Did you know tax relief is available to help lower your tax liabilities? Find out how to obtain tax help through Military Relief, Innocent Spouse Relief, Disaster and Emergency Assistant Relief and more.
After Congress successfully got through a one-year "patch" and reached the "serious consideration" stage, the now-annual "tax extenders" packages are poised waiting for the right moment to jump onto the legislative bandwagon.
Read about some of the most common forms of tax extender relief options available below.
To get tax relief, you can consider the following strategies and options:
Understand Tax Deductions: Familiarize yourself with tax deductions that you may qualify for. Deductions reduce your taxable income, resulting in lower tax liability. Common deductions include mortgage interest, medical expenses, student loan interest, and charitable contributions. Consult IRS publications or seek professional advice to ensure you claim all applicable deductions.
Maximize Retirement Contributions: Contributing to retirement accounts such as a 401(k), IRA, or SEP-IRA can provide tax relief. These contributions are often tax-deductible, reducing your taxable income. Additionally, earnings on investments within these accounts grow tax-deferred or tax-free, depending on the account type.
Consider Tax Credits: Tax credits directly reduce your tax liability, offering more substantial relief than deductions. Research and determine if you qualify for tax credits such as the Child Tax Credit, Earned Income Tax Credit, Education Tax Credits, or Renewable Energy Tax Credits. Credits vary in eligibility criteria, so review IRS guidelines or consult a tax professional.
Take Advantage of Tax-Advantaged Accounts: Utilize tax-advantaged accounts like Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) if available to you. Contributions to these accounts are typically made with pre-tax dollars, reducing your taxable income. HSAs offer triple tax benefits as contributions, earnings, and withdrawals for qualified medical expenses are tax-free.
Evaluate Tax-Friendly Investments: Invest in assets that offer tax advantages. For example, certain municipal bonds provide tax-free interest income at the federal level, and investing in qualified Opportunity Zones may offer capital gains tax incentives. Consult with a financial advisor or tax professional to explore tax-efficient investment options.
Take Advantage of Tax Loss Harvesting: Offset capital gains by selling investments that have declined in value. This strategy, known as tax loss harvesting, allows you to deduct capital losses against capital gains, reducing your taxable income. Be aware of the IRS's rules and limitations regarding this strategy.
Consider Tax Installment Agreements: If you're unable to pay your tax liability in full, the IRS may offer installment agreements. This allows you to make monthly payments over time, reducing the financial burden. Additionally, the IRS may offer temporary tax relief during certain circumstances, such as natural disasters or economic hardships.
Explore Tax Exemptions and Exclusions: Be aware of tax exemptions and exclusions available to you. Certain income sources, such as some scholarships or proceeds from the sale of a primary residence, may be exempt from taxation. Research and understand the specific requirements and limitations associated with these exemptions.
Consult a Tax Professional: Seeking advice from a qualified tax professional, such as a Certified Public Accountant (CPA) or Enrolled Agent (EA), can provide personalized guidance and help optimize your tax situation. They can review your individual circumstances, identify potential deductions and credits, and ensure compliance with tax laws.
Stay Informed: Tax laws and regulations change regularly. Stay updated on tax-related developments by following IRS updates, reading reputable tax publications, or attending tax seminars. Being aware of changes can help you identify new opportunities for tax relief.
Remember, tax relief strategies vary depending on individual circumstances and applicable tax laws. Consult a tax professional to ensure you select the most appropriate options for your specific situation.
Military Tax Relief
The Heroes Earnings Assistance and Relief Tax Act (HEART) was supposed to provide more than $1.2 billion in tax benefits to members of the military who are receiving combat pay, saving for retirement plans or purchasing homes.
The bill eased certain rules in order to allow military families to qualify for the earned income tax credit (EITC), make penalty-free withdrawals from pension plans and access amounts in health flexible spending arrangements.
The bill was supposed to also enable thousands of active-duty military families to qualify for the economic stimulus payments, even when a spouse does not have a Social Security number.
Under prior law, some families were denied stimulus payments because one spouse was an immigrant and did not have a Social Security number.
Disaster Assistance and Emergency Relief
Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.
Depending on the circumstances, the IRS may grant additional time to file returns and pay taxes. Both individuals and businesses in a federally declared disaster area can get a faster refund by claiming losses related to the disaster on the tax return for the previous year, usually by filing an amended return for tax relief.
The IRS also offers audio presentations on Planning for Disaster. These presentations discuss business continuity planning, insurance coverage, recording keeping and other tips to stay in business after a major disaster.
Innocent Spouse Relief
There are several income tax resolution options available to help eliminate your tax burden. By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return.
Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse).
However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief. The IRS can collect these amounts from either you or your spouse (or former spouse).
You must meet all of the following conditions to qualify for innocent spouse relief.
You filed a joint return.
There is an understated tax on the return that is due to erroneous items (defined later) of your spouse (or former spouse).
You can show that when you signed the joint return you did not know, and had no reason to know, that the understated tax existed (or the extent to which the understated tax existed).
Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understated tax.
Innocent spouse relief will not be granted if the IRS proves that you and your spouse (or former spouse) transferred property to one another as part of a fraudulent scheme.
A fraudulent scheme includes a scheme to defraud the IRS or another third party, such as a creditor, former spouse, or business partner.
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