Deferred tax assets and intangible assets make up an important part of small-business tax accounting. These two asset types are not synonymous. In fact, the majority of deferred tax assets are tangible assets, and accountants must treat them as such. The Internal Revenue Service provides detailed descriptions of both types of assets.
Intangible assets are assets that you cannot see or touch. Some assets such as stocks or bonds may seem intangible, but since they have a clear market value, the IRS does not view them as intangible. Assets such as cash, real estate, machinery and equipment are tangible, while assets such as patents, licenses and trademarks are intangible.
Deferred Tax Assets
Deferred tax assets are assets for which the holder does not need to pay taxes until a certain point. In most cases, deferred tax assets are considered tangible. For instance, IRAs and 401(k)s are deferred tax investment instruments that allow working people to save for retirement. The benefit of putting earnings into these investment instruments is that doing so allows working people to accrue wealth to provide for their needs upon retirement without paying taxes until they actually collect the money that they have accrued. Even though such assets are not taxable until withdrawal, they are still tangible assets because their value is easy to determine.
For tax purposes, the IRS allows parties that purchase intangible assets to deduct the value of some such assets as a business expense over a period based on that asset's useful life, usually 15 years. However, some intangible assets do not qualify, such as goodwill, workforce in place, copyrights or patents, unless the purchasing party made the purchase as a substantial part of a trade or business. Deferred tax assets are deductible for the investment term, but the holder must pay tax upon maturity or sale of the asset. Because of the intrinsic differences of the two asset types, accountants should not consider deferred assets to be intangible assets.
Intangible assets and deferred tax assets should typically show up separately on a balance sheet. Deferred tax assets, like assets such as cash accounts, stocks and bonds, should come under the heading of current assets, while itemized intangible assets should come under a separate heading altogether.
- IRS.gov: Book to Tax
- Henry & Horne, LLP; What Are Intangible Assets?; Courtney Graham; April 2011
- AccountingCoach: Sample Balance Sheet
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Ronald Kimmons has been a professional writer and translator since 2006, with writings appearing in publications such as "Chinese Literature Today." He studied at Brigham Young University as an undergraduate, getting a Bachelor of Arts in English and a Bachelor of Arts in Chinese.