Tax Relief – Understanding the Types Available and How it Works
In the United States, tax relief refers to any reduction in the amount of taxes owed by individuals and businesses, either through a reduction in the tax rate or by offering tax credits, deductions, or exemptions. The Federal government and individual states can both provide tax relief measures.
There are several tax relief measures available in the US, including:
Refundable and non-refundable tax credits that can reduce the amount of taxes owed, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).
Reduction in taxable income, such as the mortgage interest deduction or the charitable contribution deduction.
Complete exclusion of certain types of income or assets from taxation, such as exemptions for retirement account contributions or certain types of investment income.
Tax rate reductions:
Lowering of tax rates for individuals and businesses, resulting in a reduced amount of taxes owed.
The US government can also provide temporary tax relief measures in response to specific economic conditions, such as a recession, to provide economic stimulus and support. Click over here to understand it in details
How it may work for you?
Tax relief works by reducing the amount of taxes owed by individuals and businesses. This can be achieved through a variety of mechanisms including:
Tax credits are dollar-for-dollar reduction in the amount of taxes owed, and they can either be refundable or non-refundable. Refundable tax credits, such as the Earned Income Tax Credit (EITC), can result in a refund to the taxpayer even if they owe no taxes. Non-refundable tax credits, such as the Child Tax Credit (CTC), can only reduce the amount of taxes owed to zero.
Tax deductions reduce the amount of taxable income, which in turn reduces the amount of taxes owed. For example, the mortgage interest deduction allows homeowners to deduct the amount of interest they pay on their mortgage, reducing their taxable income.
Tax exemptions completely exclude certain types of income or assets from taxation. For example, contributions to a 401(k) retirement account are exempt from taxation until the funds are withdrawn.
Tax rate reductions:
Tax rate reductions lower the tax rate applied to taxable income, resulting in a lower amount of taxes owed.