Definition of Tax Liability

Tax liability is the amount of money that is owed by an investor after realizing a gain on the sale of an investment or after receiving investment income.

Applying "Tax Liability" to Securities Exams:

In addition to earned income on which individuals and corporations pay income tax, a tax liability can also result from investment activity. Capital gains and capital loses off set each other during the year in which they are realized. Net capital gains and dividend income are taxable events and can create a tax liability.

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