Are you wondering if you have tax liability?
Being a citizen entitles you to pay taxes. Although this is inevitable, it doesn’t mean you shouldn’t know about your obligations and rights. Hence, for those who are wondering about tax liability, this article might help you.
Below, we have listed a few examples of tax liability that every individual needs to know. Keep on reading, and you’ll know what to expect from this list.
Contents
Income Taxes
Income taxes are a type of tax liability that all individuals must pay. This includes wages, salaries, investments, tips, fees for working as a freelancer, etc.
The amount one must pay depends on the amount of income earned, as well as filing status, deductions, and credits. Federal and state income taxes, as well as Social Security and Medicare taxes, are common types of taxes that people owe because of their income.
Self-Employment Taxes
Self-employment taxes are taxes paid by self-employed individuals. These taxes include Social Security and Medicare taxes, which are typically paid by both employers and employees.
When filing their tax returns, self-employed people can take half of their total self-employment tax out of their gross income. However, this does not eliminate the tax liability. It simply reduces the amount of self-employment taxes that must be paid.
Capital Gains Taxes
When it comes to capital gains taxes, an example of a tax liability is the income from selling investments, real estate, or stocks. Capital assets are bought and sold, and any net gains made in the sale need to be reported as taxable income.
The tax due is calculated as a percentage of the net gains and depends on the holding period and type of asset, as well as the taxpayer’s tax bracket. Long-term capital gains (held over one year) are taxed at a lower rate than short-term capital gains (held for under one year).
Real Estate Taxes
Real estate taxes are a type of tax liability that applies to homeowners and other real estate owners. The tax is levied by local or state governments on the assessed value of the property, usually based on market value.
Property owners typically must pay the tax each year. Examples of tax liability associated with real estate taxes include property taxes, transfer taxes, mortgage recording taxes, and transfer recording taxes. Property taxes are based on the appraised value of the real estate and can be used to fund local government services.
Sales Taxes
A sales tax is a tax imposed by the government on the sale of goods and services. It is usually imposed on the seller and collected by the seller at the point of sale. There are conditions outlined in the agreement when it comes to paying taxes, so make sure to read it and avoid any unpleasant surprises.
Examples of tax liability for sales taxes include the obligation to collect sales taxes from customers, the obligation to turn over sales taxes collected to the government, and the obligation to file a sales tax return with the government.
Know the Different Types of Tax Liability
Taxes are a part of our lives, and understanding what is and isn’t a tax liability can help you save money and prepare your finances. We hope that this article has given you a better understanding of what qualifies as tax liability.
Take charge of your taxes and act now – create a plan to pay off your tax liabilities to the IRS before they get out of control.
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