common tax-deferred investment options include IRAs and 401(k)s, which can lead to significant tax savings and faster compounding of earnings. Additionally, corporate tax deferral methods and deferred tax accounting concepts involve temporary differences between accounting and taxable income, resulting in deferred tax assets and liabilities.

Uploaded by

sinargalaksigasindo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Tax deferral is a strategy that allows taxpayers to postpone paying taxes on income or

investment gains until a future date258. This means the money can grow and compound
without the immediate impact of taxes57.

Key Points:

 Postponement of Taxes: Tax deferral delays the payment of taxes on asset growth or
income to a later date5.
 Tax-Free Growth: Earnings accumulate tax-free until the investor takes constructive
receipt of the profits4.
 Investment Options: Common examples of tax-deferred investments include
individual retirement accounts (IRAs) and deferred annuities4. Tax-deferred accounts
like traditional 401(k)s and traditional IRAs are considered ideal for long-term
investments7.
 Benefits: Tax deferral can lead to substantial tax savings, especially when
investments are held until retirement, when the individual may be in a lower tax
bracket4.
 How it Works: Contributions to tax-deferred accounts, such as a traditional IRA or
401(k), may come out of pre-tax income, reducing taxable income for the year7.
Taxes are paid upon withdrawal, typically in retirement57.
 Financial Impact: Tax deferral allows earnings to compound faster because the
money that would have been paid in taxes remains in the account35. Over time, this
can lead to significantly greater growth compared to a taxable account5.

Corporate Tax Deferral:

 Corporations may also be allowed to defer taxes through methods like accelerated
depreciation, reducing profit taxes in the current period2.
 Taxes on profits from foreign investments can be deferred by reinvesting earnings in
lower-tax countries2.

Deferred Tax (Accounting):

 Deferred tax, a financial accounting concept, arises from temporary differences


between accounting income and taxable income, leading to deferred tax assets
(DTAs) and deferred tax liabilities (DTLs)1.
 A deferred tax asset (DTA) arises when the tax payable on the accounting profit is
higher than the tax payable as per the income tax return1. Common instances leading
to DTAs include carry forward of losses, and provisions and reserves1.
 A deferred tax liability (DTL) arises when the tax payable on the accounting profit is
lower than the tax payable as per the income tax return1. Typical situations leading to
DTLs include depreciation differences and revenue recognition1.

Citations:

1. https://www.axisbank.com/progress-with-us-articles/tax-planning/what-is-deferred-
tax
2. https://en.wikipedia.org/wiki/Tax_deferral
3. https://www.capitalforlife.com/glossary/tax-deferral
4. https://www.investopedia.com/terms/t/taxdeferred.asp
5. https://www.securitybenefit.com/tax-center/article/how-tax-deferral-works
6. https://dictionary.cambridge.org/dictionary/english/tax-deferred
7. https://www.bankrate.com/retirement/tax-deferred-what-does-it-mean/
8. https://angelone.in/finance-wiki/retirement-planning/tax-deferred

You might also like