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What Is Tax Relief, Its Types, & How to Qualify in 2024

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Many individuals who pay taxes are actively seeking methods to lessen the amount they owe and capitalize on any applicable tax exemptions. For those who meet the criteria, one path to diminish their tax obligation is taking part in tax relief initiatives.

Administered by the federal government and certain state entities, these programs offer various advantages, such as tax credits or reduced penalties. Keep reading to understand better the different available tax relief, and how they can prove helpful when filing taxes.

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What Is Tax Relief?

Tax relief encompasses a range of government initiatives to alleviate an individual’s tax burden within a specific fiscal year. Your tax burden, also known as your tax liability or tax bill, is the amount you owe in taxes based on your total annual income.

For instance, in the 2023 tax brackets, the initial $11,000 of an individual’s earnings is subject to a 10% taxation rate. Therefore, if you earned $11,000 during the 2023 tax year, your owed taxes would amount to $1,100. Income exceeding $11,000 up to $44,725 is taxed at a rate of 12%. 

And using this example further: if you earned $15,000 in total income for that same year as before ($1k already accounted for), you would still be responsible for the original sum of $1. 1k plus an additional 12% on the remaining portion ($4k), which equates to another payment of $480.

Tax relief manifests through various means such as deductions (lowering taxable income), credits (direct reduction in owed taxes), or exemptions (income portions disregarded by IRS calculations).

And not limited solely to its earlier definition, “tax relief” can also include assistance provided by IRS programs designed with debt settlement purposes specifically intended for Americans facing outstanding amounts due but unable to pay them off entirely, often resulting in reduced obligations when successfully negotiated.

How Does Tax Relief Work?

Tax relief minimizes or eradicates your tax liability before submitting your taxes to the IRS or state tax authority. The approach to achieving this goal varies depending on the tax relief alternative employed.

  • Tax Deductions: These deductions reduce your taxable income, decreasing your final tax bill.
  • Tax Credits: Providing a direct reduction to your tax bill by a predetermined amount, tax credits can even result in a tax refund if the credit amount surpasses your tax liability.
  • Tax Exemptions: Exempted from being part of your taxable income, these exemptions prevent an increase in your tax bill. Certain exempted income may not be reported on your tax return, and some can be deducted during the filing process, similar to a tax deduction.
  • Tax Debt Relief: These programs, offered by the IRS and state (or local) authorities, assist taxpayers who are behind on their taxes in managing their debt responsibly. This relief can help individuals avoid severe penalties and typically applies after the tax filing deadline.

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Types of Tax Relief

Numerous government-backed initiatives and incentives are categorized as “tax relief.”

Tax Deductions

Deductibles decrease the overall income subject to taxation, resulting in a reduced final tax payment. There are two main methods for taxpayers to claim deductions: opting for the standard deduction based on their filing status and other qualifying factors or itemizing deductions on Schedule A of their Form 1040 or 1040-SR.

Standard Tax Deductions

The amount of the standard deduction that you’re eligible for is determined by several factors. These factors include your filing status, age, and whether you have a disability. If you’re 65 years old or older, or if you’re legally blind at the end of the tax year, these amounts can increase.

For the year 2022, an additional standard deduction was allowed. This additional deduction was $1,400 if you were either over 65 years old or legally blind ($1,750 if you filed as a single or head of household). For the tax year 2023, the additional standard deduction was $1,500 ($1,850 if single or head of household).

If you’re being claimed as a dependent on someone else’s tax return, note that the standard deductions have some variations for you. In 2022, dependents were eligible for standard deductions of $1,150 or their total earned income plus $400, whichever was more significant.

For the year 2023, the standard deductions for dependents have been set at $1,250 or their earned income plus $400, whichever is higher.

It should be noted that the deduction of “earned income plus $400” cannot exceed the limit designated for your specific filing status. For instance, if you are filing as single in 2022, the limit is $12,950.

Itemized Tax Deductions

Most taxpayers typically choose to take the standard deduction, which reduces their taxable income by a predetermined amount. However, sometimes, itemized deductions can significantly decrease your taxable income, potentially placing you in a lower tax bracket for the year.

One typical example of itemized deductions is charitable donations to nonprofit organizations and business expenses incurred by self-employed individuals. Employees may also deduct specific business expenses depending on their work.

In some situations, state and local taxes (SALT) can also be used as tax deductions. Examples of these types of deductions include sales tax or income tax paid throughout the year and real estate and property taxes for homeowners. 

SALT deductions have a limit of $5,000 for individual filers and $10,000 for married couples filing jointly.

