Which of the following describes the impact of deferred taxes?

The impact of deferred taxes is accurately described by the notion that they can delay tax liabilities into future periods. Deferred taxes arise when there is a difference between the accounting income and taxable income, leading to a temporary timing difference in recognizing income and expenses. This phenomenon often occurs due to varying rules under accounting principles and tax laws.

For example, a company may recognize certain expenses earlier for accounting purposes than for tax purposes, creating a deferred tax asset. Conversely, it might be able to defer recognizing certain income for tax purposes while accounting for it earlier. This creates a liability that the company will need to settle in the future. By delaying the payment of taxes, businesses can effectively manage their cash flow, allowing them to reinvest their capital rather than paying it in taxes immediately.

Other options may lead to misunderstandings about the nature of deferred taxes. They do not inherently increase taxable income, nor do they eliminate the need to pay taxes entirely. Rather, they modify the timing of those payments. Additionally, they do not create immediate cash inflow; instead, they represent a future obligation that the company will have to address. Thus, the correct understanding reflects the essence of deferred taxes as a means of deferring tax liabilities rather than affecting cash flow or taxable income directly