Tax Relief: A Complete Guide for All Taxpayers

Photo by Karolina Grabowska

An Internal Revenue Service (IRS) notice can scare anybody, no matter how prepared they might be. Understanding how tax relief works is the best way to overcome this burden.

To tackle the most significant tax situations, become knowledgeable on this tax relief guide as it could protect your life, home, and business.

What is tax relief?

Tax relief comes in many forms, such as tax cuts, incentives that bolster particular goals of the government, or targeted programs that benefit a specific group of taxpayers. Therefore, they’re government-made Internal Revenue Service (IRS) programs or policies designed to help individuals and businesses to reduce (or resolve) their tax-related debts.

Understanding tax relief

Tax relief incentives and programs primarily help taxpayers lower their federal tax through credits, deductions, and exclusions. However, other Internal Revenue Service (IRS) programs also help taxpayers that are behind on their annual or monthly payments, helping avoid liens of assets.

Typically, the programs or incentives focused around tax relief help the government work towards a goal (Greener Energy), amend the future economy (IRAs & 401k’s), or help those in need (disaster situations i.e., a flood or fire).

Depending on which tax deductions you fit the eligibility requirements, you’ll need to fill in a form and send it to the IRS for approval.

How to get tax relief

Tax relief, guidance on back taxes, tax help, and the many other names work the same. The most effective and comfortable way to pay your tax debt is through the below methods:

1.       Fresh start program

Tax debt reduction programs created by the IRS are incredibly confusing for the everyday taxpayer. If you’re experiencing or worried about tax debts, reaching out to a tax relief assistant agency is recommended.

A company like Ideal Tax helps those struggling with tax debt by helping them streamline the fresh start program with the IRS. By utilizing ex-IRS agents, CPAs, and qualified tax attorneys, they offer a wide range of services tailored to your unique IRS issue. If you’re looking for more flexible tax payments, better tax credits, or a manageable repayment plan, then this may be a great solution.

2.       Internal Revenue Service (IRS) plans

Alternatively, you could choose an Internal Revenue Service (IRS) plan if you qualify. Typically, this helps to prolong the payment, allowing you extra time to collect the funds to repay your overdue tax bill (plus interest and fees).

When choosing an IRS plan, you’ll only be presented with two types of installment plans: short-term and long-term:

• Short-term payment plan (120 days) – The maximum you can owe to qualify is $100,000 in combined tax, penalties, and interest. To apply online, it will cost $0.
• Long-term payment plan (120 days or more) – The maximum you can owe to qualify is $50,000 in combined tax, penalties, and interest. To apply online, it will cost between $31 and $130, depending on your payment method.

Please note that taxpayers can also apply for a short-term payment plan extension of up to 180 days.

3.       Offer in compromise

Another way to get tax relief is through an “offer in compromise.” This agreement helps you settle your back taxes with the IRS for less than you owe. Typically, taxpayers apply for this if they cannot pay their tax debt or if doing so creates a financial hardship.

Though this might sound excellent, getting the IRS to agree to an offer in compromise is much more complicated than a payment plan. In 2019, it was reported that the IRS rejected 67% of all applications for the agreement.

The IRS states that taxpayers who qualify have:

• Filed all tax returns
• Received a bill for one tax debt
• Made all the estimated tax payments for the year
• A business that they own with employees
• Deposited all the required federal tax for the current and the two preceding quarters

If you fulfill these eligibility requirements, you might be selected for an offer in compromise. To apply, fill in the IRS Form 656-B and send all your business’s sensitive information to the United States government.

4.       “Currently-not-collectible” status

The IRS issues a “Currently-not-collectible” status to those that cannot pay their taxes and living expenses (within reason). To apply for this type of tax relief, you need to request the IRS to delay the collection through a Collection Information Statement for Wage Earners and Self-Employed Individuals or a Collection Information Statement form. In these forms, you’ll need to prove your financial hardship which they’ll review.

Taxpayers that can utilize the “Currently-not collectible” status effectively usually realize the following:

• It’s only a temporary fix; the IRS will review your annual income to see if your financial situation is better
• Being deemed under this status doesn’t make your tax debt go away; it only postpones it
• The IRS can still file a tax lien against you

Depending on your situation, the tax relief methods above could be advantageous. If you’re unsure which is suitable, contacting a professional about your situation is best.

Lower your tax liability with these tax credits

Ultimately, lowering your tax liability is the best way to pay back tax debt. There are many legal ways to do this, such as searching for tax credits. To name a few, here are some of the popular options:

Child tax credit

The first tax credit you want to consider is the child tax credit. For those qualified for this credit, the adjusted gross income must be under $400,000. Getting this allows you to reduce your tax liability by $3,600 per qualifying child under the age of 5 and $3,000 per qualifying child between the ages of 6 and 17.

The retirement contribution savings credit

The retirement contribution savings credit, or saver’s credit, has been around since the early 2000s. For the 2022 tax year, this tax credit is worth 10 – 50 percent of a filer’s total savings contribution (depending on the filer’s income). You can deduct a maximum of $2,000 ($4,000 if filing jointly), making the highest tax credit $1,000 or $2,000.

Earned income tax credit

There are plenty of tax benefits and tax credit options to select between. Another one that helps reduce your tax bills is earned income tax credit (EITC). Unlike the above, this credit is only for low to moderate-income working families. The 2022 tax year for EITC is $560 for no children, $3,733 for a single child, $6,164 for two children, and $6,935 for three or more.

Summary

After reading the above, you should have a more comprehensive understanding of tax relief. The United States government has made the tax code remarkably difficult. However, the above should make it more understandable, helping you to receive tax relief, lower your liability, or develop a better plan to pay back the debt.

Undoubtedly, it’s a scary thought for many taxpayers. But with the appropriate guidance and strategy, you can overcome this burden and pay the IRS the money they need.