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