What is the result of applying a tax rate to taxable income?

Applying a tax rate to taxable income results in tax liability. Tax liability represents the total amount of tax an individual or entity is legally obligated to pay to the government based on their taxable income. When a specific tax rate is applied to that income, the result is the calculation of the tax owed, which is referred to as tax liability.

Net income, on the other hand, is what remains after all expenses, including taxes, have been deducted from revenue, making it different from tax liability. Taxable income is the amount of income subject to taxation before the tax rate is applied, and adjusted gross income is the gross income that has been modified by specific deductions. Each of these terms plays a distinct role in the tax calculation process, but only the application of a tax rate to taxable income produces the tax liability.