What Is Tax Relief?

Tax relief is any government program or policy designed to help individuals and businesses reduce their tax burdens or resolve tax-related debts. It may be universal tax cuts, targeted programs that benefit specific groups of taxpayers, or iniꩲtiatives like the Child Tax Credit (CTC) or the Earned Inꩲcome Tax Credit (EITC).

Government Policies

Tax relief programs help taxpayers reduce their tax bills through tax deductions, credits, and exclusions. Othe🐻r programs help taxpayers settle their tax-related debts.

Government policy goals may help revise the federal tax code. For example, in response to concerns about the general lack of retirement savings in the U.S., Congress created incentives to encourage savings in tax-advantaged accounts such as IRAs and 401(k)s.

Tax relief is also available for those affected by 澳洲幸运5官方开奖结果体彩网:natural disasters like storms, tornados, flooding, hurricanes, straight-line winds, wildfires, and drought. The relief typically includes filing and payment extensions, penalty and interest waivers, and deductions for casualty and theft losses sustained due to federally declared disasters.

Standard Deduction

The standard deduction amount is based on filing status, age, and whether the taxpayer is disabled or claimed as a dependent on someone else's income tax return. The standard deduction amounts for the 2024 and 2025 tax years are:

Individuals age 65 or older or legally blind by the end of tax year 2024 are entitled to an additional standard deduction of $1,950 if single or head of household. For 2024, the standard deduction for a dependent claimed on another taxpayer's return is $1,300 or the individual's earned income plus $450.

Itemized Deductions

Itemized deductions are expenses subtracted from adjusted gross income to lower income and tax bills. Individuals can itemize their deductions only if they don't claim the standard deduction. It makes financial sense to itemize if the total amount is greater than the standard deduction. Common itemized deductions include:

• Mortgage interest and discount points on the first $750,000 of secured mortgage debt
• 澳洲幸运5官方开奖结果体彩网:Charitable donations
• Unreimbursed 澳洲幸运5官方开奖结果体彩网:medical and dental expenses
• 澳洲幸运5官方开奖结果体彩网:State and local taxes (SALT)
• Certain gambling losses
• 澳洲幸运5官方开奖结果体彩网:Investment interest expenses
  

Other Deductions

• Student Loans: Taxpayers who have paid interest on qualifying student loans may be able to deduct up to $2,500 from their taxable income. This deduction can be taken whether the taxpayer takes the standard deduction or itemized deduction.
• Educator Expenses: This deduction allows educators to deduct up to $250 of unreimbursed expenses incurred for classroom supplies.
• Health Savings Account (HSA): A tax advantage for individuals with a high-deductible health plan. Contributions to an HSA are tax-deductible, reducing taxable income and providing individuals with savings for qualified medical expenses.

Tax Credits

Unlike tax deductions, which lower taxable income, 澳洲幸运5官方开奖结果体彩网:tax credits directly reduce the tax individuals owe. Suppose a taxpayer takes the standard deduction and their tax bill amounts to $3,000. If theℱ person is also eligible for a $1,000 tax credit, their final tax bill would 𒐪be $2,000.

This type of tax relief is often described as a tax incentive because it reimburses taxpayers for expenditures the government deems worthwhile. For example, the 澳洲幸运5官方开奖结果体彩网:Ameri🦋can Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) programs give tax credits to people who enroll in post-secondary education programs. Other popular tax credits include:

• 澳洲幸运5官方开奖结果体彩网:Earned income tax credit (EITC)
• 澳洲幸运5官方开奖结果体彩网:Child Tax Credit (CTC)
• 澳洲幸运5官方开奖结果体彩网:Saver's tax credit
• Health Insurance Marketplace澳洲幸运5官方开奖结果体彩网: premium tax credit

Tax Exclusions

Tax exclusions set aside certain types of income as non-taxable and reduce taxable income. For example, taxpayers can exclude child support payments, life insurance death benefits, and municipal bond income.

A common tax exclusion is employer-sponsored health insurance. Health insurance premiums are exempt from federal income and payroll taxes, and the portion of premiums paid is generally excluded from an individual's taxable income.

Those with a 澳洲幸运5官方开奖结果体彩网:capital gain from the sale of a primary residence home can 澳洲幸运5官方开奖结果体彩网:exclude up to $250,000 ($500,000 if married and filing jointly) of that gain from their income.

Debt Relief

The IRS Fresh Start program helps taxpayers catch up on back taxes and avoid tax liens, levies, wage garnishments, and jail time. The program streamlines the tax collection process. Individuals and businesses are eligible for the program which offers several options:

• Offer in compromise: This federal program helps settle IRS tax debt for less than the full amount owed.
• Currently Not Collectible (CNC): Under the CNC program, the IRS determines that gross monthly income is too low to reasonably pay what is owed without triggering financial hardship. The collection is halted and payments are deferred.
• Installment agreement: An IRS installment agreement lets individuals pay taxes they owe by making regular monthly payments over a specific, extended timeframe. Interest and penalties may accrue.
• Penalty abatement: The IRS may reduce or remove penalties due to reasonable causes including fire, natural disasters, and other disturbances; the death, serious illness, or incapacitation of the taxpayer or a member of their immediate family; or an inability to obtain tax-related records.
  

The Bottom Line

Tax relief is government programs or po𓆏licies that help lessen the burden of taxes for individuals. These are usually done through🐲 tax deductions, credits, and exclusions.