Tax Liability

Tax Liability

What is tax liability?

Tax liability can be defined as the total amount of tax that an entity is legally obligated to pay as a result of a taxable event. Taxable events include a revenue sales transaction or the sale of an asset.

How is tax liability calculated?

Tax liability is calculated by applying the appropriate tax rate to the taxable event's tax base subject to available tax relief and allowances.

How to reduce your tax liability

No one wants to pay more in tax than is absolutely necessary. By implementing some of the following measures, you can ensure that you reduce your tax liability or at least to manageable amounts.

• Keep up-to-date records – It sounds obvious, but one of the best ways to reduce your tax liability is by keeping on top of your financial affairs and making sure that you do not incur any penalties, surcharges or interest. Always keep your records accurate and up-to-date. It's recommended that everything be totalled up every month or at least quarterly so you can see exactly where you stand financially.
• Use a Professional tax adviser – good tax planning is essential. If you don't understand all the tax laws, then it's suggested you hire a professional to do your taxes. This way you are sure to reduce your tax liability as much as possible.
• Quarterly Updates – Consult with your tax adviser quarterly for updates to learn about any new laws that have been passed. Otherwise, you may have to wait another year to get deductions that you missed out on by waiting. This will also allow you to check and make sure you are paying enough taxes throughout the year to prevent being penalised for not paying enough.
• Pay Off Credit – If you pay off (or pay as much as possible) anything that you purchased on credit before the end of the year you will have a more accurate figure for both your expenses and income for the year.

The tips above can help reduce your tax liability. However, everyone's circumstances are different, so it's recommended that you consult with your tax adviser regularly. This will allow you to make any necessary changes to reduce your tax liability if and when the need arises.