Tax relief policies are designed to reduce or waive taxes for a specific group of people or companies. These programs are undertaken to encourage certain behaviors among the businesses or community at large.

For instance, some state governments have initiated energy tax relief policies. The program aims to encourage people to embrace green and sustainable energy sources. Most recently, many governments across the world created policies that reduced taxes on essential commodities like foods to reduce the economic strain caused by COVID-19.

For businesses, tax deductions are offered to encourage growth and reduce the financial burden of qualified self-employed individuals. For instance, certain official travel expenses are 100% eligible for a refund. This includes business trips that require you to rest or spend the night away from your tax home.

Understanding Tax Relief Companies

Tax relief companies are organizations that go through taxpayers’ tax debt and come up with a plan to reduce and clear your debt. The organizations try to identify tax relief programs that you may qualify for. They may also negotiate with the IRS to reduce your monthly payment. For their trouble, tax settlement firms will charge the taxpayer some fee.

There are many tax relief companies out there, but not all of them run transparent businesses. Some will charge extremely high fees that do not make financial sense compared to the taxes owed. Others are simply in the business of scamming desperate taxpayers.

That’s why it is critical to choose a tax relief company wisely. The financial experts at Tax Shark advise taxpayers to find a transparent firm that offers free consultations. They will help you decide whether you qualify for any tax relief without charging you a cent.

Tax relief companies also help you determine the total amount of deductibles you may receive. With this information, it should be easier to decide whether hiring a firm is a viable option in the first place. 

The best tax relief companies have no problem explaining to their clients the procedures they follow. It’s also vital to conduct your own research and check whether a firm is involved in any issues with the FTC before hiring them.

Tax Deductions Vs. Tax Credit

Both Tax deductions and tax credits aim to reduce the amount of taxes paid by an individual or company. However, the two work differently, and it’s important to understand their difference if you want to make the best of the relief programs you qualify for.

What Are Tax Deductions?

Tax deductions cut down your taxable income hence reducing the total amount of taxes owed. The deductions are subtracted from your gross income. 

If your gross annual income is $40,000, which would put you in the 12% tax bracket, you will pay roughly $4,800 in taxes. However, if you qualify for a deduction of around $4,000, your taxable income will drop from $40,000 to $36,000, reducing your tax bill from $4,800 to $4,320. That’s a saving of almost $500.

Examples Of Tax Deductions

• Student loan interest deduction – The relief allows you to deduct as much as $2,500 after paying your student loan interest.
• Medical expenses deductions – Some medical expenses (including dental) may qualify for a deduction if they exceed a certain percentage (usually 7.5%) of your adjusted gross income.
• Charitable donations deductions – The value of charitable donations like cash, cars, and clothes may be subtracted from your taxable income if they are itemized.
• Mortgage interest deductions – Homeowners may be able to deduct the paid mortgage interests from their taxable income. 
• Retirement 401(k) Contribution deductions – Contributions done to 401(k) are usually exempted from the taxable income. This is applicable to up to $26,000 contributions per year for individuals aged 50 years or older and $19,500 per year for younger taxpayers.

What Are Tax Credits?

Tax credits reduce your tax liability on a dollar-for-dollar basis. The credit is subtracted from the taxes owed once the necessary deductions have been made. Therefore, if you owe $4800 in taxes, and you have a tax credit of $1000, your tax bill will reduce to $3800. This means that tax credits have a more significant impact on your tax liability than deductions.

Examples Of Tax Credits

• Savers credit – The credit applies to contributions directed to a retirement plan like 401(k), 403(b), an IRA. The amount of credit you’ll receive will depend on factors like your income and filing status.
• Residential energy tax credit – Homeowner investing in solar panels and solar water heaters may be eligible for a tax credit of up to 26% of the installation expenses.
• Earned income credit – Individuals earning a moderate to low AGI may be eligible for an Earned Income Tax Credit of between $543 and $6,728. The exact amount will depend on your income, marital status, and the number of kids you have.
• Adoption credit – The credit provides up to $14,400 for eligible adoption costs per child.
• Lifetime learning credit – LLC is applied to eligible tuition, fees, and other related costs. The student must also be in an eligible learning institution to qualify for the tax credit.

Tax relief programs are helpful to everyone and especially small business owners. They’ll reduce your tax burden, giving you more funds to reinvest in your business. However, you must maintain clean records to claim these deductibles.

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