Short-Term Portion of Deferred Tax Liabilities Expected to Reverse Within One Year
From the standpoint of an institution, the existence of a risk manager has less to do with actual risk reduction than it has to do with the impression of risk reduction.
Current Deferred Taxes Liabilities represent the portion of deferred tax liabilities that is expected to become payable (or reverse) within the next 12 months or operating cycle. Deferred tax liabilities arise from temporary differences where taxable income is lower than accounting income in the current period, leading to higher future tax payments when the differences reverse.
What Are Deferred Tax Liabilities?
Deferred tax liabilities (DTLs) arise when taxable profit is lower than accounting profit in the current period due to temporary differences. This creates future taxable amounts when the differences reverse.
The current portion is separated when reversal (and thus tax payment) is expected within one year.
Distinct from income tax payable (current period tax due).
Common Sources of Current DTLs
“From the standpoint of an institution, the existence of a risk manager has less to do with actual risk reduction than it has to do with the impression of risk reduction.”
— Nassim Nicholas Taleb, Distinguished Professor of Risk Engineering, NYU Tandon School of Engineering Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (2001)
- Prepaid expenses deducted for tax but expensed later for books
- Accelerated depreciation where tax deduction reverses soon
- Revenue recognized for tax but deferred for books (short-term)
- Unrealized gains in taxable subsidiaries
- Installment sales where tax recognized upfront
Most DTLs from depreciation are non-current, but specific short-term items create current portions.
Accounting Treatment
Under ASC 740 / IAS 12:
- Calculate temporary differences at enacted tax rates
- Classify as current/non-current based on reversal timing or underlying asset/liability
- If not tied to specific item, classify by expected reversal
- Net current DTLs/DTAs if right of offset
Changes in rates or valuation allowances affect income tax expense.
Balance Sheet Presentation
Shown under current liabilities as:
- ‘Current Deferred Taxes Liabilities’
- ‘Deferred Income Taxes - Current’
- Often netted with current deferred tax assets
- Detailed schedule in tax footnote
Tax footnote provides reconciliation and maturity analysis.
Analytical Implications
Current DTLs indicate:
- Near-term tax payments beyond current liability
- Timing differences unwinding soon
- Potential cash flow impact when reversed
- Quality of earnings (non-cash add-back in cash flow statement)
- Tax planning effectiveness
Growing current DTLs may signal increasing future tax burden.