What are deductible temporary differences?

Deductible temporary differences refer to situations where the tax value of an asset or liability differs from its accounting value, leading to amounts that can be deducted in future taxable income. When certain expenses or losses are recognized in the financial statements but not in the taxable income until later periods, these create a timing difference.

For example, if a company recognizes an expense for accounting purposes now but will only be able to deduct it for tax purposes in future periods, this creates a deductible temporary difference. As a result, in the future when the tax deduction is realized, it will reduce the taxable income and thus lower the tax liability at that time.

This concept is essential in the context of deferred tax assets, which arise from deductible temporary differences. Understanding these differences helps in predicting future tax cash flows and in the development of tax strategies within corporate reporting.

The other options do not accurately describe deductible temporary differences. If an option discusses additional taxable income or permanent differences, it misrepresents the nature of deductible temporary differences, which centers around future tax deductions rather than current or permanent taxation effects.