IRS Sets Guidelines Based off Trump’s New Payroll Tax

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.

The IRS has received guidance on President Trump’s payroll tax deferral that puts employers on the hook to collect any taxes that are due after the holiday ends. 

The executive order was signed by the president on August 8, 2020. President Trump called for a deferral of the employee’s portion of the payroll tax that was set from September 1st until the end of the 2020 year. 

As of right now, both employees and employers share the responsibility for a 12.4% levy that funds Social Security and a 2.9% tax support to Medicare. 

The executive order put into place by President Trump applies specifically to Social Security tax and would directly affect workers who receive a bi-weekly pay that is less than $4,000 on a pretax basis. 

The IRS released a three page notice that postpones the due date for these taxes until April 30, 2021. Once the deadline passes, penalties, interest and “additions to tax” will begin to accrue.

Since there is no guarantee that the employee’s share of deferred taxes will be forgiven, employers may not want that responsibility. 

Employers are typically responsible for withholding and depositing payroll tax. If an employer chooses to not withhold employees shared taxes, the IRS can’t collect and the worker is held responsible for the tax.

Before the release of President Trump’s order, industry groups were concerned that employees could possibly be left owing deferred taxes next year if they receive extra cash in their paycheck. 

With the new guidance put into place by the IRS, many questions are still left as to how the IRS will get its share of deferred payroll taxes and the steps employees will have to take in order to make arrangements with workers to collect the money. 

If you need tax help, contact us for a free consultation.

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Everything You Need to Know about a Tax Exemption

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.

One common goal that nearly all Americans can agree on is that they either want to reduce the amount of money that they owe on their tax bill or eliminate it altogether. A tax exemption comes in many forms and the good news is, is that many taxpayers are entitled to an exemption on their tax return that can help lower any tax liability they may owe. 

An exemption works the same way any deduction might work. Federal and state governments frequently exempt organizations from income tax entirely should they serve the public. Charities and religious organizations would also fall under exempt organizations as well. Here’s everything you need to know about tax exemptions and if you qualify for it.

Personal exemptions

If you are not claimed as a dependent on another taxpayer’s tax return, then you have the ability to claim one personal tax exemption. This is typically a fixed amount that increases yearly and reduces your total amount of taxable income just like a deduction does but with fewer restrictions. If you are married filing joint on a tax return, both you and your spouse are eligible to each get an exemption.

Dependent exemptions

The IRS typically allows a taxpayer to take additional exemptions for each dependent that is claimed on their tax return. The exemption requires that the children being claimed live with the taxpayer in question for more than half the year, are under 19 years old (or under 24 if a full-time student) and who don’t provide more than half of their own financial support during the tax year. 

Tax-exempt organizations

In order for an organization to receive tax-exempt status, it must first satisfy all of the IRS’s requirements. Organizations should not be operating for profit and also provide vital services to the community such as charity work.

Organizations that fall under the tax-exempt status are not required to pay federal income tax and must maintain accurate records to keep their status. 

State and local exemptions

State, county, and municipal governments also provide tax exemptions to businesses that boost the local economy. In some cases, a business could be exempt from paying local property taxes if they move their operations to a particular geographic area. Many cities and states offer sales tax holidays where consumers can purchase goods without having to pay state or local sales taxes. 

If you need tax help, contact us for a free consultation.

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The COVID Pandemic could Cause 1 in 4 Hotels to be Financially Impacted

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.

With record low demand for travel as well as the hotel industry, more than 25% of hotels in the U.S. are at risk of foreclosure. 

A report sent to Congress shows that the total percentage of hotels that are 30 days or more delinquent on their loans is at 23.4% as of last month. In comparison, the percentage of home loans that were 30 days or more delinquent is 2019 was at 1.3%.

Due to the current pandemic, travel has increasingly slowed down due to consumer’s fears of catching Covid-19. Because of the slow in travel, delinquency rates in the commercial mortgage-back securities market are now at the highest it has ever been. 

As of July, $20.6 billion in hotel commercial-mortgage-backed security loans were more than 30 days delinquent. To compare, a financial crisis that hit decades ago, the highest volume of delinquent hotel loans was at $13.5 billion.

A letter signed by more than 4,000 hotel owners as well as several trade groups sent over to Congress has asked for support for the Helping Open Properties Endeavor Act. The HOPE Act is meant to provide financial assistance for small businesses that operate under the commercial real estate market and would shift funds from the CARES Act Economic Stabilization Fund. 

The HOPE Act would allow businesses to keep their doors open and continue running as well as to retain and rehire any employees that have been impacted by the pandemic. If hotels don’t receive assistance soon, America could see a large wave of hotel closings or permanent job losses for thousands of employees still hoping to return to work. 

If you need tax help, contact us for a free consultation.

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What is a Backup Withholding?

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.

If you are a taxpayer that’s receiving multiple forms of income, specifically receiving income payments, the IRS will require that the payments be reported as taxable income. Typically, if you are a 1099 earner, the person or business that is paying you generally won’t be withholding taxes on the payment they give to you.

Here is everything you need to know about a backup withholding (BWH).

