A tax liability is the total amount of taxes owed by an individual taxpayer, corporation, or other organization. Payable to federal, state and local taxing authorities, tax liabilities are derived from income earned, capital gains on the sale of an asset, or other events that are considered taxable by the Internal Revenue Service (IRS).
Tax liabilities are not determined just from the income from a given year, and may include back taxes (taxes payable from a previous year), or other write offs that actually reduce taxable income, such as loss carryforwards. An individual’s tax liability, or tax rebate, is calculated using an IRS 1040 Form, while corporations use an IRS Form 1120.
