Tax credits can help taxpayers by providing financial relief, but what is a tax credit, how do they work, and how do you claim them?

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Many taxpayers may have become familiar with what tax credits are and how they function, through an energy-efficient home purchase, a first child, or through caring for an elderly loved one. Yet what really are tax credits, and how do they differ from tax rebates and deductions?

What is a Tax Credit? 

Put simply, tax credits are refundable or non-refundable sums sent to a taxpayer through the IRS and the US Treasury.

All tax credits must be used to reduce your tax liability to the government. If the tax credit exceeds your tax liability, then it may be refunded if it is a refundable tax credit. failure to properly report your tax credits can lead to delinquent tax consequences for homeowners. It's essential to stay informed about any changes in tax regulations that could impact your eligibility. Additionally, seeking professional advice can help ensure that you navigate these complexities without incurring any penalties.

For example, the first, second, and upcoming third Economic Impact Payments (stimulus checks) are a tax rebate, or refund. This is money the government puts directly into the hands of taxpayers, without any obligation to use it towards their tax payments, even including outstanding tax debts. Taxpayers in California who qualify can find important information related to california middle class tax refund details on the official state website. This initiative is designed to provide financial relief and support to households, ensuring that middle-class families have the necessary resources during challenging economic times. It is crucial for residents to stay informed about eligibility requirements and deadlines to maximize their benefits.

Credits like the Earned Income Tax Credit, on the other hand, must first be used to pay for your taxes. Tax credits differ from deductions in that they can be claimed regardless of whether you itemized your deductions or not. They also differ in the sense that some tax credits can become refunds if they otherwise fully cover your tax liability.

Generally speaking, tax credits are meant to provide relief to taxpayers who may be facing economic hardship as a result of their circumstances. New parents, children with elderly dependents, low- to moderate-income households saving for a family member’s tuition, and those saving for retirement may be eligible for certain tax credits. Here are just a few examples of specific tax credits individuals can make use of to reduce their tax liability.

Types of Tax Credits for Individuals 

Tax credits for individuals are broken down by the IRS into five separate categories:

• • • Family tax credits
    • Homeowner tax credits
    • Healthcare-related tax credits
    • Education-related tax credits
    • Savings tax credits

Family and Dependent Credits

Common family credits include the:

• • • Earned Income Tax Credit
    • Child and Dependent Care Credit
    • Child Tax Credit
    • Credit for the Elderly or Disabled
    • Adoption Credit

Each tax credit has its own IRS publication to walk you through the eligibility process and help you determine, at a glance, whether you would be able to use the credit during tax season that year.

As a general rule, the IRS takes into consideration:

1. 1. 1. Your income,
      2. Whether you have qualified persons in your care, and
      3. Whether your earnings go towards covering care expenses.

The EITC is the only tax credit in this list that can be used even without children and dependents and is largely based on your income and financial circumstances.

Homeowner Credits

Homeowners may qualify for the:

• • • Residential Energy Efficient Property Credit
    • Low-Income Housing Credit

These credits apply to homeowners specifically, including those who own residential rental property as an investment vehicle.

Healthcare Credits

Healthcare credits include the:

• • • Premium Tax Credit under the Affordable Care Act
    • Health Coverage Tax Credit

The HCTC is exclusive to those under Trade Adjustment Assistance, or older taxpayers under the Pension Benefit Guaranty Corporation.

Eligibility for the Premium Tax Credit can be determined through the IRS’s own pre-qualification tool. It is still a good idea to speak with a tax professional about what tax credits you may qualify for.

Education Credits

Educational credits include the:

• • • American Opportunity Credit
    • Lifetime Learning Credit

There are also tuition-specific itemized deductions. To determine eligibility, you would need the enrollment status of the student in the family, your filing status and AGI, as well as how and from whose income expenses were paid.

