Taxpayers can opt out of Child Tax Credit monthly payments

The expanded child tax credit was established in the American Rescue Plan which was signed into law in March. The maximum enhanced child credit is $3,600 for children younger than the age of 6 and $3,000 for those between the ages of 6 and 17.

The credit will be issued out as an advance on 2021 taxes in monthly installments. Households that receive the full amount of these payments should expect to get $300 per month for children under the age of 6 and $250 for those between the ages of 6 and 17.

Who qualifies for the full credit?

The full credit is available for married couples who filed their taxes jointly, have children and an adjusted gross income of less than $150,000, or $75,000 for individuals. The credit is set to phase out for taxpayers who make a higher income. Individuals who earn $95,000 and married couples earning $170,000 filing jointly will be disqualified from receiving the credit.

Taxpayers that make too high of an income to receive the expanded child tax credit may still be eligible for the regular child tax credit, which is $2,000 per child under the age of 17 for families making less than $200,00 annually, or $400,000 for married couples.

How to qualify for the new child tax credit

For the most part, eligible families will not have to do anything at the moment. The IRS will utilize 2020 tax returns to determine eligibility or 2019 returns for those who have yet to file their taxes. The IRS began sending out 36 million letters to families that may be eligible to receive both the credit and the monthly payments.

Families that typically do not file their taxes because their income does not meet the income threshold standards in order to file a return but have children in their household who are eligible, can now sign up for the benefit.

How will payments be sent?

Taxpayers who opted for direct deposit and placed their banking information on their tax return in order to receive their tax refund can expect to also receive the monthly child tax credit via direct deposit. For those who do not have direct deposit, the IRS will send out paper checks and debit cards to some families.

Can I opt out? What will happen?

Families that do not want to receive the monthly payments for the credit, can opt out through the IRS portal. Once a person opts out of the payments, they will no longer get the monthly amounts but will still receive the full credit they are eligible for when they file their 2021 taxes.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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The IRS issues a temporary increase in Meal Deductions for Businesses

The IRS recently announced that they will allow a temporary increase in the allowable percentage that a business is able to deduct for both food and drink expenses at restaurants. This could be beneficial for some truckers that take these deductions out on their yearly return.

The temporary increase began on April 8, and both the IRS and the U.S. Treasury Department issued guidance related to the Taxpayer Certainty and Disaster Relief Act of 2020. The Act provides a temporary exception to the 50% limit on the amount that businesses are able to deduct for food and beverages.

This new temporary exception now allows a 100% deduction for food and beverages from restaurants. Beginning January 1, 2020, through December 31, 2022, businesses will have the option to claim 100% of their food or beverage expenses paid to restaurants as long as the business owner or the employee of the business is present when food or beverages are provided, and the expenses are not extravagant. This new guidance has modified Section 274 (n)(2) for meal and entertainment expenses.

Although this new guidance changes one section of the rules, it does not address the section that covers travel expenses. Currently, a large number of requests have been made to both the IRS and the Small Business Administration to provide further clarification on what additional expenses may be deductible for businesses.

For the time being, businesses or individuals that are planning on taking the deduction should save all their meal receipts and speak with a tax professional to discuss if claiming 100% of their meal receipts or claiming the standard per diem deduction would get them the best return when filing. It is important to note that owners and operators are not eligible to claim 100% of their meals and the per diem.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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IRS Adds New Guidance about Form 1040 Cryptocurrency

The IRS released updated guidance for their Frequently Asked Questions section on their website which states, “If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question.”

Taxpayers who are unsure on how they should report their cryptocurrency on their taxes should seek assistance from tax professionals in order to ensure that they are filing their tax return correctly. Here is everything taxpayers need to know before completing their taxes.

Payment for Services – Taxpayers who receive cryptocurrency as a form of payment for providing services is considered a type of self-employment. Income from self-employment is usually reported on an individual’s 1040 using a Schedule C which often results in self-employment tax in addition to income tax.

