Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Tax Liability

What it is:

Tax liability refers to the amount legally owed to a taxing authority as the result of a taxable event.

How it works (Example):

A tax liability might also be called a "tax obligation."

A tax authority -- such as a local, state or national government -- imposes taxes upon individuals, organizations and corporations to fund social programs and administrative roles. Taxable events include earning taxable income, having sales, receiving or issuing payroll, etc.. These taxes are legally binding.

The liability is generally calculated by multiplying the taxable event by the tax rate. The taxing authority has various legal options to enforce these payments.

[InvestingAnswers Feature: The Most Important Tax Changes to Know Before Filing Your Tax Return]

Why it Matters:

Taxes are important to maintaining all types of government and ruling systems. Entities can be fined, assets liquidated and even jailed for failing to pay their tax obligations.

Many entities attempt to minimize their liability each year using tax credits, donations, tax shelters and the like.

Tax havens are countries that enforce little to no tax liability.

[InvestingAnswers Feature: How to Avoid an IRS Audit]

Related Terms View All
  • Obligation Bond
    The face value of an obligation bond is usually larger than the value of the property...
  • Nakahara Prize
    The board of directors of the Japanese Economic Association determines who wins the...
  • Self-Insure
    Let's say John Doe owns a restaurant. He buys property and casualty insurance that only...
  • Vittorio Mincato
    Born in 1936, Mincato is an accountant on paper. His first any only employer was Italian...
  • Take a Flier
    John Doe starts his own business. He looks for angel investors to give him seed capital....