What is federal tax liability
Federal tax liability is the amount of taxes you owe for the year. Tax liability is computed by subtracting credits from the tax on adjusted income.Locating Tax LiabilityFederal tax liability is found on IRS Form 1040 line 60, Form 1040A line 37 or Form 1040EZ line 11.IncreasesA raise in wages or self-employment income causes an increase in tax liability. Additional passive or retirement income will also increase tax liability.DecreasesAdjustments made to income decrease tax liability. According to the IRS, the most common adjustments are for IRA contributions, alimony paid and student-loan interest paid.Tax DeductionsTax deductions decrease income, leading to lower tax liability. All taxpayers qualify for the standard deduction and personal exemption. Taxpayers who are able to itemize deductions or who have dependents may further reduce their tax liability.Tax CreditsTax credits reduce the amount of taxes that must be paid. Of the two types of credits, non-refundable are applied first
