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Tax Relief Guide
By Quinlan Grim MONEY RESEARCH COLLECTIVE
Tax relief can mean many things. From tax credits to debt forgiveness, “tax relief” refers to any program that can lower your tax bill. Tax relief companies offer professional assistance with these programs. A reputable tax relief service will help you understand your qualifications and advocate on your behalf.
Before you start searching for the best tax relief companies, it’s important to understand what relief is and why it can be complicated to access. This guide will walk you through the most common tax relief programs and methods you can use to take advantage of them.
What is tax relief?
Before we break down the different relief programs, let’s start with the basics: What is tax relief? Tax relief is any government program that offers discounts to eligible taxpayers. The purpose of these programs is to ease the burden of tax payments and help families and businesses reduce their tax debt. Many relief programs are also incentives that help the U.S. government reach national goals, such as tax-advantaged retirement accounts or green improvement tax credits.
Although tax relief programs are designed to be accessible, they can seem complicated if you’re not a financial expert. It isn’t always clear which tax deductions are available to you and how to access them. That’s why a lot of people choose to work with tax relief services.
Certified tax relief companies charge a small fee to help you navigate your annual taxes. These fees may be worth it considering the money you may save in the long run. Like the best tax software, tax relief companies analyze your income and expenses and look for deductions and credits you may be eligible for.
How tax relief works
There are three main types of tax relief: deductions, credits and exclusions. Each of these programs can help you save in different ways. Deductions and credits are subtracted from your total tax payment, and exclusions are non-taxable assets. Tax relief is not always automatically granted. You have to claim your deductions and assets when you file your taxes to qualify for relief — that’s where a tax relief attorney or service can help.
The benefits of tax relief
The benefits of tax relief programs are simple: they adapt your tax payment to your income so you don’t overpay. Tax relief can help you save for retirement, support a family or get out of debt. Relief programs like Fresh Start help people in debt avoid levies and other consequences.
Some tax relief programs, like property tax relief, vary by state and have been adjusted to help taxpayers recover from the recession caused by the COVID-19 pandemic. If you live in an area where the property tax has been lowered, you might see reductions in your monthly payments that can help you pay off your mortgage faster. Reduced property taxes also act as incentives for new homebuyers.
If you aren’t taking advantage of all the tax credits, deductions and exclusions you’re eligible for, you could be overpaying on your taxes. That’s why it’s important to understand these programs and their eligibility requirements.
Methods for getting tax relief
Accessing tax relief doesn’t have to be complicated. It all comes down to understanding the programs you qualify for. Tax relief assistance is always available online or in person if you want to talk to a qualified professional.
Here are a few types of tax relief and how you can take advantage of them.
If you’re not behind on your taxes
The three most common forms of tax relief are available to eligible taxpayers who are up-to-date on their taxes. Keep in mind that the details of these programs will vary depending on your state, income level and a few other factors.
Tax deductions
A tax deduction lowers your tax liability. Deductions are designed to reduce your taxable income and therefore reduce your total payment. When you file your taxes, you can either claim the standard deduction or itemize your deductions.
- A standard deduction: This is a flat-rate reduction of your tax payment. The rate varies by tax year and is different for taxpayers who are single, married and filing jointly, married and filing separately, or the head of their household. In addition, people who are over 65 and blind get a higher deduction. Anyone dependent on another taxpayer gets a lower deduction.
- Itemized deductions: These are claimed separately and add up to your total payment reduction. This amount may be greater or lower than the standard deduction.
You can’t claim the standard deduction and itemize your deductions — you have to choose one or the other. That’s where tax deductions get a little complicated. You may be unsure if you’ll save more by taking the standard deduction, or whether it’s worth it to tally up all the deductions you qualify for.
The answer to that question is different for every taxpayer. If the total sum of your deductions is greater than the standard deduction, it’s worth taking the time to itemize. If you choose to itemize your deductions, you might want to work with a professional who can help you get the most out of each item. A few common types of deductions include:
- Home office deductions
- Medical expense deductions
- Gambling loss deductions
- Mortgage interest deductions
- Educator expense deductions
Tax credits
Tax credits are similar to deductions in that they lower your total payment. The key difference is that tax credits reduce the amount you owe, while deductions reduce your taxable income. You can think of a tax relief credit as a reimbursement. For example, if a homeowner qualifies for a $1,000 tax credit for using green energy in their home, they will be reimbursed by taking $1,000 off their tax payment.
Some tax credits are refundable, which means the IRS will send you a check after your taxes are filed if you paid less than the value of your credit. Tax credits are usually granted for expenditures that help your family, community or government in some way. Here are a few common examples:
- Child tax credit: A refundable credit given to American taxpayers for each dependent child. So, if you pay $3,000 in taxes but qualify for a credit of $3,600 for your child under 6 years old, you will receive a $600 refund.