Savings Credits

Different income-based and savings-based tax credits include the:

• • • Recovery Rebate Credit
    • Saver’s Credit
    • Foreign Tax Credit, and more

The Recovery Rebate Credit is a tax credit given to taxpayers who are eligible for the 2020 and 2021 Economic Impact Payments (tax rebates) but did not receive them. More accurately, the Economic Impact Payments were advance payments of the Recovery Rebate Credit. Taxpayers eligible for a stimulus check who did not receive one, or only received a partial payment, may be eligible for a Recovery Rebate Credit on their next tax bill.

The Saver’s Credit or Retirement Savings Contributions Credit is a tax credit given to qualifying taxpayers who contribute to an IRA (both Roth and traditional) or an employer-sponsored retirement plan. The credit amount is based on the taxpayer’s income, filing status, and contributions to the plan.

How to Claim a Tax Credit 

Tax credits are taken into account at the very end of the tax filing process, when you’re done calculating your total tax liability and know what you owe the government. It’s also essential to stay informed about payroll tax deadlines and extensions to avoid penalties. Missing these dates can lead to additional fees and complications down the line. By keeping a close eye on your obligations, you can ensure a smoother tax filing experience.

You then subtract so-called above-the-line deductions from your gross income, remove your standard or itemized deductions from your new adjusted gross income, and finally, consider the tax credits you are eligible to receive, with the correct amounts. These credits can help some taxpayers partially or even eliminate the year’s income tax liability.

If you make a mistake on calculating your tax credits, the IRS may correct it for you (and use the rest of the credit to cover the increased liability if your bill was raised). Otherwise, the IRS will send you a notice for your adjusted tax bill, as well as a deadline to cover the outstanding balance before penalties and interest accrue. Working with a professional can help you eliminate mistakes and avoid unexpected tax costs.

Nonrefundable tax credits can only be used to lower tax liability, and do not become cash should your liability hit zero. Refundable tax credits become tax refunds once your tax liability is paid, and at least a portion of the credit goes unused.

While the IRS provides a myriad of information on individual tax credits as well as qualifying tools to help you navigate each tax credit’s eligibility criteria, it helps to revisit the topic with a tax professional. At Rush Tax Resolution, we can help you prepare your income tax return and make sure that you don’t miss out on any applicable tax credits.

If you have found a mistake on tax returns already filed, do not panic. There are ways to fix these tax return mistakes.

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Whenever tax season begins, people rush to get their taxes done – one, so they’re out of the way, and second, to claim any refunds they may be eligible for. But if you happen to make a mistake on tax returns already filed, knowing what to look out for and how to prepare yourself for the potential consequences is important. Here is what you should know:

 

Do Not Panic

If you suspect that you have made a mistake on your tax returns, the last thing you should do is panic. Take a long, deep breath, and relax. In the vast majority of cases, minor mistakes and issues iron themselves out with incredibly few to no consequences.

If a mistake nets you a slight increase in your tax balance, the IRS will usually pull it out of any eligible refunds or credits first. The IRS will also inform you of any errors and suggested changes, and in many cases, will even go ahead and make those changes automatically (while giving you the chance to appeal them, and provide evidence to support your claim). Understanding the differences between 1099k and 1099misc is crucial for ensuring accurate reporting of your income. Each form has specific purposes and reporting thresholds, which can impact your overall tax liability. Familiarizing yourself with these distinctions will help you avoid potential pitfalls when filing your tax return.

In any case, the smartest thing to do is wait. Let the IRS process your tax return and come back to you with the information you need to decide whether you need to amend your return or not. To that end, the IRS can help you make an important decision.

 

Amending Taxes: Use the IRS’s Amended Return Tool 

The IRS provides taxpayers with an online interactive test needed to determine whether their return would have to be amended, and how. The IRS corrects many errors and mistakes themselves but may require taxpayers to amend their tax returns under specific circumstances. These include wishing to change one’s filing status (such as changing from a single or separate filing status to a joint filing status), even when no errors were made in the return itself.

When amending a tax return, you will need to gather some key information first.

