A valuation allowance can reduce both a deferred tax asset and a deferred tax liability.
Only deferred tax assets require the determination of whether a valuation allowance is needed.

Question

Quizplus · Accepted Answer

A valuation allowance is only applied to deferred tax assets, not deferred tax liabilities, to account for the possibility that the asset may not be fully realized.

A Valuation Allowance Can Reduce Both a Deferred Tax Asset