Gifts –Gifted cryptocurrency is not considered taxable for the recipient. The giver of a gift may need to complete a gift tax return and possibly pay a gift tax. The IRS will also monitor for gifts that are disguised as taxable compensation or payment for other property or assets.

Airdrops – Airdrops are viewed by the IRS as found money and is considered reportable and taxable as income. Drops of cryptocurrency that appear in your account or wallet are also taxable events and will need to be reported on your tax return.

Cryptocurrency trades are reported the same way stocks are—by using Form 8949 and Schedule D with a Form 1040. Short-term gains are taxed as ordinary income. Long-term gains get the more favorable capital gains tax rates. The IRS does not expect taxpayers to report every single stock purchase they make at the time if they do not sell or otherwise dispose of it.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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How long does the IRS have to collect on your unpaid tax debt?

The IRS can collect on any outstanding tax liabilities for up to ten years from the filing date – and in some cases even longer. Join Optima CEO David King and Lead Tax Attorney Philip Hwang as they review what you can expect if you find yourself with aging unpaid IRS tax debt and offer tips on what you should do next.

Received an IRS notice? Download our free Optima® TAX APP to get your IRS notice analyzed today.

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What to expect when dealing with the IRS

Individuals who do not pay their tax bill after filing their tax return will receive a bill for the amount they owe. Once the IRS sends a bill to a taxpayer, the collection process will begin and will continue until the account has been paid in full or the IRS is no longer able to legally collect on the tax debt; for example, the time or period for collections expires.

Taxpayers will receive a letter from the IRS that will explain the balance due and details on how to pay their balance in full to remain compliant with the IRS. The letter will also include the amount of tax, plus any penalties and interest accrued on an unpaid balance from the date the tax was due.

Any unpaid balance is subject to interest that compounds daily in addition to a monthly late payment penalty. The IRS recommends taxpayers pay their tax liability in full as soon as they can in order to minimize both the penalties and interest. Taxpayers also have the option to consider other financial avenues with the IRS such as obtaining a cash advance on their credit card or getting a bank loan. The rate and any applicable fees your credit card company or bank charges may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. If you cannot pay in full, you should send in as much as you can with the notice and explore other payment arrangements.

Individuals who are unable to pay their tax balance in full right away, may qualify for a payment plan with the IRS. One option is a short-term payment plan of up to 180 days, available to individuals who owe up to $100,000. Taxpayers who cannot pay their tax liability in full within the 180 days, may qualify to pay monthly through an installment agreement.

When setting up an installment agreement, taxpayers should be aware that there is a user fee that they will need to pay before the agreement is actually set up. For low-income taxpayers, the user fee could potentially be reduced or waived altogether if certain conditions apply. Taxpayers should be aware that interest and late payment penalties will continue to accrue while they make installment payments.

Taxpayers who cannot afford to make monthly installment agreement payments can apply for an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves a taxpayer’s tax liability by payment of an agreed upon reduced amount. Before an offer can be considered, you must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Optima Tax Relief Partners with VITA to Provide Free Tax Filing Assistance

Optima Tax Relief recently announced that they are teaming up with the IRS to provide assistance to low-income residents and other members of their surrounding community with free tax preparation services. Fifty members of Optima’s staff registered with the United Way of Orange County, California and Mesa, Arizona to participate in the Volunteer Income Tax Assistance (VITA) program, which was launched by the IRS to provide free tax preparation services to those such as:

·        Persons with disabilities

·        Limited English-speaking taxpayers

·        Individuals who generally make $57,000 or less per year

Christian Giandomenico, Optima’s Director of Tax Preparation and one of the staff members who volunteered for the program, said that it is the inclusiveness of the program that led her to sign up. “Quality tax preparation should be available to everyone, regardless of income or background,” she said. “Taxes can be complicated, and I couldn’t stand the thought that some people are left trying to navigate through complex situations without any assistance, all because they feel like they can’t afford it. I was inspired to know that the program serves over 3 million taxpayers annually, putting over $4 billion back into low-income communities. The first day I showed up and saw the various demographics; from students, the elderly, ESL individuals…I realized the level of impact this translated into. It was such an incredible feeling of fulfillment.”