• • 1. First, you will need the original return. The tax tool linked above is only relevant to Form 1040 and its variations. Do not mistake the tool for any sort of official tax advice.
  • 2. If you are still unsure about whether to amend your return, definitely contact a professional tax attorney and go over your situation with them, step-by-step.

 

Identifying Mistakes on Tax Returns

Another way to determine whether your return will need to be amended or addressed is knowing what the IRS typically flags as a mistake on tax returns. Tax returns can contain any number of potential errors, but the most common usually involve a missing signature or simple math error. Some common taxpayer mistakes when filling out and filing a return include:

1. 1. Incorrect SSN. Your Social Security Number on every tax return sent to the IRS should match the number provided on your Social Security card.
   2. Misspelled names. Even simple misspellings can cause errors in the system, as the name must match the number exactly.
   3. Wrong filing status. Married couples filing jointly shouldn’t report as filing separately, and vice versa. There are other filing statuses to be aware of as well, such as head of the household.
   4. Math that doesn’t add up. This is one of the most common mistakes, and usually the least severe. When the numbers don’t add up and the error isn’t egregious, the IRS will typically correct your return for you. It’s a bigger deal when it seems like the numbers were intentionally altered (even when they really weren’t).
   5. Claiming credits or deductions you aren’t entitled to. If a taxpayer takes into consideration a credit or refund they aren’t actually supposed to receive, this may result in an unexpected tax debt. A professional tax preparer can help you work through what credits and deductions you can safely claim.
   6. Forgetting to sign your return. All tax returns sent to the IRS must be signed, although there are certain exceptions.
   7. Forgetting to renew an ITIN. Individual tax identification numbers can expire. If yours has expired, you should have received a notice from the IRS telling you so. This means you should renew your ITIN.

For other potential errors or a mistake on tax returns filed, bring a copy of your return to a tax professional and discuss your situation in greater depth. Understanding tax lien implications can be crucial for your financial future. A tax lien may affect your credit score and limit your ability to secure loans or mortgages. It’s important to address any outstanding issues as soon as possible to mitigate the long-term effects on your financial health.

 

How to Fix Tax Return Mistakes

If you've noticed a mistake on your tax return, there are a number of ways to correct the information and avoid penalties with the IRS. These three options can help you amend your returns.

 

1. The IRS May Fix the Issue for You

In some cases, the IRS will not require an amended return because the issue will have already been addressed and fixed. This is most often the case when the only error you made was a simple math mistake.

If you were eligible for a refund, they may claim a portion of it to pay the outstanding balance. If you have instead become eligible for an additional refund, they may even give you back more tax dollars.

However, if you now owe the IRS, you will be given a window of time to send payment (or, in the case of a larger and more substantial debt, you will be given time to arrange a payment plan). Ignoring the IRS’s payment deadlines can result in penalties and ensuing collection actions.

 

2. Filing an Amended Tax Return

Amended tax returns can be best summarized by their three columns:

• • Column A includes the details of the original return.
  • Column B includes what adjustments are necessary, such as including or removing deductions, refunds, filing status, adjusted gross income, and so on.
  • Column C reports the correct amounts that should have been written in the first tax return.

Sadly, there is no e-filing option for amended returns. When you have finished filling out your Form 1040X, you must print it out. You will need a copy of the previously filed tax return (the one being amended), as well.

 

3. Hire a Reputable Tax Preparer

Tax preparation services, when offered by a reputable tax preparer with the necessary credentials (an IRS Preparer Tax Identification Number and history as a tax professional) can help taxpayers avoid simple clerical errors and major tax liabilities alike, so long as they keep track of their finances and communicate often with their tax expert.

Working with a reputable tax preparer can save you the headaches and worries associated with tax mistakes, the amendment process, and a potential tax debt (not to mention the IRS’s ensuing penalties and collection process).

 

How Rush Can Help You

Rush Tax Resolution will work with you to identify and amend tax return errors, help you catch and avoid return issues in the future, and prepare your taxes to not only mitigate the risk of a red flag or audit, but help ensure that you don’t miss out on any credits, deductions, or refunds that you might be eligible for.