  1. What is a backup withholding? Certain situations will require that a taxpayer withholds at the current rate of 24 percent. This percentage will be taken from any future payments and applied as taxes to ensure that a taxpayer does not owe at the end of the tax year.
  2. Payments you receive can be subject to backup withholding. BWH can be applied to most kinds of payments including:
  • Interest payments (Form 1099-INT) 
  • Dividends (Form 1099-DIV) 
  • Payment Card and Third Party Network Transactions (Form 1099-K) 
  • Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR) 
  • Rents, profits, or other gains (Form 1099-MISC) 
  • Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC) 
  • Payments by brokers/barter exchanges (Form 1099-B) 
  • Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC) 
  • Royalty payments (Form 1099-MISC) 
  • Gambling winnings (Form W-2G) may also be subject to backup withholding. 
  • Original issue discount reportable on (Form 1099-OID), Original Issue Discount, if the payment is in cash 
  • Certain Government Payments, Form 1099-G

3. How to prevent or stop a backup withholding. In order to stop a backup withholding, a taxpayer will need to correct the reason as to why they became subject to a backup withholding. This could include providing the correct tax identification number belonging to the payer, resolving any underreported income and paying off any balance that is owed, and filing any unfiled past tax years. 

If you need tax help, contact us for a free consultation.

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I Didn’t Pay my Tax Balance by July 15. Now What?

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.

If you missed the tax deadline this year and aren’t sure what to do next, don’t worry.  There’s still time for you to file your tax return and avoid having the IRS come after you for a failure to file or for having any remaining balance owed after filing your tax return. 

Here are some after-tax-day tips you should follow:

  1. File ASAP to avoid additional interest and penalties. For those who filed their taxes before the tax deadline and received a refund, they will not have to deal with the IRS charging additional fees against them. If you have filed after the deadline, the IRS will place penalties and interest against you until the tax return has been filed. Taxpayers can request an extension up until the October deadline, but  it is important to keep in mind that interest will still accrue even if an extension is filed.

A 5% failure to file a penalty is applied to those who fail to file or file a return late. If a return is filed more than 60 days late, the minimum penalty is either $435 or100% of the unpaid tax, whichever is less. The basic failure-to-pay penalty rate is generally 0.5% of unpaid tax for each month or part of a month.

  • File to get a tax refund. The only way to receive your tax refund is to file your taxes. There typically is no penalty for filing after the tax deadline if a refund is due. The IRS strongly recommends taxpayers electronically file their taxes since there will be delays this year for those who file their paper return. 
  • File your taxes electronically. Taxpayers who owe a tax balance will be able to pay off their liability through the IRS’s website by debit or credit card. If you are unable to pay off your tax balance in full, the IRS has an option to go on a payment plan. With Direct Pay and Electronic Federal Tax Payment Systems, it can make it easier and much more efficient for taxpayers to file their taxes and pay off any balances they may owe.

If you need tax help, contact us for a free consultation.

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IRS Increasing Focus on Taxpayers Who Have Not Filed Tax 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.

It is expected that the IRS will visit more taxpayers who have yet to file their past tax years in an effort to increase tax compliance and enforce the law. The IRS is also looking into tax data, researching new compliance methods, and including increasing in-person visits to taxpayers who are in collections or out of compliance.

The IRS’s main goal is to bring delinquent taxpayers into compliance by filing all unfiled past tax years as well as assisting with any pending payment obligations taxpayers may still have with the IRS. The IRS wants to further promote compliance by also using the following systems:

  1. Increase Identification and cases for individuals and business non-filers. The IRS will look into assigning new cases to IRS employees to ensure those assist those who have yet to file their past tax years.
  • Automated Substitute for Return program (ASFR). Individual taxpayers who have multiple unfiled years as well as a tax liability possibly tied to these years will receive notices alerting them to tax years that need to be filed as well as any potential tax liability they may owe.
  • Automated 6020(b) process. Promotes employment tax filing by identifying business taxpayers with employment requirements who have yet to have filed for a specific tax period. The IRS will be making greater efforts to ensure that businesses comply with both tax filing and payment requirements.
  • Delinquent Return Refund Hold Program (DRRH).  A taxpayer’s refund will be held if the IRS finds that the individual has at least one unfiled tax return within the last five years.

Many non-filers are owed tax refunds but are unable to receive them because of past tax years that still need to be filed. The IRS strongly recommends filing any unfiled years to ensure they receive any future tax refunds. 

For taxpayers who haven’t filed in previous years, the IRS has current and prior year tax forms and instructions available on the IRS.gov Forms and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676).

If you need tax help, contact us for a free consultation.

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How to Qualify for the Earned Income Tax Credit

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.

The Earned Income Tax Credit (EITC) is known as a refundable tax credit that applies to low and moderate-income workers. For those who have children, the amount will vary based on the number of kids placed on their tax return. For the tax year 2020, the current earned income credit ranges from $538 to $6,660. 

If you qualify for this tax credit, be sure to claim it on your tax return so you can get the most out of your tax refund. Here’s how you know whether or not you qualify.