While itemized deductions may provide more benefits compared to the standard deduction, you can only choose one method in a given tax year. This means it’s advisable to opt for itemizing deductions if the total amount you plan on deducting exceeds the standard deduction for that particular year.

Other standard itemized deductions include:

  • Charitable contributions
  • State and Local Taxes (SALT)
  • Mortgage interest on the first $750,000 of secured mortgage debt (includes discount points)
  • Unreimbursed medical and dental expenses
  • Student loan interest
  • Certain gambling losses

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Tax Credits

Tax credits differ from tax deductions in that they directly decrease the total amount of tax you owe rather than simply reducing your taxable income. Deductions lower the figure used to calculate your tax bill, while credits directly lower the actual amount of taxes owed.

Various government initiatives exist that can help reduce taxpayers’ overall tax burden. Examples include the child tax credit and earned income tax credit. 

individuals who didn’t receive the full amount of Economic Impact Payments (stimulus checks) during the COVID-19 pandemic or failed to claim them may be eligible for the Recovery Rebate Credit.

There are several common tax credits available for taxpayers to take advantage of.

  • Child and dependent care credit
  • Earned income tax credit (EITC)
  • Residential energy efficient property credit

Tax Exemptions

Tax exemptions, also known as tax exclusions, refer to types of income that are not subject to taxation and can effectively reduce your overall taxable income (thus resulting in a lower tax bill).

Examples of commonly recognized tax-exempt items include child support payments, health insurance premiums covered by your employer, and life insurance payouts.

One specific exemption that stands out is the “gift tax exclusion,” which permits giving money or assets to friends or family members without incurring taxes. As of the 2022 tax year, you can gift up to $16,000 per recipient without being taxed by the IRS.

While it’s possible to find comprehensive information regarding all available exemptions for individuals and businesses on the IRS website, it may require navigating multiple pages. 

Here’s a condensed list of available exemptions to provide a brief overview.

  • Received child support payments
  • Life insurance death benefit payouts
  • Combat service tax exclusion
  • Foreign earned income exclusion
  • Capital gains from a house sale (up to $250,000)
  • Premiums for employer-sponsored health insurance

Tax Debt Relief Programs

The Internal Revenue Service (IRS) provides multiple alternatives for individuals with outstanding tax liabilities to settle their debt without making a large one-time payment, which can be challenging to manage financially.

These options for tax debt relief encompass a range of possibilities, including installment plans, forgiveness of penalties, and even temporary suspension of collection activities.

While the IRS’s authority is limited to federal taxes only, numerous state and local governments offer comparable programs based on the options the IRS provides.

  • Offers in Compromise (OIC): This option allows you to settle your tax debt for less than the total amount owed based on factors such as your ability to pay, income, expenses, and asset equity. While it’s a less common tax debt relief option, it provides an opportunity to spend a reduced amount.
  • Innocent Spouse Relief: If your spouse makes tax filing errors, innocent spouse relief may exempt you from penalties resulting from these errors. The IRS considers this option if it determines you had no reasonable understanding of the filing mistakes.
  • Installment Agreement: For those unable to pay their full tax bill in a lump sum, installment agreements offer a way to spread payments. While there are no special requirements, online applications are accepted for amounts up to $50,000 (for long-term contracts) or $100,000 (for short-term contracts).
  • Penalty Abatement: Also referred to as “first-time penalty abatement,” this option forgives minor tax penalties, such as missing filing deadlines or failing to pay a single tax bill. To qualify, you must be penalty-free for three years and have filed or requested an extension on your current taxes.
  • Currently Not Collectible (CNC) Status: Granted when the IRS determines that you can’t now pay your taxes, CNC status means the IRS won’t attempt to collect until you can reasonably do so. If approved, the IRS reviews your finances annually until you can repay your debt.

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Tax Relief if You Are Currently Behind on Tax Payments

If you haven’t yet fulfilled your tax obligations or have outstanding taxes from previous years, alternative tax assistance methods could provide relief. 

Choices exist to fully repay your debt gradually or negotiate a settlement for an amount lower than you owe. Take a look at the following options currently accessible for resolving your tax concerns.

Fresh Start Program

Fresh Start is a program established by the IRS that specifically caters to taxpayers who are struggling to meet their tax obligations. 

This initiative allows individuals to submit an Offer in Compromise, enabling them to settle their debt for less than the total amount owed. The acceptance of these offers depends on various factors such as income, assets, and household expenses.

Upon approval of your offer, you will be presented with two payment options. The first option allows you to pay a sizable lump sum upfront (at least 20% of the offer) and then gradually clear the remaining balance within five months. 

Alternatively, you can choose to make one initial payment along with your offer and subsequently fulfill the remaining obligation through monthly installments over a span of six months to two years.

