Most Americans have tax liabilities, how do you know if you do? If you have income taxes, sales tax, or capital gains tax, you have tax liabilities. It is not a bad thing, though, so no need to fear.
If you want to know more about tax liabilities and what it means exactly, keep reading for more information.
What is tax liability?
Tax liability is the total amount of tax debt owed by an individual or business to either federal, state, or local tax authorities. These are taxes calculated on your taxable income.
For example, Florida does not have state income tax, but you still have to pay federal and local taxes on goods and services.
Michigan has state income tax, so you will pay federal, local, and state taxes if you live there.
What are examples of tax liabilities?
The most common type of a tax liability is income tax.
For example, let’s say Mary earns $60,000 in gross income. This is reported on a W-2 form to the IRS at the end of the year. For that level of income, the federal tax rate is 22%. Mary’s tax liability would be $8,949 based on the 2020 tax brackets.
Mary would owe 10% on the first $9,950 of income, 12% on the next $30,575, and 22% on the last $19,475.
How do I know if I have no tax liability?
It is possible to have no income tax liability if your income was below the level that requires you to file tax returns, or if the total tax owed was zero. A small percentage of people will have no tax liability.
How do I know if I have tax liability?
If you pay income tax, sales tax, and/or capital gains tax, you have tax liabilities.
Is tax liability the same as tax due?
They are similar, but not the same thing. Tax due is taxes you still owe after withholdings, estimated payments, tax credits, etc.
Can I lower my tax liability?
In order to minimize your tax liability you must reduce the amount of your gross income that is subject to taxes. There are a few ways you can do this. You can increase your retirement contributions, contribute to employer-sponsored plans like a 401(K), donate to charity.
What is tax liabilities on W2?
Tax liabilities on your W2 is the combined amount of taxes you owe the IRS from income tax, capital gains tax, self-employment tax, and any penalties or interest. Any past-due taxes that you still need to pay are also included in that.
Tax liability vs tax due?
Tax due is the amount of taxes you still must pay if you have a remaining balanced owed after paying your tax liabilities.
Tax liability means the total taxes due for the taxable year.
Tax liability is not necessarily a bad thing. If you are a working taxpayer, you have tax liabilities. If you want to know more about tax liabilities and have specific questions about your specific tax liabilities, our Tax Professionals at Tax Network USA can help you.