6 Smart Ways to Use Your Tax Refund
Receiving your tax refund from the IRS can bring a lift to your financial situation. As of May 2023, the IRS reports t...
Tax Relief is a program designed to reduce the amount of taxes paid by individuals or businesses. It involves a universal cut by the IRS that benefits specific groups of taxpayers. Solutions result in the deduction of expenses, tax credits, and other benefits associated with your taxable income.
Tax relief is a government-provided reduction in the amount of tax that a person or business must pay.
Tax relief is provided to reduce the burden of taxation on taxpayers. It may be in the form of direct reductions in tax rates, deductions from taxable income, or both. Tax reliefs are typically targeted at particular groups to address their specific needs, such as those with low incomes, who may be subject to high marginal tax rates.
The process of filing taxes can be tedious and time-consuming. Tax Relief entities offer services such as tax preparation, consultation, and tax planning for individuals and businesses.
Tax relief may take one of various forms when it comes to filing taxes. You can reduce your tax liability by:
Regardless of the form of tax relief you need, it will normally reduce your tax debt and help prevent any payments that are related to a tax underpayment or tax evasion penalties.
Tax Debt resolution is the process of resolving tax debt with the IRS. There are many ways to resolve tax debt, and some are more effective than others.
Penalty abatement: The IRS may reduce or remove penalties from your balance, but you must first prove that you had a legitimate reason for not paying your taxes on time. Note that the IRS states that "a lack of funds, is not reasonable cause for failure to file or pay on time."
Back taxes are funds that you owe the IRS and have not been paid on the due dates. They are subject to penalties, increased interest, and serious legal actions can be deployed if they remain unpaid. Some of the common actions include:
If you file late, tax penalties can mount up fast – at a rate of 5% of the owed amount for each month you are past due. If you are over 60 days late, the minimum penalty is a whopping $100 or the entire amount of the tax owed, whichever amount is less. If you file a tax extension, the penalty is removed.
Another name for earned income relief is an earned income tax credit (EITC). To get this credit, you need to show proof of earned income, have an investment income that is under $3,650 for the claimed tax year, possess a valid social security number, claim a certain tax filing status, and be a U.S. citizen or resident alien during the entire tax year.
When you file your taxes but underpay the amount due, you will be assessed an estimated tax penalty. Therefore, if you do not withhold enough in taxes or you don’t pay enough in estimated taxes, the IRS will charge this penalty. This penalty is 5% - the rate assessed to borrow your underpaid funds from the U.S. government. Complete IRS Form 2210 to request a waiver when you file to avoid being penalized.
You will receive an underpayment penalty if you pay under 90% of your tax liability. The standard penalty is 3.398% of your tax underpayment. This penalty is reduced slightly if you file and pay your taxes before the April 15 deadline. For example, let’s say you owe $1,000 in federal income tax for the year, 2020. You must pay at least $900 ($1,000 x 10% or $100) to avoid the penalty for underpayment of an estimated tax.
You do need to test the waters first to see if a tax relief company is legit, as some scams do exist. Make sure you speak to a licensed Enrolled Agent (EA), tax attorney, or CPA. These credentialed professionals can represent your case to the IRS. Also, the prices you pay should be reasonable. Never pay an amount that sounds excessive. Check about security, as well. How is the company set up to receive paperwork? Does it have a secure online portal?
Yes, the pandemic has influenced some of the policies offered for tax relief. Most of these policies emphasize deferral periods and allow taxpayers extra time to file their returns. Some of the programs also allow employers and employees to deduct credits for emergency leaves or employee retention during specific dates of the COVID-19 period.