Tax Liability

• Tax liability is what you legally owe the United States government. Income taxes are paid on income received from a job, sales of assets or property, inheritances and any other sources of income.
  
  

Net Income-Tax Liability

• Your net income-tax liability is derived by calculating income you have received, including your regular income plus all dividends, disability payments and other income, and then deducting eligible expenses. Next, you subtract any deductions you are eligible to receive. The income-tax table on your tax form shows you net income-tax liability based upon your earnings and withholdings.
  
  

Common Deductions

• You may itemize deductions on your tax return to maximize your refund or reduce the amount of net income-tax liability you will owe. Some common deductions are IRA contributions, medical expenses, donations to charities, union fees, childcare expenses, alimony and repayments for any social benefits. You will not be able to claim these deductions unless you itemize your return.
  
  

Tax Credits

• Tax credits are not the same as deductions. A tax credit lowers your tax payment or increases your refund. Deductions decrease your taxable income. Important tax credits you may qualify for are earned income-tax credit, costs for childcare or foreign taxes paid. It may be wise to consult with a certified public accountant if you are unsure which credits are applicable to you.
  
  

Taxpayer Tips

• Do not wait until it is time to file your taxes to begin thinking about what your net income-tax liability is. Keep accurate financial documentation all year. This will make your accountant's job of finding all eligible deductions and credits much easier. If you own a business, consult with your accountant several times a year. The accountant can give you information about important tax-law updates. Tax laws change frequently, and it is always wise to know what the current regulations are.