Video: Basics of Deferred Taxes

In this lesson, Nick Palazzolo, CPA, breaks down the fundamentals of deferred tax assets and liabilities, clarifying how they come into play when discrepancies arise between income tax expenses reported on financial statements and income taxes owed on tax returns. He unpacks the concepts of permanent and temporary differences, highlighting common instances, like varying depreciation methods, which lead to these discrepancies. Nick simplifies the complex topic by explaining how permanent differences, such as fines and penalties, are treated differently in tax returns versus financial statements, and why deferred tax assets and liabilities typically stem from the reconciliation of temporary differences, reflecting whether a company has paid more or less tax than it owes.