The word 'tax' means a fee that is levied by a particular government on a citizen, organization, corporation, group of people, property, action or even an object. Theoretically, the government can tax anything and everything. One of the greatest quotes regarding tax goes as follows:
The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing. Jean Baptiste Colbert, Minister of Finance, France during the reign of His Majesty Louis XIV, King of France and Navarre.
The modern governments however have never been ruthless in levying taxes on their citizens. In today's world, taxes are generally levied on the basis of the income of a person, organization or corporation. Such a tax is just and fair to the people as they have to pay only in proportion to their income. However, there are other significant number of taxes that are paid to the government indirectly. Some of these taxes are included in the goods and services that are purchased by us. The income tax is known as a direct tax, and sales tax is known as an indirect tax. There are several other significant number of taxes, such as payroll taxes, which are some of the important deductions that are made when employers calculate payroll taxes.
The common taxes that are levied in almost all the nations across the world include; income tax, tariff, value added tax, personal property tax, wealth tax, property tax, capital gains tax, corporation tax, excise and retirement tax.
Tax Liability Explained
Tax liability is basically the amount of unpaid tax. In some cases, governments also charge interest to the amount of unpaid taxes. The term tax liability is also used in cases where the tax on a person's or organization's taxable activities is estimated. For example, the tax liability of a corporation is much more than that of an individual. Again, the activities of the organizations such as production and export, etc., also affect the tax liability.
Calculating tax liability of a particular person or an organization can be easily calculated. In the United States. the Federal tax is collected by the Internal Revenue Services (IRS). The IRS issues guidelines regarding the person's or organization's tax liability. The annual tax can be estimated by totaling percentages of the types of taxes and deducting them from estimated income for that accounting year. For example, the income tax percentage is applied for the gross profit of the organization. Sales tax is applied to Trading and Production account of the organization.
The tax liability has to be paid off by the organization or person every year to the appropriate government agency, otherwise the liability keeps on piling up. Many organizations thus, prefer to prepare a separate reserve or provision for tax liabilities.
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