A tax asset is an item on a company's balance sheet that may be used to reduce any tax liability the company has with the tax authority. They can be in the form of deductible expenses, allowances, tax credits or loss carryforwards, which can all help to lower a company's tax bill.
Going deeper into tax assets, these are financial benefits that are recognized on a company's balance sheet because they indicate a likelihood of reduced tax liability in the future. They come in different forms such as deferred tax assets, deductible expenses, allowances, tax credits, and loss carryforwards.
Deductible expenses are costs that a company can subtract from its taxable income, reducing its overall tax liability. Allowances are special deductions provided by tax law for certain types of expenses. Tax credits are amounts that can be subtracted directly from a company's tax bill. Loss carryforwards allow companies to apply a net operating loss to future profits to reduce tax liability.
The value of tax assets can change over time due to changes in tax laws or company circumstances. Therefore, companies need to reassess their tax assets regularly to ensure their value is accurately reflected on the balance sheet.
For Amazon, tax assets could include the costs of goods sold, operating expenses, and loss carryforwards from previous years when the company was not profitable. These can be used to reduce its taxable income, thus reducing its overall tax liability.
Tesla's tax assets could include credits for research and development, expenses related to production, and losses carried forward from years when the company was not yet profitable. These tax assets could significantly reduce its tax liability.
For Exxon Mobil, tax assets might include credits for exploration and drilling, depreciation allowances on its equipment and infrastructure, and losses carried forward from years with high operational costs. These tax assets can help the company reduce its tax bill substantially.