Offers in Compromise are generally considered challenging to obtain approval for. However, there’s some respite, as the IRS offers a pre-qualifier tool that helps determine if this option might be viable in your specific circumstances. To commence this process, it’s necessary to complete Form 656-B.

If dealing with the complexities of this 32-page document becomes overwhelming or causes undue stress, hiring a reputable tax relief company may prove beneficial. 

Such professionals possess expertise in liaising with the IRS on behalf of clients. They can assist in determining an appropriate amount for submission as part of your Offer in Compromise application.

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Other tax debt relief services

Tax Attorneys

Tax attorneys have expertise in dealing with intricate tax codes and laws for their clients. They handle tax matters across different states, especially when individuals own multiple businesses, to prevent or settle tax penalties that may lead to criminal charges. Tax attorneys assist in the process of filing taxes for their clients.

Tax Relief Companies

Tax relief companies enlist various tax experts (such as accountants, lawyers, and IRS-certified agents) who can assist in determining the most suitable solution for your tax debt issues.

While it’s possible to negotiate directly with the IRS on your own, these companies leverage their extensive collective tax experience to guide you through complex tax debt situations. 

If your tax debt situation is relatively simple, it would be more cost-effective for you to approach the IRS directly and avoid paying unnecessary fees that could amount to hundreds or even thousands of dollars. 

Below are our top recommendations for tax relief services:

Larson Tax Relief

Larson Tax Relief offers diverse tax services for businesses, covering areas such as payroll and federal tax problems, conflicts with revenue officers, and worker classification concerns. They are an ideal choice for resolving business and corporate tax debts.

Larson Tax Relief caters to various types of tax debt relief services. They provide help with personal IRS tax debt relief and corporate tax assistance, as well as support in postponing or avoiding bank levies.

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Anthem Tax Services

Anthem Tax Services assists with IRS tax debt relief and corporate tax preparation. They offer comprehensive support for applying to various IRS tax debt relief programs, such as the Offers in Compromise (OIC) program, innocent spouse relief, and achieving a “currently not collectible” status.

The company stands out in the industry with its exceptional money-back guarantee. If Anthem Tax Services fails to secure any form of resolution from the IRS, whether it be a reduction in payment amounts or even complete debt forgiveness, they will refund all of your money.

While their robust guarantee doesn’t cover the initial investigation fee. This fee typically starts at $350 and may vary depending on the specific details of your case.

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Community Tax Relief

Community Tax Relief provides complimentary consultations and cost-effective investigation fees ranging from $295 to $500.

Community Tax Relief’s primary focus is to assist with IRS tax debt while offering some state tax support. Like similar firms, Community Tax assists with various applications such as installment agreements and offers in compromise, excluding innocent spouse relief.

The company caters to customers across different states with a minimum requirement of just $10,000 in tax debt. Their money-back guarantee period varies between three and 10 days, depending on the form, ensuring a full refund if your issues remain unresolved.

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What Is Tax Relief? – FAQs

What Is the Difference Between a Tax Credit and a Tax Exemption?

While a tax credit and a tax exemption serve a similar purpose, they have one key distinction. A tax credit decreases the overall amount you owe in taxes (and, in certain situations, can even result in a tax refund). In contrast, a tax exemption excludes part of your income from being taxed, ultimately reducing your taxable income.

What Happens if I Don’t Repay My Tax Debts?

Neglecting your obligation to settle your tax obligations can result in grave repercussions. Initially, this will result in further fines and increased interest charges, exacerbating the total amount you owe over time.

In addition, the IRS has the authority to deduct a portion of your monthly salary or initiate legal actions such as levies and liens against your assets. 

This could jeopardize valuable possessions like your vehicle, house, and other belongings while severely impacting your credit score. In extreme cases, it’s even possible for you to face the revocation of essential identification documents such as your passport or driver’s license.

What Is the Federal Gift Tax Exclusion for 2023?

The Internal Revenue Service (IRS) has recently disclosed that the federal gift tax exclusion for 2023 will be increased to $17,000, marking a rise from the previous year’s amount of $16,000.

Summary – What Is Tax Relief 

Tax relief encompasses a wide range of government initiatives and programs to assist taxpayers in reducing or eliminating their tax obligations. Examples of tax relief include the child tax credit, itemized deductions on your tax return, and payment plans for overdue taxes.

When preparing your taxes, a reputable tax relief company like Larson can assist you in identifying the various tax credits, deductions, and exemptions you may be eligible for. Alternatively, irs.gov provides an Interactive Tax Assistant tool that offers information on many specific tax subjects.

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