Tax is a common term used all over the world. The successful running of states and governments is due to the collection of tax. But in the effort to collect taxes, not everybody is loyal in paying. Most people would try to find their way out of avoiding or evading tax.
Most citizens are liable to certain amount as taxation. So what is tax liability? Well, in a bid to answer this question, we will look at its definition and the related terms.
What is Tax Liability?
This is the amount an individual, group or a company owes to taxing authority. It is also referred to as tax obligation. It is a binding legal obligation of every citizen to pay tax liability. Failure to pay may result to imprisonment as stipulated in the law.
How is Tax Liability Calculated?
The tax liability is calculated by a taxing authority. The calculation is open and every citizen can calculate his/her tax liability. All the taxable events are multiplied by the given tax rate to get the tax liability. Taxable events are the sources of money that are bound to be taxed. They include, having sales, receiving or issuing a payroll, earning taxable income etc. The law is very clear on taxable events and everyone is expected to pay taxes.
The Importance of Paying Tax Liability
For a smooth running of local and national affairs, citizens have to adhere to the taxation rules. The number one importance of paying tax liability is to become a responsible citizen. It is the duty of every citizen to pay tax liabilities so as to enjoy the services offered by the government.
One of the most important reasons for paying tax liability is to promote development in a country. The reason why America is a great nation is because the citizens are loyal in paying taxes. It becomes easy for the government to initiate developmental projects. Infrastructures such as roads, hospitals, schools etc, have been made possible by the contributions from the taxpayers.
Tax evasion is a criminal offense punishable by both local and federal laws. Therefore, by paying taxes, an individual avoids a possible arrest and prosecution.
While evading tax is a criminal offense, tax avoidance is legal and every citizen can lay strategy to minimize his/her taxation. There are several financial strategies that can help an individual in avoiding tax. But the bottom line is that the strategies have to be within constricts of the law so as to avoid tax evasion.
Therefore, it is clear that tax liability should be paid by every citizen so as to avoid prosecution but mostly for promoting local and national development.