By choosing us as your go-to tax professionals for tax debt resolution, return preparation, and tax advice, you are partnering with one of the most trusted and experienced tax teams in the country.

 

CONTACT RUSH TAX RESOLUTION TODAY

 

Why is it important to find a reputable tax preparer? Preparing tax returns after a stressful year, especially after COVID, is the last thing you want to do

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The IRS routinely requests taxpayers to keep up to date on constantly evolving rules surrounding potential tax refunds and deductions. These include required forms and considerations, but also understands that these requests might be a little out of scope for many who struggle to keep up amid dozens of other responsibilities and changes. This is why it’s legal to have someone else prepare a tax return for you – provided you do it right.

The most important piece of information to understand is that professional and reputable tax preparers are equipped with the means and permission to create an accurate tax return based on the information you provide, and as such, the actual accuracy of the return will remain your responsibility.

This means the IRS will come to you with questions about the return, even when it’s been prepared by someone else. As such, when choosing to work with a tax preparer, making sure you find a reputable tax preparer with experience is key. This is more important now than ever, in the face of many changes made to both individual and corporate taxes as a result of the coronavirus. Here is what you need to know.

Beware of Unrealistic Claims

The job of a reputable tax preparer is to take the information you provide them with and create an accurate and comprehensive individual or corporate tax return, while advising you on applicable refunds and deductions. They can’t work special magic or persuade the IRS to somehow charge you less than what you owe the government.

They may help you understand what refunds you are and are not eligible for based on the information given, but they will not find exclusive refunds for you, nor find refunds other tax preparers wouldn’t think of. When looking for a reputable tax preparer, look for consistency and accuracy, rather than exaggerated claims. 

 

Ask for Their PTIN!

All professional tax preparers must have a preparer tax identification number (PTIN). This number is provided on your tax return, alongside the preparer’s signature, when you file your tax return. This lets the IRS know that a professional prepared your return, and acts as an additional measure of verification, security, and recourse for taxpayers who have been scammed by abusive return preparers.

Note that a PTIN is also critical if you choose to allow your tax preparer to receive any and all correspondence from the IRS regarding your return, via the third-party authorization checkbox on IRS forms.

 

What Are Their Professional Qualifications and Credentials?

There are steps and requirements to becoming a professional reputable tax preparer, and the IRS takes fiduciary duty and taxpayer representation very seriously. Only attorneys, certified public accountants (CPAs), and enrolled agents can represent taxpayers before the IRS on matters such as tax returns, audits, collections, and so on.

This is important because should your tax preparer be asked to represent you in the case of an audit, they will need the proper credentials. Only preparers who are seasonally enrolled in the IRS Annual Filing Season Program have the limited right to represent taxpayers whose returns they prepared and signed, should they be audited.

If you want to make sure that your tax preparer can help advise and represent you should the IRS challenge or question your return, you will want a reputable tax preparer with years of experience in accounting, tax advice, and/or tax law.

 

How Are They Adjusting Returns for COVID?

Individual and employer tax returns will have to be adjusted for the coronavirus measures the Treasury and the IRS has put through, including PPP loan tax considerations (whether they’re tax-exempt, whether they can be used to pay business taxes, etc.), payroll taxes and applicable tax refunds and credits (such as the sick and family leave credit and the employee retention credit, and more.

Deadlines have also been pushed forward to buy taxpayers more time to understand their situation and figure out what does and doesn’t apply to them and their returns.

 

Who Will Be Preparing Your Tax Return?

When working with a company that offers tax preparation services as part of a larger suite of tax services, it pays to make sure that you know who will be responsible for your specific case – and whether they are qualified, as well.

You should be working closely with your preparer to ensure that the information you provide them is not only accurately used to prepare your tax return, but also safely transmitted and promptly deleted. Don’t work through a middleman! Reassure yourself that all sensitive information is transmitted safely either physically or via encryption, and not needlessly stored.

 

Never Sign a Blank Tax Form!