- Earned income tax credit: A refundable credit designed to help low-income taxpayers.
- Residential energy tax credit: A reimbursement of up to 30% of the cost to install solar energy in your home.
- Savers tax credit: This applies to people with moderate incomes who set aside money for retirement in a qualified savings account.
Some tax credits vary based on income. For a better understanding of which credits you qualify for, check out a breakdown of the 2023 tax brackets.
Tax exclusions
Tax exclusions reduce your tax bill by setting aside parts of your income as “non-taxable.” Non-taxable income includes child support payments, death benefit payments and income from municipal bonds. If you earn a profit from selling your home, up to $250,000 is considered non-taxable or up to $500,00 for married couples filing jointly.
Another common exclusion is employer-sponsored health insurance. Any portion of your health insurance premium that you pay is excluded from your taxable income, which will lower your total payment.
If you need to catch up on tax payments
If you’re behind on your tax payments, there are a few IRS tax relief programs that can help you out. These programs are designed to help taxpayers catch up and get out of debt. But certain deductions, credits and exclusions may not be available to taxpayers who are in debt to the IRS. That means you need to be up to date on your payments to take full advantage of these programs.
Tax relief advocates can help you find the best program and get the most out of your IRS tax relief benefits. They’ll also keep you informed on how to file back taxes so you don’t end up overpaying. As you catch up on your taxes through relief resolution, you’ll have access to more deductions and credits to save for your future.
IRS installment agreement
An installment agreement is an IRS debt tax relief program that allows you to pay back what you owe month-by-month. That means you can catch up on your payments without draining your bank account by paying it all at once.
IRS Fresh Start tax relief program
Fresh Start tax relief was launched in 2011 as a national program to help Americans get out of debt. This program lets you settle your debt even if you pay less than you ultimately owe. Businesses and individual taxpayers can qualify. Applying for the Fresh Start program can take some time and involves a lot of paperwork. The quickest route is to have a tax professional pay on your behalf.
Offer in compromise
This program is available to taxpayers who cannot reasonably pay the full amount they owe. The IRS will help you settle on a payment that will not lead to financial hardship. To qualify, you’ll have to prove that you can make regular payments and are on track to getting out of debt.
Penalty abatement
Penalty abatement programs remove penalties from your IRS debt, lowering the total amount you owe. To qualify for penalty abatement, you’ll have to prove that you had a legitimate reason for not paying your taxes. Natural disasters, a death in the family or a serious illness all count as legitimate reasons.
Currently not collectible (CNC)
If your current monthly income is too low to pay your debt, you might qualify for CNC tax relief. This program defers your payments without penalties until you are able to make them again.
How unpaid taxes can quickly become a nightmare for taxpayers
What happens if you don’t pay your taxes? Neglecting your taxes is illegal and can lead to disastrous consequences. When you owe a debt, the IRS is entitled to claim your current assets. This might happen through:
- Bank levies: A bank levy is a legal action to remove funds from your bank account. Your bank may freeze your account and send the necessary funds to the creditor through direct deposit.
- Property seizure: The IRS is legally allowed to seize and sell your property to pay off your debts. That includes your vehicles, home and other assets. The IRS can force you to leave your primary residence if you can’t make your payments.
There are ways to avoid these negative outcomes. One method is to declare bankruptcy. However, it’s always better to pay off your debts than to file for bankruptcy. A bankruptcy will affect your credit for up to ten years and make it much more difficult to apply for loans, buy a house or even rent a property.
That’s why the best thing you can do to deal with your IRS debt is to apply for a relief program. Through Fresh Start, you can avoid levies and find a solution that fits your current income.
Going at it alone vs hiring a tax relief company: what’s better?
It’s possible to apply for tax relief on your own. That said, you should be aware that it isn’t always an easy process. IRS requirements are complicated and understanding every possible tax relief program takes time. The best tax relief companies will help with your application and find the right program to help you, whether it’s unemployment tax relief or a Fresh Start option.
A legitimate service won’t ask for an advance payment. You’ll start off with a free consultation and will only be charged after the services. The most reputable tax firms offer a 100% money-back guarantee if your tax situation doesn’t improve. Of course, everyone’s situation is different. But if you want to get the most out of your tax relief, it’s highly recommended that you work with an expert.
Choosing the right tax relief option for your tax debt
If you’re wondering how to get out of your tax debt, you have plenty of options. The IRS will work with you if you follow the right steps and apply for a federal tax relief program to absolve your debt. A tax relief company like Anthem can help you get a fresh start. If you’re behind on your taxes, you’ll get advocacy, support and filing assistance from a certified professional, with no upfront payment and a money-back guarantee.
With the right help, you can get back on track and qualify for the tax relief credits that will help you save for the future.