The free tax help offered by the VITA program is particularly beneficial for those who are 60 years of age and older, as it specializes in questions about pensions and other retirement-related issues that are unique to seniors. Many of the community members who would qualify for the program are retired individuals associated with non-profit organizations that receive grants from the IRS.

Giandomenico found the specialized support for seniors to be the most rewarding part of the program. “I had never realized how many seniors try to do their taxes on their own. They’ve been filing their taxes the same way for decades, and now that they’ve retired, they aren’t always aware of what has changed or what new write-offs they qualify for,” she said. “The experience was very heartwarming; we were told ‘Thank You’ countless times from individuals coming in to pick up their returns or needed assistance filling out tax forms. Some indicated, ‘you don’t know how much this helps me year over year’. Without this program, they would have never had their taxes professionally prepared.”

Optima CEO David King wasn’t surprised when he was informed of how many members of his staff volunteered for the program. “We hire for character in all facets of the company, and then reinforce that regularly with all of our employees. Seeing all those members of our staff volunteering for this program really underscores the kind of quality people we have in the Optima family.”

By partnering with the IRS, the VITA program is able to offer reliable, trustworthy tax filing services for free. Optima’s volunteers are all licensed tax preparers that are up to date with both federal tax laws and any new IRS updates making them ideal candidates for the VITA program. The volunteers have also gone through extensive IRS training to maintain the privacy and confidentiality of all taxpayer information.

“Every year, low-income residents miss out on millions of dollars in federal and California tax refunds and credits that they are entitled to and deserve. Our OC Free Tax Prep program helps these hard-working people keep more of their earnings,” said Susan B. Parks, President and CEO of Orange County United Way. “Many of these families already face financial struggles and the pandemic has caused even greater strain. These tax refunds and credits will provide a much-needed boost to help pay for rent, food or medical expenses.”

Optima Tax Preparer Manager and VITA program participant Anne Tran said she would do the program again in the future if given the opportunity.  “I’d do it every year if I could,” she said.  “I love helping people and volunteering. That’s why I joined the VITA team. Most of the people I worked with were getting a professional tax return done for the first time.  It was wonderful getting to know them and to help them get the biggest return possible. I met an elderly lady whose family dropped her off at the VITA office with the intention to pick her up in a couple of hours. After her family left, she found out she forgot to bring a critical document. I offered to drive her home to get it so we could complete her tax filing. She was so happy and kept saying ‘thank you’ the whole time.  It was such a rewarding experience.”

Optima’s top priority is to continue working alongside the IRS to assist both their community and individuals across the U.S. by resolving unmanageable tax burdens and helping their clients achieve a better financial future.

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Should you Electronically File your Taxes?

Taxpayers have two options when it comes to submitting their tax return to the IRS: electronically or by mail. Before filing your taxes, a taxpayer should review the pros and cons of both methods. For example, e-filing is known to be safer, faster, and much more convenient than filing a paper tax return. Choosing to mail a paper return to the IRS is cheaper but takes much longer to process and for you to receive your tax refund.

E-filing a tax return

As of 2020, approximately 90% of taxpayers chose to e-file their tax returns. One of the biggest benefits of going with electronic filing is that taxpayers received an immediate confirmation from the IRS that their tax return has been received.

If the IRS finds any errors on an individual’s tax return, the IRS will mail out a rejection notice, typically within 24 hours of attempting to process and file the return. The IRS notice sent to taxpayers will indicate what triggered it to be sent out and how they can fix their error.

E-filing your tax return means your tax return will be processed much quicker and that you will receive your tax refund faster.

Although there are many pros to e-filing your tax return, taxpayers should be aware that there are also some disadvantages. Tax filers should be aware that outages or glitches may occur when using the internet to file your tax return.

E-filing supports most tax situations, however, there are certain scenarios it does not support. For example, you cannot:

  • File a return for someone who has passed away.
  • Attach images or PDFs to your return.
  • File before the IRS opens e-filing for the year.

