Tax liability
Tax liability is the total amount your business owes to tax authorities for a period. In the U.S., it can come from income, payroll, sales, or other taxes, and it sits on your balance sheet as a liability until you pay it.
Simple example
You collect sales tax from a customer. That collected amount is not your revenue — it becomes a tax liability until you remit it to the tax authority.
Some tax liabilities are current (due soon), while others can be deferred and paid later because of timing differences in accounting. The balance grows as taxes accrue or you collect tax from customers, and it shrinks when you remit payments or receive credits.
Common tax liabilities for small U.S. businesses include:
- Federal and state income tax on business profits.
- Payroll taxes: employee withholdings you must remit and the employer’s own portions.
- Sales and use tax collected from customers.
- Excise or industry-specific taxes, where applicable.
- Property or gross receipts taxes imposed by some jurisdictions.
- Penalties and interest from late filings or payments.
