Everyone has to pay taxes, but some people end up paying too much in taxes. Not understanding the tax code and ignoring tax relief opportunities can leave you with a larger bill than you should be paying. Tax relief solutions can trim your tax bill or help you manage any debt incurred from missing taxes. This guide will cover how to lower your taxes and work with tax relief companies that can guide you through the process.
What Is Tax Relief?
Tax relief is the process of minimizing your tax burden through government programs and tax services. You can reduce your tax bill by capitalizing on available tax relief programs. Lower taxes make it easier to afford the other expenses in your life, and many tax relief programs remain available year after year. Understanding how tax relief works or partnering with a company that knows the ins and outs of tax relief can help you save considerable money in the long run.
How Does Tax Relief Work?
Tax relief involves reducing your taxes and making the bill more feasible. Many taxpayers reduce their total bill by using various deductions, credits, and other tax programs. It doesn’t matter how many tax relief initiatives you use as long as you fulfill the requirements. Some tax relief programs are available to everyone, while others have certain requirements. Taxpayers can utilize the standard tax deduction if they do not have enough tax deductions and credits available. If your tax deductions and other tax relief initiatives exceed the standard deduction, you should ignore the latter.
What are the Benefits of Tax Relief?
Tax relief lowers your tax bill, and many benefits can come from that. These are some of the highlights:
- Save for large purchases: Tax relief can help you save money for a down payment, car, or another large purchase.
- Avoid government debt: If you fall behind on taxes, you can get hit with stiff penalty fees. The government is like a loan shark, and you don’t want to fall into debt.
- Reduce financial stress: Tax relief programs can reduce your taxes each year and make it easier to make ends meet. Less financial stress can also strengthen other areas of your life, such as your relationships.
The benefits are numerous, but those are some of the key advantages of reducing your tax bill through tax relief initiatives.
Who Is Eligible for Tax Relief?
Anyone is eligible for tax relief. The standard tax deduction is available for anyone, but some deductions, credits, and other perks have qualifications. For instance, business owners can write off certain business expenses and use them as deductibles. Eligibility for tax relief programs can change based on how the federal government and individual states feel about them. Some tax relief programs are controlled by the Federal government, while others depend on your state.
What are the Consequences for Non-payment of Tax Debt?
Not paying your taxes can become very costly and have dire consequences if you let the debt accumulate. The government will charge fees and high-interest rates on any tax debt, which will make it harder to get out of debt. It’s also possible for the government to garnish a percentage of every paycheck you receive until the debt gets repaid.
Your credit score will take a hit if you fall behind on your taxes and don’t make an effort to pay them back. The IRS can file a lien that becomes a public record and shows up on your credit report. In extreme cases, the IRS can seize your assets, arrest you for up to five years, or prevent you from traveling abroad.
It’s best to pay your taxes on time and plan for them throughout the year. Allocating a percentage of every paycheck based on your tax bracket into a high-yield savings account will leave you more prepared. The funds can grow in your savings account or CD and put you in a better position when it’s time to pay taxes. If you want to lower your bill or have fallen behind, tax relief companies may be able to help.
Different Types of Tax Relief Solutions
Consumers and small business owners can leverage several tax relief solutions to trim their tax bills and avoid paying more than they owe.
Tax Deductions (Standard and Itemized)
Tax deductions reduce your taxable income and can make your tax bill more manageable. The standard tax deduction is available for anyone and is the minimum tax deduction available. However, if you itemize your tax deductions, you can potentially save more money.
Tax deductions vary for each person, but business owners tend to have more write-offs than employees. Business owners can write off various expenses associated with their companies, such as contract labor, business insurance, advertising, education, and other expenses.
Tax credits are less available than tax deductions, but these credits do exist and have a more meaningful impact on your final tax bill. While tax deductions minimize your taxable income and can put you in a lower tax bracket, tax credits reduce your bottom-line tax payment. A $4,000 tax deductible brings a $100,000 taxable income to $96,000.
Assuming a 20% effective tax rate for both amounts, your $20,000 tax bill gets cut to $19,200. In this example, a taxpayer saves $800 with a $4,000 tax deductible. However, a $4,000 tax credit allows you to save $4,000 on your taxes. Tax credits do not change your taxable income, so the $100,000 in this example gets taxed for $20,000. However, the tax credit lowers your bill to $16,000.
Tax credits save you more money than deductibles, but it’s best to incorporate both of these resources in your tax relief strategy. Many tax relief companies can guide you on which deductibles and credits you can use to trim your bill.
Tax Exclusions and Exemptions
Some consumers and organizations can capitalize on tax exclusions and exemptions to avoid paying taxes altogether. Non-profits and low-income consumers often fulfill the requirements to avoid income tax. Not everyone has tax-exemption status, and it’s usually not a good thing to have. Tax exemption for consumers typically indicates low income. However, if you qualify for any exclusions or exemptions, you should capitalize on them. You shouldn’t pay more than you’re obligated to pay, and you can use the savings to fortify your finances and achieve long-term goals.
Ways of Claiming Tax Relief
Taxpayers have several resources for claiming tax relief. These are some of the available options.
Currently Not Collectible (CNC)
If you have difficulty paying your taxes and paying basic living expenses, the IRS will label your account as “Currently Not Collectible.” The IRS will not collect your taxes when your account has this designation. However, the IRS can change course and request tax payments if the IRS determines that your financial situation has improved. For now, it offers some financial protection and gives you a break from taxes.
Installment agreements are essential term loans with the IRS. You agree to repay outstanding debt over an agreed-upon schedule. It’s similar to making monthly loan payments. Installment agreements are optimal for people who are behind on their taxes and want to make the debt feel more manageable as they pay it back.
