When addressing your tax concerns, you’ll come across terms like tax relief, tax forgiveness, and tax resolution and may wonder what each is referring to. While they might sound similar, they represent distinct sorts of tax solutions. Our tax resolution services in Louisiana can help you with your specific situation, and read on to learn the differences among these three terms.
TAX RELIEF
Tax relief refers to any program or incentive that reduces the amount of tax owed by an individual or business. Tax relief aims to lessen the financial burden that taxes can pose, especially for those in particular circumstances.
For instance, tax credits directly reduce the amount of tax you owe, dollar for dollar. If you qualify for a $1,000 tax credit, your tax bill decreases by that exact amount. Deductions, on the other hand, reduce your taxable income. So, if your taxable income is $50,000, and you have $10,000 in deductions, you would only be taxed on $40,000 of your income.
Another form of relief is tax exemptions. These are specific amounts that get subtracted from your gross income, based on specific criteria. Common exemptions can be seen in property taxes, where homeowners might get an exemption or have their obligation lessened based on age, disability, or veteran status.
TAX FORGIVENESS
Tax forgiveness is not about reducing the tax owed; instead, it’s about absolving or forgiving a portion of one’s tax liabilities. This usually comes into play when an individual cannot feasibly pay their tax dues, often due to financial hardships or unforeseen circumstances.
For instance, if someone owes $10,000 in back taxes but can only feasibly pay $4,000 without extreme financial distress, the Internal Revenue Service (IRS) might consider forgiving the remaining $6,000. This doesn’t mean the IRS takes such matters lightly. There’s a thorough examination of an individual’s financial situation, and only if the IRS deems it appropriate and is very sure the taxpayer cannot pay may tax forgiveness perhaps be granted.
TAX RESOLUTION
When we talk about tax resolution, we’re addressing the services and steps taken to resolve tax disputes or unpaid back taxes. This term encompasses a wide range of solutions, from setting up payment plans to negotiating settlements with the IRS.
If an individual or business cannot pay their tax liability all at once, the IRS may allow them to pay in installment agreements. This allows taxpayers to make monthly payments towards their debt. Another option is an offer in compromise. This is a negotiated settlement where the taxpayer agrees to pay a lump sum that’s less than the total owed, and in return, the IRS forgives the remaining debt.
Tax resolution also includes addressing disputes about how much tax is owed. If you disagree with the IRS about the amount due, there are channels available to dispute the claim, and working with Louisiana tax resolution services is the best way to get a favorable outcome when you’re presenting your case.
DIFFERENCES AT A GLANCE
While all three—tax relief, tax forgiveness, and tax resolution—offer avenues to assist taxpayers, they come into play in response to different needs and situations. Tax relief aims to lessen the overall tax burden through credits, deductions, and exemptions. Tax forgiveness is about waiving a part of the total tax liability for those in genuine financial distress. Meanwhile, tax resolution focuses on resolving tax disputes and finding feasible ways to pay back taxes.
MORE ABOUT TAX CREDITS
Tax credits provide direct reductions in the amount you owe. Two main types of tax credits exist: refundable and non-refundable.
Refundable tax credits mean that if the credit exceeds the amount of tax you owe, the surplus is returned to you as a refund. For instance, if you owe $800 in taxes but qualify for a $1,000 refundable credit, not only would you owe nothing, but you’d also receive a $200 refund.
Non-refundable credits, on the other hand, will not exceed your tax liability. Using the same figures, if you owe $800 and qualify for a $1,000 non-refundable credit, your tax owed would simply be reduced to zero without any surplus refund.
TAX DEDUCTIONS AND THEIR IMPACT
Deductions play a significant role in determining how much of your income is considered taxable. For taxpayers in Louisiana, for example, certain school expenses for your children are deductible. For federal taxes, possible deductions you might include could be for student loan interest, certain business expenses for the self-employed, and even specific medical expenses.
Understanding which deductions you’re eligible for can substantially reduce your taxable income. However, it’s crucial to always have the proper documentation to support any deductions you claim, to ensure they are valid and meet IRS and Louisiana Department of Revenue requirements.
TAX FORGIVENESS: A CLOSER LOOK
What qualifies someone for tax forgiveness? The IRS typically considers factors like unemployment, medical hardships, or other financial challenges when assessing eligibility.
To apply for tax forgiveness, you would need to furnish many details about your financial situation, including income statements, details of assets and liabilities, and evidence of your financial hardships. Once this information is provided, the IRS evaluates the application. If granted, it can substantially reduce your financial stress, though it’s essential to remember that the process is rigorous, and the majority of applications are not approved.
TAX RESOLUTION OPTIONS
While we’ve touched on some aspects of tax resolution, there’s more to be explored. For instance, what if you’re unaware of how much you owe? In such cases, you can request a transcript from the IRS to understand your tax liability better.
There’s also the concept of “currently not collectible” status. If the IRS determines that you cannot pay any of your tax debts without causing significant financial distress, they might classify your account as currently not collectible. This means the IRS temporarily halts attempts to collect the debt. However, the debt doesn’t vanish—it remains, and penalties and interest can still accrue. This status merely provides a reprieve.
Lastly, there’s always the option of seeking assistance from professionals who specialize in tax resolution. We can help you set up a workable solution and talk with the IRS on your behalf.
STATE-SPECIFIC TAX RESOLUTIONS
Just as federal taxes are complicated and have unique issues to deal with, Louisiana state taxes come with their own unique challenges and solutions. If you find yourself in a bind with state taxes, you’ll be dealing with the Louisiana Department of Revenue. Fortunately, Louisiana also offers payment plans and other solutions for those struggling to meet their tax obligations.
For businesses operating within Louisiana, understanding and complying with all state-specific tax codes is vital. There are incentives, credits, and potential pitfalls that businesses should be aware of to remain in good standing and benefit from available tax mitigation opportunities.
WORK WITH EXPERIENCED TAX RESOLUTION SERVICES
Though we’ve provided an overview of these tax concepts, every individual’s situation is unique. Missteps in handling tax issues can lead to many further complications down the line. With professional assistance, however, you can ensure that your tax matters are addressed accurately and efficiently, whether you’re an individual or trying to run a business.
Reach out to us at Geaux Tax Resolution right now. We have years of experience helping people deal with taxes, and we know how to talk with the IRS. Together, we can address and resolve your tax concerns.