In order to know if you qualify for EITC you have to ensure that your earned income does not exceed a certain range. Taxpayers can meet the requirements for EITC without a qualifying child if you have a child that meets all the qualifying child rules for you or your spouse if filing a joint return. Taxpayers can utilize the EITC Assistant to find out their filing status and how they can qualify.

In order to meet the standards for an EITC credit you must use one of the following statuses:

  • Married filing jointly
  • Head of household
  • Qualifying widow of widower
  • Single

For those filing married filing separately, they will not be able to claim the EITC. If you or your spouse are a nonresident alien for any part of the year, you will be unable to claim the EITC unless your filing status is married filing jointly. 

Additional 2019 income rules taxpayers must follow in order to qualify for the EITC:

  • Tax year investments must be $36,000 or less.
  • Form 2555, Foreign Earned Income, Form 2555-EZ, and Foreign Earned Income Exclusion can’t be filed.
  • Total earned income must be at least $1.

If you need tax help, contact us for a free consultation.

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Taxpayers should Report Tip Income on Their Tax 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.

Receiving additional pay on top of your income can have its benefits. No matter how you receive additional income, it needs to be reported to the IRS when you file your taxes – even tips. Here’s what you need to know to stay on the good side of the IRS.

If you receive tips worth more than $20 each month, it will be considered taxable income. These tips are also subject to Social Security and Medicare tax withholding. The average tip rate in the United States is typically 8%, and those who earn this much in tips are expected to report it to the IRS. 

If the reported tip income is less than 8%, employers are required to allocate unreported income among their employees. This is only applicable to companies that employ more than 10 employees on a typical business day. 

Taxpayers must include all tips they receive on their tax return as it is considered additional taxable income. This includes:

  • Tips directly from customers.
  • Tips added using credit cards.
  • Tips from a tip-splitting arrangement with other employees.

The IRS recommends three ways for a taxpayer to report their tip income correctly:

  • Keep a daily tip record.
  • Report tips to their employer.
  • Report all tips on their income tax return.

It is vital for taxpayers to report their tips as income to ensure that the IRS does not come back at a later date inquiring about missing income that was not reported. To learn more about how your tips should be reported on your tax return, you can visit the IRS website

If you need tax help, contact us for a free consultation.

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U.S. Armed Forces Receive Special Tax Benefits when Filing 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.

If you have served in the U.S. Armed Forces, you could qualify for certain tax breaks and certain rules may also apply such as deductions or credits that can be claimed at a lower rate. If you have served in the U.S. Armed Forces, here is what you could qualify for when filing your taxes:

  1. Deadline Extensions. For members of the military and those who serve in combat zones, the government will allow you to postpone tax deadlines and, in some cases, you can receive an automatic extension so you have more time to file your taxes. 
  2. Combat Pay Exclusion. If you serve in a combat zone, your pay will either be partially or fully tax-free. If you serve in a support area for a combat zone, you may also qualify for this exclusion. 
  3. Signing Joint Returns. If you are married and choosing to file jointly, it is required that both you and your spouse sign your tax return. If you are unable to be present to sign your portion of the tax return, you may need a power of attorney to file a joint return.
  4. Uniform Deduction. You can deduct the cost of certain uniforms that you can’t wear while off duty. This also included the costs of purchase and upkeep. 
  5. ROTC Allowances. This applies to allowances for education and subsistence. Active ROTC pay is also considered taxable.
  6. Civilian Life. If you leave the armed forces, you may qualify for deductions on certain job search expenses. This could include, the cost of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.
  7. Tax Help. Most military bases offer free tax preparation and filing assistance during the tax filing season. Some may also provide free tax help after the tax deadline.

If you need tax help, contact us for a free consultation.

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What it Really Means to Get a Tax Refund

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.

One of the main reasons why you don’t want to receive a refund is because it means you’ve essentially loaned the government money that you will never receive interest on. This money could have potentially been applied to other debt that you’ve been carrying around such as student loan or credit card debt instead of loaning it out to the government to use. Rather than overpaying in taxes, here is where you could put your money instead:

  1. Open a retirement account. The average taxpayer will receive a tax refund upwards of $3,000. Instead of overpaying in taxes which could cause you to miss out on huge savings opportunities, you could invest it in a retirement fund or increase the amount you are contributing to your current plan. By the time you are able to retire, you could have a large lump sum of cash waiting for you.
  1. Start an emergency fund. If something unexpected ever happens that may impact your financial wellbeing, you may want to consider placing your money in an emergency account. The money that you place into this account doesn’t just accrue overnight, it requires that you set funds aside little by little. The refund that you receive after filing your taxes could be preventing you from placing more money into a back-up account and you may need to consider adjusting your withholding or estimated tax payments you are making to the IRS.
  1. Look into paying down your debt. If you receive a tax refund of about $3,000, that means that you are missing out on pocketing an extra $250 a month. This money could be used to pay down any loans or negative balances you have to ensure that you remain in good standing on all your debts. 

If you’re still unsure about how much you should be withholding from your paycheck, consider using the IRS’s withholding calculator. It will require information such as how much you pay in taxes and how much you have already withheld. This will help you make a determination on how much you should be withholding in order to get the most out of each paycheck. 

If you need tax help, contact us for a free consultation.

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