Paper filing your tax return

There are some benefits when it comes to filing a paper tax return. For example, if an individual needs to file a tax return for someone who passed away, the IRS will require you to file a paper return. Paper filing also allows you to print and submit images or PDFs to supplement your tax return.

Taxpayers should be aware of the disadvantages that comes with mailing a tax return to the IRS. Data transcribers at the IRS are required to manually input taxpayer information for every paper return they receive. This could result in errors that may require you to file an amended return.

Paper filers may not realize that they have to manually sign the paper return or the IRS will not accept it. Novice paper filers often forget this fact, leading to even longer delays than what is normal with a paper return.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Common Errors Taxpayers should Avoid when Filing their Taxes

Filing a tax return electronically can help reduce mistakes since tax software notifies a taxpayer if there are any math issues, flags common errors, and prompts taxpayers for missing information. Using a tax software can also help a taxpayer claim valuable credits and deductions.

Using a reputable tax preparer, certified public accountants, enrolled agents, or other knowledgeable tax professionals can help an individual prevent making avoidable errors.

The IRS recommends that taxpayers file electronically and opt for the direct deposit to get their refund much faster and avoid any pandemic-related paper delays.

Here are some common errors taxpayers should avoid when preparing their tax return:

  • Missing or inaccurate Social Security numbers (SSN). Each SSN on a tax return should appear exactly as printed on the Social Security card.
  • Misspelled names. A name listed on a tax return should match the name on that person’s Social Security card.
  • Math errors. Math errors are one of the most common errors taxpayers make on their return. Taxpayers should always take the time to double-check the math on their return before submitting it over to the IRS.
  • Credits or deductions. Taxpayers should look into credits to see if they are eligible to place them on their tax return. Some of the most common credits are the earned income tax credit, child and dependent care credit, and recovery rebate credit. Individuals eligible for the recovery rebate credit and did not receive their payment, can claim the recovery rebate credit when they file their taxes.
  • Incorrect bank account. Taxpayers who are due a refund should choose direct deposit. This is the fastest way for a taxpayer to get their money. However, taxpayers need to make sure they use the correct routing and account numbers on their tax return.
  • Unsigned forms. An unsigned tax return is considered invalid and will not be accepted by the IRS. In most cases, both spouses must sign a joint return. Exceptions may apply for members of the armed forces or other taxpayers who have a valid power of attorney. Taxpayers can avoid this error by filing their return electronically and digitally signing it before sending it to the IRS.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

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Tips for Hiring a Tax Resolution Firm

IRS issues can be complicated to solve on your own. Understandably, many people look to find a professional tax firm for help.  But some tax companies are better qualified than others. Optima CEO David King and Lead Tax Attorney Philip Hwang provide helpful tips on how to find a truly qualified tax firm and some red flags taxpayers should look out for.

Got an IRS Notice? Get a FREE Risk Review with our Optima® TAX APP with Notice Analyzer

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Taxpayers could Receive a Tax Break on Unemployment Benefits

The recently passed $1.9 trillion American Rescue Plan allows qualifying taxpayers who received unemployment during the 2020 tax year to have the first $10,200 of those benefits exempt from their federal income taxes. 

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The IRS has Resumed its U.S. Passport Revocation Program

The IRS recently announced that they are resuming their Passport Revocation Program. Optima CEO David King and Lead Tax Attorney Philip Hwang discuss how this program can cause delinquent taxpayers to lose their passport until they become compliant with the IRS. 

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Unemployment Fraud could affect Individuals this Tax Season

Due to the ongoing pandemic, millions of Americans lost their jobs, many of whom received unemployment benefits from their state agency. As taxpayers start to file their taxes, they need to be aware of scammers looking to file fraudulent unemployment benefits and steal their personal information.

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Filing your Taxes may be much harder this year

The IRS granted taxpayers additional time to file their federal tax returns due to COVID-19 and new stimulus provisions that made the current tax filing season much more complex compared to prior years. With so many new tax law changes, taxpayers should be more cautious when filing their taxes.

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