Tax Liability

AAA

DEFINITION of 'Tax Liability'

The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable event. Tax liability can be calculated by applying the appropriate tax rate to the taxable event's tax base. Taxable events include, but are not limited to, annual income, the sale of an asset, a fiscal year-end or an inheritance.

INVESTOPEDIA EXPLAINS 'Tax Liability'

A tax liability is a legal claim on assets. Should an entity default on paying its taxes, the governing authority may foreclose on the delinquent account, or take out a lien or encumbrance on an asset.

VIDEO

Loading the player...
RELATED TERMS
  1. Substitute Return

    A tax filing that the IRS will create for a taxpayer in order ...
  2. Double Irish With A Dutch Sandwich

    A tax avoidance technique employed by certain large corporations, ...
  3. Notice Of Deficiency

    A letter from the Internal Revenue Service that advises a taxpayer ...
  4. Throwback Rule

    A measure states can adopt to ensure corporations pay state taxes ...
  5. Tax Haven

    A country that offers foreign individuals and businesses little ...
  6. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
RELATED FAQS
  1. What is the difference in tax liability between gross income and other kinds of income?

    In the United States, gross income is taxed based on the federal income tax rate and state/local tax rates, although many ... Read Full Answer >>
  2. What are some examples of a deferred tax liability?

    In the United States, laws allow companies to maintain two separate sets of books for financial and tax purposes. Because ... Read Full Answer >>
  3. How can I lower my effective tax rate without lowering my income?

    There are lots of ways to lower your effective tax rate, although your individual circumstances determine whether you can ... Read Full Answer >>
  4. Do I need to file an income tax return every year?

    Contrary to popular belief, there are indeed situations where a person does not need to file a tax return every year. For ... Read Full Answer >>
  5. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
  6. How can I find out which income tax bracket I am in?

    U.S. federal tax brackets are based on filing status (single, married filing jointly, married filing separately or head of ... Read Full Answer >>
Related Articles
  1. Economics

    What is a Tax Liability?

    Tax liability is the amount of money a person or entity owes to the government as the result of a taxable event.
  2. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  3. Savings

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  4. Mutual Funds & ETFs

    Separately Managed Accounts: A Boon For All

    We provide an explanation of individual cost basis and the advantages it brings to these accounts.
  5. Taxes

    Avoid Capital Gains Tax On Your Home Sale

    If you have property to sell and want to avoid capital gains tax, a Section 1031 exchange may be the answer.
  6. Retirement

    Cut Your Tax Bill

    Paying your bills early or giving an extra donation now can help you come tax time.
  7. Taxes

    What is Adjusted Gross Income?

    Adjusted gross income (AGI) is a term from the Internal Revenue Code. AGI is used to determine a person’s income taxes due.
  8. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  9. Taxes

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
  10. Taxes

    Top 4 Ways to Invest Tax Free

    When you're ready to invest, start by looking at these 4 tax-advantaged ways to build your portfolio and your future.

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center