One of the reasons that so many people find taxes confusing is that some terms used to discuss taxes aren’t immediately clear. For instance, when you see the term tax relief, it could mean one of two things: finding ways to lower your tax burden or solutions meant to help you pay off existing tax debt. If you’re currently dealing with tax debt, or you simply want to make sure that your annual tax bill is as low as possible, it’s a good idea to learn about the different forms of available tax relief.
Every taxpayer wants to make sure that their taxes stay low, which makes tax deductions one of the most useful forms of tax relief. As a taxpayer, you have two choices: You can take the standard deduction or you can itemize your deductions.
When you itemize, you account for every deductible item. In 2017, the government doubled the standard deduction for the 2018 tax year, which means more people may take the standard deduction rather than itemizing their taxes.
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For single taxpayers, the standard deduction is now $12,000. Taxpayers who are married and file jointly can claim $24,000.
If you believe your tax-deductible expenses exceed that threshold, it makes sense to itemize your deduction to save even more money.
A variety of expenses are tax deductible, including:
IWhile deductions are certainly a useful form of tax relief, you should be very careful about what and how many deductions you take. Taking too many deductions, or deducting more than is typical, is a big red flag to the Internal Revenue Service (IRS), which may result in your having to face an audit. Be sure to consult with a tax professional so that you can be certain you’re making use of tax deductions correctly.
An important thing to remember when it comes to tax relief is that tax deductions are different than tax credits. Where tax deductions simply reduce the amount of your income that’s subject to taxation, tax credits provide a dollar-to-dollar reduction in the amount of taxes that you will need to pay.
Let’s imagine, for example, that you owe the IRS $5,000 in taxes and you’re eligible for a $2,000 tax credit. With this credit, the amount that you need to pay would drop to $3,000. Like tax deductions, there are several different types of tax credits that you may be able to use to decrease your burden:
A tax professional should be able to help you identify which tax credits you are able to use. The more credits for which you are eligible, the lower your final tax bill will be.
Exclusions are another form of tax relief, and they may be able to significantly lower the amount of taxes you will need to pay at the end of the year. A tax exclusion works to lower your tax burden by reducing the amount of gross income that you will need to report.
Essentially, a certain portion of your income will be excluded, or left out of your tax report. Many exclusions are meant as an incentive to perform a certain action. For example, there is a tax exclusion available for employer-based health insurance that incentivizes employers to offer these programs to employees and to enroll them. With this exclusion, the value of the insurance policy would not be taxed.
If you are an expatriate and earn income in a country other than the United States, you can take advantage of the Foreign Earned Income Exclusion (FEIE). Taking advantage of this exclusion means that $104,100 of your foreign income doesn’t need to be reported on your tax return. For instance, if you earned $174,100 in a foreign country, you would only need to report $70,000, thanks to the FEIE.
Not every form of tax relief is meant to lower your tax burden. Some tax relief solutions are meant for people that are in tax debt, meaning they have been unable to pay the taxes that they owe. Taking advantage of this form of tax relief is very important, as failing to pay your taxes can have some very serious consequences.
If you fail to pay your taxes for an extended period of time, the IRS may collect your taxes through wage garnishment, which means they will take a portion of each of your paychecks until your back taxes have been paid. Your employer is required to take the money out of your paycheck, and the IRS has the ability to take 80% of your wages until your debt is paid. Other consequences for not paying your taxes include:
Once you find yourself in tax debt, there are several types of relief you can choose. For instance, the IRS offers tax forgiveness programs for certain taxpayers, which may let you get out of tax debt by paying a percentage of what you owe. For example, the IRS Fresh Start Program makes it easier for taxpayers to avoid a lien while improving their access to tax relief options such as installment agreements and offers in compromise.
With a streamlined installment agreement through the Fresh Start Program, you’ll be able to pay off your tax debt a little bit at a time as long as you can pay your debt in full within six years. Entering into one of these agreements may be the best choice for taxpayers who owe between $25,000 and $50,000.
If you lack the assets to pay your taxes in full, you may be able to find tax relief with an offer in compromise. With an offer in compromise, the IRS agrees to accept a lower amount than what you owe. They get a portion of their money and you can clear your tax debt.
If you’re looking for tax relief for your back taxes, Solvable is here for you. Reading our debt relief company reviews can help you find the right company to get you out of debt, and you can also learn more about staying out of tax debt with our research article library.