Which of the following best describes the process of tax deferral?

The process of tax deferral is best described as postponing tax payments. This means that taxpayers can delay the obligation to pay taxes on certain income or gains until a later date, often allowing for tax benefits or cash flow advantages in the interim. For instance, certain retirement accounts allow individuals to defer taxes on contributions and gains until funds are withdrawn, typically during retirement when they may be in a lower tax bracket.

In contrast, paying tax in installments refers to a structured payment plan to settle tax liabilities over time rather than deferring the tax itself. Reductions in tax liability typically refer to strategies or deductions that lower the amount of tax owed rather than delaying the payment. Immediate tax payments on profits suggest that taxes are paid right away on the income earned, which contradicts the concept of deferral that focuses on delaying payment.