Tax deferral refers to a financial strategy or provision that allows a taxpayer to delay the payment of taxes on income, investments, or other taxable events until a later date, typically in the future. This means that instead of paying taxes immediately in the year income is earned, the individual or business can postpone the tax liability, often until retirement or until the investment is sold.
Common examples include retirement accounts, like pensions or tax-deferred savings plans, where taxes are paid upon withdrawal. Tax deferral can help manage cash flow, reduce current tax burdens, and potentially benefit from lower future tax rates.