Tax-deferred

Tax deferred accounts are those accounts which claims to levy tax only if you withdraw the amount from the account. However, if you chose not to withdraw, no tax would be applied on the amount earnt.

 

These are basically the investment accounts, any profit or interest earnt in these account gets credited without applying tax. However, tax is applied only during withdrawal of amount.

 

In other words, Application of taxes are deferred until you withdraw the cash from these accounts.

 

Example:

 

If you have USD 2000 in your account

 

You invested it and earned USD 200 profit.

 

If 10% is the Tax rate.

 

While crediting the account for the USD 200, a tax of 10% would be not be deducted.

 

And, complete USD 200 would be credited in your account

 

However, at any point if you decide to withdraw USD 2100, which is nothing but 2000 main balance and surplus USD 100 earnt through profit.

 

A tax of 10% would not be applied on USD 100 which is – USD 10.

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