Question

Which of the following is the basic formula for computing a taxpayer's tax liability?

a. Tax Liability = Tax Base ÷ Tax Rate
b. Tax Liability = Tax Base * (1 - Tax Rate)
c. Tax Liability = Tax Base * Tax Rate
d. None of the above.

Answer 1

The correct formula to compute tax liability is Tax Liability = Tax Base * Tax Rate, where the tax base is the taxable income and the tax rate is the percentage at which the income is taxed.

Step-by-step explanation:

The basic formula for computing a taxpayer's tax liability is Tax Liability = Tax Base * Tax Rate. This formula implies that the amount of taxes paid is the product of the tax base, which is the amount of taxable income after accounting for deductions and exemptions, and the tax rate, which is determined by the tax bracket the income falls into. For instance, if your taxable income is $20,000 and you fall into a tax bracket with a rate of 15%, your tax liability would be calculated as 0.15 * $20,000, which equals $3,000.