How are deferred tax assets and liabilities classified on the balance sheet under US GAAP?

Deferred tax assets and liabilities are classified on the balance sheet as non-current assets and liabilities under US GAAP. This classification reflects their nature as they relate to taxes that are not expected to be settled or realized within the next year.

Deferred tax assets arise when tax expenses recognized on the financial statements exceed taxes payable in the current period, often due to carryforwards or temporary differences. Conversely, deferred tax liabilities occur when taxable income is recognized before it is reflected in pre-tax income for financial reporting purposes, leading to future tax payments.

While there might be some specific scenarios where the classification could differ—especially in terms of netting deferred tax assets against liabilities when they relate to the same tax jurisdiction—the general rule is their classification as non-current items. This is essential to portray a clear picture of a company's long-term tax obligations and benefits, as deferred tax items typically will not settle within the normal operating cycle of a business, which is why netting between current and non-current classifications is rare.

The other options do not accurately reflect the correct classifications under US GAAP for deferred tax items. Current asset and liability classifications would not capture the long-term nature of these items, while the idea of these accounts being temporary and needing closure each period does not align