Definition 1.
A liability arising from the difference between regular accounting and tax accounting. Companies want to show investors the highest possible earnings, but when it comes to the Internal Revenue Service, the idea is to show as little income as possible. Thus, firms can legally choose a depreciation technique that maximizes income for their own accounting and a second technique that minimizes it for the IRS. But in doing so, a company must acknowledge and account for future taxes due, which is the reason for an item called deferred income taxes.
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