Be careful what documents you sign. The IRS warns of abusive practices in tax preparation services not just out of an overeager sense of caution, but because it is a real danger. Tax preparation fraudsters can cost you hundreds of thousands of dollars.

 

Check Their Reputation and Years of Experience

One of the great benefits of the internet is that it’s an unparalleled archiving tool. If you know where and how to look, you can dig deep on someone’s professional history and competence across years of service. Figure out through in-depth reviews, local testimonials, and real-life stories whether the tax preparation service you are considering is the right pick for you.

 

Make Sure You Know the Timeline

Tax preparation is not necessarily a simple process, but an experienced tax preparer should be able to tell you what they need, when they need it, how and where your information will be stored and for how long, and roughly when your return will be completed and back in your own hands.

 

Be Sure You Can Contact Them Thereafter

A reputable tax preparer will only create a return on the basis of multiple forms, total income, your previous deductions, tax credits you know you are eligible for, and other important information. But even then, the IRS may want to know more about your return and may ask you some questions thereafter. Understanding the itemized deduction advantages for taxpayers can significantly impact your tax situation. By maximizing these deductions, you can potentially lower your taxable income and save money. It's essential to discuss all relevant deductions with your tax preparer to ensure you take full advantage of available benefits. When considering the standard deduction advantages and disadvantages, it's important to weigh the potential tax savings against the opportunities lost by not itemizing. Many taxpayers may find that the simplicity of the standard deduction is appealing, especially if their eligible deductions are low. However, others with significant deductions may benefit more from itemizing, so it's crucial to evaluate your unique financial situation.

It’s a good idea to know what your tax preparer’s policy is on follow-up questions. What channels should you go through to best get a message to them should the IRS contact you about your prepared return.

 

Why Having a Reputable Tax Preparer is More Important Than Ever

We each have our own worries and responsibilities. Finding ways to simplify that list can help us focus on other tasks and reinvest precious time into the things that matter most to us. Preparing tax returns after a stressful and exceptional year, especially when given the changes and considerations to make due to COVID, is probably one of the last things on anyone’s mind. For those managing their finances, there are essential tax preparation tips for homeowners that can help streamline the process. Understanding the deductions available for mortgage interest and property taxes can significantly reduce the tax burden. Additionally, taking advantage of energy-efficient home improvements may provide further benefits when filing your return.

Yet that will not stop the IRS from imposing its deadlines on 2020 tax returns. Come tax season, the IRS will start penalizing taxpayers who haven’t prepared a return and haven’t filed for an extension either.

By working with Rush, you can assure yourself that you’re in good hands. Our credentialed preparers have decades of experience in helping taxpayers make sense of their taxes.

There are many circumstances which may impact an individual's ability to pay taxes. If you find yourself in this situation, you may be asking yourself "What if I can't pay my taxes? What do I do? Do I have options?". In this guide, we'll explore what can be done if you can't pay taxes.

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If you earn enough money to owe taxes, meeting your responsibilities as a taxpayer shouldn’t be a problem on paper. Yet unforeseen circumstances, a missed mail, a mistake on your tax returns, and a dozen other potential hiccups can lead to a larger tax bill at the end of the year than you might have expected; and sometimes, a tax debt you can’t pay.

This is especially true for those hit hardest by the pandemic, as well as other personal tragedies. While the IRS has offered relief for delinquent tax payments and debts, many taxpayers are entering the new year in debt to the IRS.

 

What Should You Do If You Can't Pay Taxes?

If you can’t  your taxes, don’t panic. There are ways to resolve your debt. Depending on your circumstances and financial situation, a tax debt to the IRS can be negotiated, paid down over time, or delayed for months and years.

Here are five options if you are struggling to pay your taxes.

 

Paying Your Taxes Later

The first misconception is that when the IRS sends you a bill for any overdue taxes, they expect you to pay immediately. The truth is that the IRS expects a response immediately. You don’t need to pay off the entire debt, but you do need to act as soon as possible, such as starting a short-term or long-term payment plan.

