Unfolding Tax Credits and Tax Incentives: The Ins and Outs of Tax Preparation Services in the USA

Tax preparation is the procedure of preparing tax returns for a person, usually for compensation. The taxpayer may have done it with or without the help of tax preparation software and online services.  Licensed professionals, like attorneys, certified public accountants, or any unlicensed tax preparation business, can also offer tax preparation services. United States income tax laws are comparatively complicated, leading many taxpayers to seek outside assistance with their taxes. Commercial tax preparation companies lobbied against the IRS (Internal Revenue Service), creating their own free online tax filing system. 

The Tax Filing Simplification Act of 2022 requires the IRS to give people easy access to wage and other data needed to file a tax return that the agency already has. Such systems of pre-filing tax returns are not new, and this legislation would enable taxpayers with simple returns to have the government completely prepare their tax returns for free. Many companies and local businesses in the USA offer tax preparation services. Some of the most well-known service providers include Jackson Hewitt, H&R Block, and Liberty Tax Service.

This article by The Silicon Journal gives a deeper insight into the intertwined relationship between tax credits and incentives as a part of the US government's taxation policy. It also enlists the topmost tax preparation services companies in the country that have made tax paying and filing easier.

What Are Tax Credits and How Do They Work?

According to the IRS, a tax credit is a dollar-for-dollar amount that taxpayers claim on their tax return to reduce the income tax they owe. Any eligible taxpayer can use tax credits to reduce their tax bill and increase their refund. On the other hand, the Earned Income Tax Credit (EITC) helps low-to-moderate-income workers and families in the US get a tax break. They can even use the credit to minimize the owed taxes if they qualify, and can even increase their refund.

Refundable and Non-Refundable Tax Credits

Taxpayers with a tax bill less than the amount of a refundable credit can get the difference back in their refund. Some taxpayers who are not required to file for tax return may still claim their refundable tax credits. Conversely, not all tax credits are refundable. For nonrefundable credits, the taxpayer would not get any leftover amount back as a refund if the taxpayer’s liability is zero. Taxpayers must carefully review current tax credits when preparing their federal tax return.

Exploring Child Tax Credit & Child and Dependent Care Tax Credit

This tax credit is non-refundable, and it reduces the taxpayer’s tax liability. To be qualified, the child must be a US citizen and under the age of 17, must have a social security number, and must be claimed as a dependent on the taxpayer’s return. Qualifying children can be fostered, or extended family members or dependents not eligible for the Child Tax Credit may qualify a taxpayer for the credit for other dependents. Taxpayers who hire someone to care for their child, dependent, or spouse to continue working or looking for work may reduce their taxes by claiming the Child and Dependent Care Credit.    

Knowing Tax Incentives

A tax incentive is a part of governmental taxation policy in the US designed to incentivize a specific economic activity through the reduction of tax payments. Private sector businesses making structural adaptations or other accommodations for employers with disabilities are eligible for tax incentives. Among all the incentives, federal employers offer two distinct tax incentives.

Work Opportunity Tax Credit

This credit is for employers to hire individuals from certain target groups. Using Form 8850 for the pre-screen purpose and writing to the state workforce agency of the state to certify an individual for purposes of qualifying for the work opportunity credit.

Disabled Access Credit

This incentive provides a non-refundable credit of up to $5,000 for small businesses that provide access to persons with disabilities. A small business earning $1 million or less or that had no more than 30 full-time employees in the previous year is eligible to take the credit every year they incur access expenditures.

Relationship Between Tax Credits and Tax Incentives

In terms of general business credit, various business credits provide special incentives for achieving certain economic objectives. These credits combine into one ‘general business credit’ to limit each credit’s allowance for the tax year. Tax incentives and credits can be used to reduce the amount of tax due to governments and tax authorities, while deductions can reduce your amount of taxable income.    

The Four Most Reputable Tax Preparation Service Providers in the US

After knowing the ins and outs of tax preparation services in the country, here are the four most renowned tax preparation service providers in the USA. Let’s have a look at them-

Jackson Hewitt

Jackson Hewitt Tax Service Inc. is one of the largest tax-preparation service providers in the USA. Jackson is responsible for serving over 2 million state, federal, and local income-tax returns each year. The company has designed expert tax preparation services that suit the specific filing needs of taxpayers, harnessing more than 40 years of taxing excellence for American workers.   

H&R Block

This leading American tax preparation company helps taxpayers with their tax process. Approximately 55% of filers qualify for H&R Block Online Free Edition. Their comprehensive suite of services allows taxpayers to file taxes on their own with expert help. 

Liberty Tax Service

From tax preparation to income tax filing, Liberty Tax Service is known for its waivers. It is a leading retail tax preparation company with over 4,000 offices in the US and Canada. 

Dimov Tax & CPA Services

Dimov Tax & CPA Services is a full-service accounting firm that offers accounting, tax, audit, representation, and tax preparation services. Their tailored tax solutions are served for individuals and businesses across the USA and worldwide.