Tax Relief

Tax relief is a relief from that thing we all loathe … taxes. A necessary evil, some feel they should be lowered, others raised, but who honestly enjoys paying taxes? Nobody, that’s who, and the relief part of tax relief is a relief to everyone looking for some sweet relief!

At its core, tax relief intends to reduce the tax liability of a business or individual. For example, if one was hit hard by a hurricane, the federal government or a state might provide a certain geographic area with a tax relief plan thus allowing said families to devote more of their money to getting themselves back on their feet again. Environmental causes have also been known to receive tax relief via tax credits for folks who purchase energy-efficient appliances or windows in the home.

Tax relief can arrive financially in many different forms. The most popular is through a tax deduction. For example, for someone making $75,000 per year within the 25% marginal tax bracket, said person will pay 25% x $75,000 which equals $18,750 in taxes. If that person receives a deduction in the amount of say $8,000 via some relief program, then the income will be taxed on $75,000 minus $8,000, which is much more favorable.

A tax credit on the other hand works the opposite way. Say that same someone owes $18,750 in taxes to the government (as above) and is eligible for a tax credit of $1,750. That amount is subtracted from the $18,750 thus lowering the amount that person pays in taxes down to $18,000. A tax exclusion is tax relief in the form of excluding a certain amount that is filed in the gross income tax reports to the IRS. Workers who receive “employer paid” health insurance for example will be excluded from paying taxes on those policies and the employers can also deduct the cost as an expense of the business.

Expatriates (U.S. citizens who work abroad) can also be provided with tax relief. The Foreign Earned Income Exclusion (FEIE) allows expatriates to reduce their income that will in turn be subject to taxes back in the States. If you’re a student, or the parent of a student, this next area of tax relief is going to certainly come as a relief – student loans. The student loan forgiveness program with the IRS essentially erases debt, but the financial situation must be dire to qualify for this type of relief. Especially nowadays with so much money having been lent for student loans, the amount of families applying for student loan relief has skyrocketed. This is relief that is in high demand.

The good news – relief awaits. The bad news – everyone wants it. Good luck with your relief plans!