Can someone tell me how to calculate tax liability?

Question

I can't even really find out what it means in my managerial finance book much less how to calculate it. I don't really need you to do my problem for me, just give me an example of how to do it.

I don't even know, it is a term that has no meaning to me. I was hoping you could fill me in a little.

ok I got it. I had a homework problem that didn't seem to make sense. It was asking me to calculate tax liability. When all they wanted me to do was figure out how much tax I owed, in a dollar amount. I had to figure out average tax and marginal tax, which I knew how to do, but those are simply percentages. So I knew how to do it all along, I just didn't know the terms they were using.

Answer 1

Tax liability in general would mean how mujch tax do you owe for the year. If you are talking about federal income tax, you'd fill out a tax return to calculate your total tax liability for the year. On the 1040, 1040A or 1040EZ form, you'd enter your income, subtract various allowable items, then calculate your tax on the remaining income using tables in the IRS instructions.

Answer 2

Whether you are talking about personal income tax or business tax you still end up with the same thing. Tax liability is how much taxes you owe.

Here's a quick way of explaining it.

Personal return

Income
less adjustments
equals AGI
less itemized/standard deductions
less personal exemption(s)
equals Taxable Income
take your tax rate (which depends on taxable income) and multiply it by the taxable income. This is now your tax liability.

For example, if your taxable income was $100,000 and your tax rate was 35% (really simplifying it), your tax liability would be $35,000 ($100,000 x 35%). From that you would apply any credits (non-refundable) against that tax liability, add in any other taxes owed, subtracts payments made for taxes (estimates, withholdings, refundable credits), and you come up with whether you owe the IRS or they owe you.

For a business return it's even simpler

Take Income subtract Expenses, and you've got either profit or loss. If it's a loss there is no tax liability. If it's a profit, take the profit and multiply it by the tax rate.

Hopefully there's more info than that in your managerial finance book and you can take my simplified explanation and work through the problem, but if you can't feel free to message me, or even add me as a contact, and I can try and walk you through it.

Answer 3

Tax liability is based on a few factors, which you don't list, so it's hard to give you an example.

Tax liability is basically what you owe the government for taxes. This is based on what you earn as well as your marital status and whether or not you have children. If you refer to the link listed below, you can access the table and figure out the tax liability for any income bracket.

Keep in mind that the table is only a basic guidance. Upon doing your taxes, other situations come into play that will effect your tax refund or amount you owe. (things like child credits, charitable donations, other sources of income, family status changes, business expenses, etc.)

Answer 4

If you mean your personal federal income tax liability, get some blank forms or go to turbotax on line and make out a tax return using your best estimates for the total year.
On the 2006 1040 form, your total tax liability would be shown on line 63.

Answer 5

Employer will deduct the social security and medicare taxes of 7.65% and you don't have any choice. You have to pay this. If you are self employed, then on your self-employment income (income minus expenses), you will pay 15.3% self employment tax.

About Federal tax for 2007 the Standard deduction is $5,350 and exemption deduction is $3,400. Thus for a Single who is not dependent of anyone else, if the total income for 2007 is up to $8,750 ($5,350 + $3,400), then there will not be any Federal tax. This amounts to a salary of up to $168 per week.

Now if your income is more than $8,750 by up to $7,825, the Fed tax slab is 10%. Suppose the paycheck is $300 per week, then the yearly income is $15,600 ($300 x 52). Tax on $6,750 ($15,600 minus $8,750) is $675.

The next slab of Federal income tax (for Single status) income from $7,850 to $31,850 is 15%.

Thus first of all figure out what your yearly income will be. Then what will be your taxable income (income minus your deductions). Then what will be the Federal tax on your total income.

Besides social security and medicare taxes and federal income tax you may have state tax depending on your state.

Answer 6

your question has meaning just as asking how high is up is

figuring out a flat answer all to a tax issue doesn't exist...

best you can do with what you asked is 20% of what you have is taxed.. but thats so basic its not really worth asking the question

Answer 7

Tax Liability on what???