Understanding Tax Liability

If you owe taxes, then you have what is called a “tax liability.” A lot of factors can affect your tax liability and, if you’re not careful and aware of what you owe and if you don’t pay it in a timely manner, the problem can just get larger, as interest and late fees get tacked on. Thus, it’s incredibly important to understand tax liability and if and how it affects you.  

Determining Your Tax Liability  

When you fill out your tax forms, you have an easy way to discover your tax liability for that particular tax year. Just look carefully at line 37 on the revised 2020 Form 1040 to determine how much you owe. Line 38 will also clue you in to any penalties you may owe.  

Adding those two lines together, if applicable, will tell you your tax liability, which you’ll need to pay by the tax deadline. If you can’t do that, then you may need to enter into an installment agreement or work out another arrangement with the IRS. Otherwise, you could face severe penalties, not to mention an ever-growing tax bill.  

Reducing Your Tax Liability  

So, what should you do if your tax liability is too high? While you could just accept it, pay it, or enter into a payment arrangement, the ideal solution is to, first, determine why it’s so high and then, if possible, to figure out what you can do about it.  

There are actually many ways to decrease tax liability, such as increasing withholdings during the tax year or taking advantage of deductions and credits. But, those things can be difficult to do without the help of a tax professional, which is why it’s always advisable to seek out expert tax help, especially if you always seem to owe more than you can afford.  

The Bottom Line  

Many people have tax liability. If you’re one of them, the key is to find a way to get your yearly liability to a manageable place or, when possible, to eliminate it entirely. Of course, if you have old debts, interest, and penalty fees weighing you down, this can be quite hard. Thus, if you ever find yourself in a situation where you owe more than you can manage or if you just want to avoid this type of issue entirely, be sure to entrust your taxes to experts. If you try and do it all on your own, unfortunately, there’s a good chance you’ll just keep digging yourself a bigger and bigger hole.