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[Contact](https://www.chandlerknowlescpa.com/contact-us/) # Financial Planning Insights # What is Tax Liability? By [Chandler and Knowles](https://blog.chandlerknowlescpa.com/author/chandler-and-knowles) | April 11, 2019 | [0](https://blog.chandlerknowlescpa.com/what-is-tax-liability#comments-listing) Tax liability refers to the money owed to the IRS or to state and local collection authorities. The liability could be a result of underpayment (or nonpayment) of taxes. Tax liability also results from ownership of a business, as well as from profits earned on the sale of real property or other assets. Some tax liabilities are on a pay-as-you-go basis, such as sales and excise taxes. ## Examples of Tax Liability ### **Income Tax![tax liability ](https://blog.chandlerknowlescpa.com/hs-fs/hubfs/income-tax-491626_1920%20(1).jpg?width=300&name=income-tax-491626_1920%20(1).jpg)** Income tax is the annual charge governments levy on both earned income (salaries, wages, commissions) and unearned income (interest, stock dividends, rent collections). According to the [Tax Foundation](https://taxfoundation.org/federal-tax-revenue-source-1934-2018/),  in 2017, the federal government collected nearly $4 trillion in income taxes from individuals, corporations, and through built-in excise taxes for goods and services. In addition to federal income tax liability, 43 states impose a personal income tax on its residents. Income tax liability for California residents, for example, results in an additional 13.3% tax burden. ### **Business Tax** Depending on the type of business, a business owner must pay a tax on its profits.  If the business is a [C corporation](http://www.businessdictionary.com/article/37/what-is-a-c-corporation/), it has a tax double liability. Both the corporation and its shareholders are taxed at a flat rate of 21%—and the individuals still owe personal income taxes. If the business is not a C corporation, the tax liability “[passes through](https://www.thebalancesmb.com/pass-through-taxes-and-business-owners-398390)” the corporation to the personal income tax rates paid by the individuals. ### **Capital Gains Tax![tax liability](https://blog.chandlerknowlescpa.com/hs-fs/hubfs/accounting-bill-black-53621.jpg?width=300&name=accounting-bill-black-53621.jpg)** When you sell an investment, real property, or another asset for more than you originally paid for it, you have a tax liability. The tax liability for [capital gains](https://www.fool.com/taxes/2019/01/14/capital-gains-tax-rates-a-comprehensive-guide.aspx) is usually lower than personal income tax rates, and only the gain in income on the asset is taxed. ### **Sales tax** The sales tax is a consumption tax on the retail purchase of goods and services. Retail business owners in the [45 states](https://www.thebalance.com/states-without-a-sales-tax-3193305) that impose a sales tax collect sales taxes based on a percentage of the sales amount. The retailer submits sales tax payments to the state and local collecting authorities. ## Get Professional Tax Help If you’re looking for strategies to reduce your tax liability, let the tax professionals at Chandler & Knowles leverage their years of experience in dealing with the IRS. [Contact us](https://www.chandlerknowlescpa.com/contact-us/) today and learn how you can keep more of the money you earn. Let our professional team earn your next [tax return](https://www.chandlerknowlescpa.com/services/tax-return-review-services/) business! 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