Do you owe back-taxes or are facing an audit? Feeling overwhelmed and not sure where to start? You’re not alone. Many Americans find themselves in this situation every year. The most important thing you can do is to stay calm and begin looking into the tax relief services available to you.
There are many different ways to seek help with your tax debt, depending on how much you owe and how much you are able to pay, either in full or in payments. The purpose of tax relief is to reduce an individual or business entity’s tax liability. Examples of tax relief are tax deductions, credits, exclusions, or forgiveness of a tax lien.
A tax deduction reduces your taxable income. Say you make $60,000 per year and you fall in the 25% marginal tax bracket. Your tax bill would be $15,000. However, if you qualify for, say, a $6,000 reduction, you’ll be taxed on a lower income of $54,000, which ultimately reduces your tax bill to $13,500.
A tax credit works differently than a deduction in that it reduces your bill dollar to dollar, rather than just reducing your amount of taxable income. So, if you figure out your tax liability including all deductions, a tax credit is taken off of that total. Perhaps you owe $4,000 to the government, but you qualify for a $1200 credit. Your new total would be $2800.
With programs like the Fresh Start Initiative, you can get IRS back tax help that allows you to work with the IRS to settle your tax debt for a percentage of the original liability. Depending on your financial situation, the Internal Revenue Service can provide a tax relief arrangement to help you pay back the reduced taxes and avoid any tax liens.
What Can I Get Tax Relief On?
It’s common for some tax deductions to get overlooked, so it’s important to know about all of them in order to save some cash. Here are a few deductions to look into:
- Sales tax: you can deduct sales taxes or state income taxes off your federal income tax. You will have to itemize to take the deduction, but the IRS provides tables to use as a guide.
Health Insurance premiums: if your medical expenses exceed 7.5% of your adjusted gross income, they are deductible. This is especially helpful if you own your own business and are responsible for your own health insurance coverage.
- Babysitting: you may be able to deduct the cost of a babysitter if you’re paying them while you volunteer at a charity for no pay. This counts as a charitable contribution.
- Lifetime learning: the lifetime learning credit can provide up to $2,000 per year on higher education regardless of your age.
- Savings for teachers: K-12 teachers are allowed to deduct up to $250 for materials they buy for their classrooms. It gets deducted from your income, so itemization isn’t necessary.
How Do I Apply for Tax Relief?
All states offer different tax relief options. You’ll need to look into what your state offers to see what may work for you and then use the proper forms to apply. Tax relief is usually available to seniors and disabled persons, as well as individuals with other special circumstances.
If you already know how much you owe—but can’t afford to pay in full or are still looking for deductions and/or tax credits—you can file a federal tax extension. This allows you more time to gather all of your necessary information to file an accurate and complete tax return. Anyone is eligible for an automatic six month extension for your federal income tax return, as long as IRS Tax Form 4868 is submitted.
Keep in mind this extension is to file the return, not to pay taxes due. When you submit your extension request, it’s suggested you submit payment for the amount owed to avoid incurring penalties, interest, and late fees. You don’t want to add to your debt.
People fall behind on their taxes for many reasons. Maybe you dealt with a natural disaster, or had a serious medical expense or family emergency that forced you to put your tax debt on the back burner while you took care of more pressing issues. However, the IRS won’t wait forever and will eventually take action in the form of liens, wage garnishment, or seizure of assets.
If you find that you are in a serious financial situation where you cannot pay the IRS in a lump sum or periodic payments, you may consider filing bankruptcy. You can file bankruptcy to resolve back taxes, but there are rules and procedures you’ll need to work through according to your specific situation.
Who Can Help with Tax Relief?
Bankruptcy and taxes are serious business, and you may want consider hiring a tax professional to help you through this process. A word of caution when it comes to seeking help with your overdue taxes: find a reputable service. You may hear ads on the radio or television from companies that advertise help for panicking taxpayers. They may claim they can eliminate your tax debt and stop back tax collection, but many of these companies offer fraudulent services.
Once you sign on with agencies like these, you may find that they don’t provide the necessary paperwork for you to send to the IRS requesting participation in the programs they told you about. They can charge thousands of dollars in upfront fees, and there have even been reports of shady companies making unauthorized charges to credit cards or withdrawals from bank accounts.
However, there are plenty of reputable agencies out there that can help you with your tax debt situation. At Community Tax, we pride ourselves on working with our clients on a case-by-case basis to help solve their problems. Take a look at our Community Tax reviews to see what past clients have to say about us. Don’t stress over tax debt—we’re here to help you through it.