Penalty Relief or Interest Abatement
In some cases, you can get penalty relief or a break from accumulating interest on your existing tax debt. Getting these expenses removed from your tax burden makes it easier to pay off. Penalties and interest prevent you from chipping away at the principal. A tax relief company may be able to help you secure penalty relief or interest abatement.
Fresh Start Program
The IRS has a Fresh Start Program that helps taxpayers who are struggling to keep up with their taxes. The Fresh Start Program has several features, such as an extension to pay taxes before penalties accumulate. People who have been unemployed for over 30 days in the previous year or self-employed workers who experienced a 25% or higher drop in business income may qualify.
What are Tax Relief Companies?
It’s no secret that the tax code is complex. The U.S. Tax Code has a lot of information for individuals to process. This lengthy document consists of 6,871 pages, and it would take almost 10 days to read the entire document. That’s if you read the document without any breaks and manage to stay up for the entire time. Then, you have to retain what you learned.
Instead of committing the U.S. Tax Code to memory, you can join forces with a tax relief company that does the hard work for you. Tax relief companies assess your tax forms and financials to gauge which tax relief programs you can receive. You can continue to focus on your career, family, and other parts of your life while tax relief services handle the tax code.
Is Hiring a Tax Relief Company Worth It?
Hiring a tax relief company can help you access tax deductions and credits that you may not know about. These companies can also make your tax burden more manageable. Results vary depending on your financial situation and tax history, but some tax relief companies can negotiate penalty relief, interest abatement, or a temporary pause on tax payments.
It’s possible to get a good ROI from working with a tax relief company. A tax relief company can help you get back on your feet and make taxes more manageable each year. You can use deductions and credits the tax relief company suggests in your future tax returns to continue saving money as long as you still qualify for them.
You can save money with a tax relief company, but you should consider how much you need a tax relief company and your objectives. Everyone wants to save money on taxes, but people who know about various deductions and credits have less to gain from a tax relief company than people who don’t know about any of the available programs.
What to Look for in a Tax Relief Company
Taxpayers can choose from many tax relief companies. However, some companies are better than others, and a few tax relief companies don’t have your best interests in mind. Assessing tax relief companies by these factors can increase the likelihood of partnering with a reliable company.
Reliable and Reputable
With many years of experience and a proven record, tax relief companies tend to be more reliable and reputable than average. These tax relief companies often do their best to pair you with the best tax-saving opportunities.
However, you shouldn’t take a company’s word about their reputation. Scouring the web for online reviews on places like Trustpilot will reveal what past and current customers think about the company. Review sites offer an unfiltered approach that gives you a better understanding of how the company works. Taxpayers can also check the Better Business Bureau to see if the tax relief company is accreted. The Better Business Bureau also has a rating system it uses to assess companies.
Knowledge and Expertise
Taxpayers should consider what they need from a tax relief company before committing to any service. Some taxpayers only need help with discovering deductions and credits they can use to minimize their taxes. Other taxpayers need a solution for their tax debt. That solution can come as a tax repayment plan, temporary pause of payments, or through another path.
The tax relief company you work with should have sufficient knowledge and expertise in the areas you need help with. Reviewing a company’s services and case studies will paint a picture of how the company can aid your quest to minimize your tax burden.
Transparent Process and Methods
Tax relief companies should explain their process and methods so it is easy to understand how they will work with you. Some tax relief companies explain their approach on their websites, while other tax relief companies let you speak with a representative before committing to a plan.
Transparency is critical. Some tax relief companies don’t have your best interest at heart and may be trying to scam you out of your money. Remember, you can choose from many choices. If you feel like a tax relief company is not transparent, you can easily find and choose from thousands of other tax relief companies and professionals.
Tax relief companies can make your tax bills easier to pay and get you on the right path, but these same companies can’t make promises. Some companies make grandiose promises in an effort to draw consumers into their services. These tax relief companies may offer guarantees and a quick path to a solution.
While everyone wants the best possible results, it’s unrealistic for tax relief companies to guarantee great results. There are too many variables that impact how effectively a tax relief company can serve any taxpayer. Companies that set modest expectations and are more honest about their capabilities tend to be more trustworthy. It’s better to work with a tax relief company that doesn’t promise too much but is honest versus a company that guarantees life-changing results only to fall well short of that promise.
You will likely have questions as you work with a tax relief company. You will have to reach out to a representative to get your questions answered, but some companies have better customer support than others. Taxpayers can benefit from looking at a company’s customer service hours and how you can contact them. Many companies offer phone numbers and email support. Other tax relief companies also include a live chat feature.
You can get a better idea of customer experience by reading through online reviews. These reviews can give you insights into a company that you can’t find on its website. You should put tax relief companies with excellent customer support on your shortlist.
Tax Relief Conclusion
Everyone pays taxes, but you shouldn’t pay more than the necessary amount. Tax relief is an important service that can make your tax burden more manageable. Anyone can capitalize on tax relief through the available tax programs. Tax deductions and credits are readily available, but a professional can help you determine which programs you qualify for.
Some taxpayers have fallen behind on their taxes and have seen their balances swell up due to penalties and interest accumulation. Some tax relief companies can put an end to the accumulation and make it easier to get back on your feet. If you feel stressed about paying your taxes and addressing your basic living costs, tax relief companies may be able to help.
The U.S. Tax Code is complex, but having help can make the entire process feel doable. Entrusting the professionals makes it easier to save money and discover opportunities to protect your wealth. Consumers should stay away from tax relief companies that guarantee life-changing results and that everything will go right. Working with companies and professionals with more realistic expectations can set you up for a better payoff when your tax relief arrives.