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Optima Newsletter – September 2022

Optima Newsletter - September

Real Estate Investments & Tax Implications

Real estate investments can be very complex, especially when it comes to tax reporting. However, there are general tax implications for common scenarios. Here, we will discuss some of these benefits:

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What is Payroll Tax?

Who is responsible for payroll taxes? CEO David King and Lead Tax Attorney Philip Hwang discuss everything you need to know regarding payroll taxes, including tips on what to do if you find yourself in trouble with the IRS.

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Is My Side Business a Hobby or a Small Business?

The desire or need for extra income has become increasingly prevalent. Side gigs have been a popular method of supplementing earnings but with this comes more reporting during tax time. When is a side business treated as a business in the tax world, and when is it treated as a hobby?

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Converting Your Home to a Rental Property

Real estate has long been considered one of the greatest long-term investments. Further, with the trend of minimalist living, many are turning their primary residences into rental properties. While turning your home to a rental property comes with passive income and tax benefits, it’s important to note the tax implications as well.

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Optima Newsletter – August: What is the Inflation Reduction Act?

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What is the Inflation Reduction Act?

From a pandemic to inflation, American taxpayers haven’t been able to catch a break since 2020. To combat the current state of the economy, Senate has passed a new bill with a ten-year plan called the Inflation Reduction Act.

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How Filing an Extension Affects Your Taxes

With a massive increase in taxpayers filing for an extension, what does this mean for people who owe? How does the extension deadline work? Hosts CEO David King and Lead Tax Attorney Philip Hwang discuss these details and more in this week’s episode.

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Tax Rules for an Airbnb or Vacation Rental

Renting out your property as an Airbnb can be a good way to secure residual income. While Airbnb may send you a tax form at the end of the year, it’s important to understand your tax responsibilities to check for errors and in the event you aren’t issued a form.

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Filing Taxes as Head of Household

Do you provide over half the cost of living for your household? You may want to consider filing your taxes as head of household, which could qualify you for a higher standard deduction. Head-of-household filing status also provides lower tax rates than filing as single or married and filing separately.

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Inflation Reduction Act Part II: IRS Spending

Inflation

Between the inflation, the pandemic, and the Inflation Reduction Act, now is a scary time to owe back taxes. The bill has passed, granting the IRS $80 billion dollars in funds for their activity. Consequently, we’re expecting a massive increase in the agency’s enforcement. Learn how the Inflation Reduction Act will affect IRS spending.

How will the Inflation Reduction Act will affect IRS spending?

Inflation Reduction Act funds will be added on to the annual money the IRS receives from Congress. This will be about $12.6 billion for 2022. Additionally, the 50% increase will be paid across four departments over the next ten years.

More than half of the funds are specifically going toward enforcement activity. IRS enforcement includes collecting back taxes, conducting criminal investigations, legal support, and monitoring digital assets. The other three areas that will also be supported include:

  • IRS operations- $25 billion for expenses such as rent, printing, postage, and telecommunications.
  • Customer service- $4.8 billion would be used for updating service technology. A callback service is in the talks.
  • Taxpayer assistance- $3 billion would go toward filing and account services or other taxpayer needs.

IRS Collections

With a large budget provided by the Inflation Reduction Act, the IRS is expecting to collect roughly $203 billion in federal tax revenue over the span of a decade. The net federal revenue would increase by more than $124 billion.

Government officials are also expecting the tax gap to close. So, the difference between the amount of taxes being collected and what taxpayers actually owe will be closer.

Tax Help for Taxpayers Who Owe

If you haven’t started the process of tax debt relief, it’s not too late. Preparing yourself with a team of professionals that are already working on your compliance could spare you from more penalties, stress, and possibly help you save some money. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

Inflation Reduction Act Part I: What is it?

Inflation Reduction Act Part I: What is it?

From a pandemic to inflation, American taxpayers haven’t been able to catch a break since 2020. To combat the current state of the economy, Senate has passed a new bill with a ten-year plan. The Inflation Reduction Act is being sent to President Biden’s desk, requesting nearly $80 billion to the IRS.

What is the Inflation Reduction Act?

While the funding will support the IRS, this will hopefully bring in more federal tax revenue to offset the cost of lowering prescription medicine and combating climate change. There are plans in motion to accomplish these goals, but federal funding to do so is lacking.

How will the IRS use these funds?

The IRS has been waiting for additional funding for years. In the last ten years, their activities have dwindled, and the agency’s budget decreased more than 15%. While IRS Commissioner Rettig has previously stated that the backlog will be complete by the end of 2022, there are still 11 million unprocessed tax returns.

The IRS will hire more staff and have access to more resources, such as legal representation for larger cases.

Cons

Naturally, more staff and resources for the IRS means more IRS enforcement. This act could trigger more audits for middle class businesses and individuals.

Outcome of the Inflation Reduction Act

Government officials have also stated that the goal is not to go after small businesses, but rather the large corporations and high net-worth individuals with high-end noncompliance.

Senior Fellow at the Urban-Brookings Tax Policy Center Janet Holzblatt was quoted as saying, “The goal should not only be to increase audits, but improve the productivity of audits. You want the IRS to select the businesses and people for audits who really have not been compliant.”

How the Inflation Reduction Act affects people who owe

With more IRS enforcement on the way, it’s better to be safe and get in compliance as soon as possible. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

Tax Rules for an Airbnb or Vacation Rental

Tax Rules for an Airbnb or Vacation Rental

Renting out your property as an Airbnb can be a good way to secure residual income. While Airbnb may send you a tax form at the end of the year. It’s important to understand your tax responsibilities to check for errors and in the event you aren’t issued a form.

Reporting Airbnb or Vacation Rental Income

The IRS requires that all payment processing companies report gross earnings for all users within the US. Companies like this include Venmo, PayPal, Airbnb, Etsy, and others. Airbnb will issue Form 1099-K if you meet certain income thresholds. Non-US citizens will be provided Form W-8. However, you still must report the income if you do not receive this form.

Withholding taxes from Airbnb payouts

You do have the option to withhold taxes from your Airbnb earnings. This is particularly recommended to avoid a large tax bill at the end of the year. You can also use a tax calculator to get an estimate of your earnings to save money for taxes.

Vacation Home, Rental, or Personal Use

You’ll need to determine whether your Airbnb property falls under the category of a vacation home, rental property, or personal use. This depends on several factors. One is how you use the property. Another is how often you rent it out. Finally, your intentions with the property are also considered.

Vacation Home

If you primarily use the property for personal vacations and occasionally rent it out to cover expenses or generate additional income, it might be considered a vacation home. Typically, vacation homes are used by the owner for personal enjoyment and rented out to others on a short-term basis.

Rental Property

What if your primary purpose for owning the property is to generate rental income? If you rent it out consistently throughout the year, it’s likely considered a rental property. In short, rental properties are typically managed as investment properties with the primary goal of generating rental income.

Personal Use

If you use the property exclusively for personal purposes and do not rent it out to others, it would be considered for personal use only. This could also include using the property as a second home for personal vacations. However, there is something called the Augusta Rule, also known as the “14-day rule.” This is a provision that allows homeowners to rent out their primary residence for up to 14 days each year without having to report the rental income on their tax return. The IRS requires you to pay taxes rental income for 15 days or more out of the year.

Tax Relief and Filing Assistance for Airbnb Hosts

As a host, you may qualify for tax relief. Our tax professionals will review your case to determine the best course of action for your compliance. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.  

Contact Us Today for a No-Obligation Free Consultation