What does the term 'tax deferral' refer to?

The term 'tax deferral' specifically refers to a strategy that allows individuals or businesses to postpone paying taxes on certain income or gains until a future date. This approach can be beneficial for tax planning as it may enable taxpayers to retain their earnings and potentially invest them for growth without the immediate impact of tax liabilities.

Tax deferral is often utilized in retirement accounts, where individuals can contribute pre-tax income and delay the payment of tax until they withdraw funds during retirement, when they may be in a lower tax bracket. This strategy does not increase tax liabilities; rather, it simply shifts the timing of when the taxes will be paid.

The other options describe different concepts related to taxation but do not accurately encapsulate what tax deferral means. For instance, increasing tax liabilities does not align with the goal of deferral, as deferral aims to manage when taxes are paid rather than raising the total amount owed. Similarly, while tax relief pertains to reductions in tax burdens, it is distinct from deferral because relief typically provides immediate benefits rather than postponing obligations. Lastly, avoiding taxes altogether relates more to evasion, which is illegal and poses very different legal consequences compared to the legitimate strategy of deferring taxes.