If the IRS doesn’t hear back from you within 10 days after you’ve received their Notice of Deficiency, your tax debt may be hit with additional penalties. These can be avoided by beginning a payment plan you can afford. Failing to address your tax obligations can lead to serious financial repercussions. The consequences of not filing taxes can include not only hefty fines but also interest accumulating on your unpaid balance. Additionally, unresolved tax issues may result in the IRS filing a substitute return on your behalf, which typically does not work in your favor.

Short-term payment plans involve several lump sum payments made within 120 days. Payment plants exceeding 120 days in length usually involve monthly installment payments. Setup fees for these payment plans differ, depending on whether you’re filing electronically or not, and whether you’ve set your plan up to include automatic payments (from a connected account) or not.

If the IRS has already began taking action against you, through liens and levies, then beginning a payment plan can be a good first step towards stopping these collection efforts. The IRS does not always require you to pay off your entire debt before they lift a federal tax lien, for example. There are other eligibility requirements when seeking an end to IRS collection efforts, like being up to date with your tax returns and estimated payments.

 

Negotiating for a Lower Tax Debt

When faced with dire circumstances, the average taxpayer may not be able to pay off their entire debt in a reasonable time frame. If you can't pay your taxes within a year or two of regular monthly payments, you may want to consider other alternatives – such as negotiating for a reduced tax debt, through an offer in compromise. An offer in compromise is a payment plan where you suggest what you can pay, and it’s up to the IRS to accept the offer.

These can be complex and difficult to negotiate, as the IRS can be picky about accepting offers in compromise and will do its own research to determine if your offer matches up with what they think you can pay. The IRS offers its own online pre-qualifier tool to help taxpayers figure out their eligibility. However, your best bet lies in talking to a tax professional.

 

Arguing Financial Hardship

If you can't pay your taxes, the IRS will utilize different collection actions to coerce payment. These can be financially devastating, and include federal tax liens, asset and property seizures (levies), and wage garnishment.

But if you’re in no position to offer up anything to the government, arguing for a currently not collectible status will protect you from any collection actions. But your debt will continue to accumulate.

This is a temporary measure to help you get back on your feet without the IRS applying direct pressure on your finances, and it can help you get out of wage garnishments or avoid a tax levy. However, it does not lift a tax lien.

 

Filing for Bankruptcy as Tax Relief

Another last resort when payment plans are not an option, is bankruptcy. While bankruptcy can absolve most debts, it cannot wipe out a federal tax debt automatically. If you file for Chapter 7 bankruptcy, for example, you may potentially have the option of discharging your federal tax debt, if you’re eligible. Furthermore, only income tax debt can potentially be eliminated through bankruptcy.

The IRS also requires that your debt is no older than three years old, that you file for bankruptcy within 240 days of the tax assessment date, and that you continue to make estimated payments and file your returns on time for the duration of the bankruptcy, and thereafter. Another requirement is that you file your returns for the four years prior to the bankruptcy, if you haven’t already.

The rules change somewhat for Chapter 13 bankruptcies. Either way, this process can be complicated and may require the help of a professional. If you don’t take proper action, your bankruptcy will not wipe out your debt, and you will continue to owe the government after the proceedings have ended.

It should also be noted that while a bankruptcy proceeding protects you from IRS collection efforts, it also stops the clock on your debt – meaning it will take longer for your tax debt to expire.

 

The Benefits of Professional Help If You Can't Pay Your Taxes

Dealing with taxes can be difficult, especially when money is tight, and you have plenty of other things to worry about. The IRS often updates its rules and provides taxpayers with plenty of information to make sense of their situation – but it isn’t easy to keep track of every new change and discern what is and isn’t relevant to you and your circumstances.

By working with Rush Tax Resolution, you can be sure that your tax debt will be resolved in the most effective manner possible. Our services help taxpayers reduce their debt, avoid unnecessary penalties and interest, and navigate the difficult waters of the IRS’s tax rulebook.

 

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