How The IRS Views Tax Relief

Benjamin Franklin famously said, “In this world, nothing can be said to be certain, except death and taxes.”

His words hold true over two centuries later, but he probably did not imagine the behemoth that the Internal Revenue Service would grow into. The IRS is the most powerful collections agency in America, and they are responsible for managing taxes for the entire United States.

Around 20% of taxpayers fail to make adequate tax withholdings throughout the year, which results in a net tax bill owed to the IRS instead of a tax refund caused by a tax overpayment.

Consumers who owe taxes may not have enough cash on hand to pay for their tax bills, which can result in tax debt, back taxes, and other financial issues.

Fortunately, there are many tax relief options in the Tax Code and available in the private sector, such as tax relief companies. Suppose you are behind on your tax payments or are curious about how tax relief works. In that case, this article will describe some different solutions for various tax situations so you will be prepared to make an informed decision for getting caught up on your payments and mitigate potential penalties.

Understand Your Tax Status

Contrary to popular belief, you do not need to be in an extreme tax situation to receive tax relief and assistance. Millions of Americans qualify for tax assistance annually, but many do not take advantage of the programs available to them.

Part of the problem that impedes people from getting the assistance they need is confusion regarding their tax status. There are two major tax situations that determine the types of tax relief you qualify for – current, up-to-date status, and behind or delinquent on your taxes. Much of the support for up-to-date taxpayers include deductions, tax credits, and exclusions, whereas people who owe money to the IRS can negotiate payment plans, offers in compromise, and more.

Up To Date

Consumers who are up to date on their taxes and are filing returns for the current year can use many different tax relief strategies to lower their overall tax bill and help them save money. Tax deductions help reduce the amount of income you report that is taxable. Some examples of tax deductions include sales taxes, interest paid on student loans, business expenses, charitable donations, and more.

All taxpayers qualify for the standard deduction, which is $12,400 for single filers and $24,800 for joint filers. For example, a single person who makes $60,000 will immediately be able to reduce their taxable income to $47,600 ($60,000-$12,400), and a joint couple who earns $60,000 will reduce their taxable income to $35,200, which can put them in a lower tax bracket.

Tax exclusions are similar to tax deductions because they lower your taxable income, but they are different because you can use them to remove an entire income source from your tax return. Some notable tax exclusions are foreign income, disability payments, and housing subsidies.

Tax credits reduce your tax bill once you arrive at your total taxable income. One of the most common tax credits is the child tax credit which is currently $2,000 per child. If you owed $10,000 in taxes and had one child, the child tax credit would lower your bill to $8,000. Other tax credits include childcare costs, education expenses, adopting a child, and contributing to retirement plans.

Behind/Delinquent

Suppose you currently owe money to the IRS and are behind on your taxes. In that case, there are different options available to you that simultaneously lower the financial burden (but not necessarily your balance owed) and help you catch up on your taxes.

IRS Penalties

The IRS is very powerful, and they have many methods for getting the taxes owed to them. They can garnish wages which means they can directly withhold money from your paycheck until you pay your total taxes owed. They can also use a levy or a lien to claim your personal property.

These penalties are not pleasant, and they can cause additional financial stress on top of the balance already owed to them. Thankfully, penalty relief and abatement programs can help lower your tax burden if you can prove why you couldn’t pay your taxes, such as a natural disaster.

Fresh Start

The IRS offers the Fresh Start program, which can help lower your total tax bill through an offer in compromise. Although these are hard to get approved, they can reduce your total tax bill if you can make a lump-sum payment.

If the IRS does not approve you for Fresh Start, you still may be able to get on an installment plan which is a fixed monthly payment that will end when your balance is paid off.

Stay Proactive To Work Towards A Beneficial Outcome

Tax stress can seem debilitating, but if you communicate with the government and your accountants, you can avoid costly penalties and even settle on more favorable terms than you initially thought.

The most important component of getting caught up on your taxes is being direct with the IRS and working through your tax situation with them to not pursue aggressive collections strategies.

If you want help working with the IRS, you can hire a reputable tax relief company that can do much of the communication and legwork on your behalf for a fee.

Final Thoughts

Taxpayers have many options available to lower their tax burden. Credits, deductions, and settlement offers can all benefit your tax situation and reduce financial stress.

If you want to learn more about tax relief, we have many other guides and reviews that can help you make an informed financial decision and avoid common pitfalls.