Tax Rules for an Airbnb or Vacation Rental

airbnb tax

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 your Airbnb or vacation rental as income

The IRS requires that all payment processing companies (including Venmo, PayPal, and Airbnb) report gross earnings for all users within the US. If you earn $600 or more, and/or have 200 or more transactions for the year, Airbnb will issue Form 1099-K.

If you are not a US citizen but earned money from a vacation rental in the US, you will be provided Form W-8.

Withholding taxes from Airbnb payouts

You do have the option to withhold taxes from your Airbnb earnings, which is always 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

To determine if your vacation property is a rental residence or being used for personal gain, you must identify how often the property is rented versus how often you reside there. Renting your property to someone that pays the fair market value while using the home as their primary residence would make it a rental property.

If you do not reside in the home and rent it frequently for short-term periods, it would be considered a vacation rental.

Should you find yourself residing in the home more frequently than you rent it, then you are using the home for personal use. The IRS requires that you still pay taxes on the money you earn from renting your property for 15 days or more out of the year.

Tax debt relief and filing assistance for Airbnb hosts

As a host, you may qualify for tax debt relief. Our tax professionals will review your case to determine the best course of action for your compliance. For a free consultation, you can call Optima at 800-536-0734.

Received a notice from the IRS? Try Optima’s Tax App to analyze your notice instantly!

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An Update on Student Loan Forgiveness

student loan forgiveness

Student loan debt is still on the rise and new developments regarding student loan repayment and forgiveness have unfolded recently. President Biden will announce his plan for student loan forgiveness and repayment by the end of August 2022.  

Student Loan Payment Pause 

Student loan payments are currently paused but are set to begin again on September 1, 2022. While student loan payments have been paused several times since the Cares Act passed in March 2020, it seems the pause may be extended again past the August 31st deadline.  

Student Loan Forgiveness 

On the other hand, President Biden may announce a decision on student loan forgiveness. There has been some speculation that Biden plans to cancel as much as $10,000 for more than 40 million federal student borrowers. Included loans are the Federal Family Education Loan Program (FFELP), Perkins Loans, Grad PLUS Loans, and Parent PLUS Loans, many of which have not been included in recent student loan forgiveness initiatives.  

Student Loan Forgiveness: Limited Waiver 

A limited waiver was instituted in October 2021, allowing student borrowers to count student loan payments that were once considered ineligible toward student loan forgiveness. Ineligible payments include late payments, partial payments and payments made under the incorrect payment plan. This one-time exception is due to expire after October 31, 2022, but President Biden has named an extension of the waiver as another permanent means of student loan forgiveness.  

Republican Student Loan Forgiveness and Repayment Plan 

Three Republican members of Congress introduced a new bill that serves as an alternative to President Biden’s potential plan for student loan forgiveness. The plan does not include any major loan cancellation and seeks to end the Public Service Loan Forgiveness program that is set to begin in July 2023, as well as the student loan payment pause. The bill also introduces a new Income-Based Repayment (IBR) plan that would replace the current income-driven repayment plans in place and eliminate capitalization of student loan interest. Finally, the bill would include a provision that limits student loan interest to 10 years, which can save borrowers thousands of dollars.  

Tax Debt Relief for Student Borrowers 

While the idea of student loan forgiveness seems attractive to many, nothing is set in stone yet and borrowers should continue to plan for repayment. Additionally, borrowers should remain mindful of available tax breaks and filing requirements. If you need tax help, give us a call at 800-536-0734 for a free consultation today. 

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How Filing for 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.

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

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Filing Taxes as Head of Household: A Guide

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.

How can you qualify as Head of Household?

There are a few qualifying criteria to meet in order to file under head of household status:

  1. You must be single, divorced, or separated by the last day of the tax year.
  2. You are responsible for over half of your household’s living expenses.
  3. You have a child or qualifying dependent.

What kind of expenses are you responsible for as the Head of Household?

Taking responsibility for living expenses includes, but is not limited to:

  • Rent or mortgage
  • Utility bills
  • Insurance
  • Property taxes
  • Groceries
  • Repairs
  • Other household bills (internet, phone, etc.)

As head of household, you are required to be responsible for the listed expenses for over half of the tax year.

If your dependent is a parent, they are not required to live in the same household as you. The stipulation is that you maintain their cost of living. It’s important to note that if you are married and living in separate households, this does not qualify you for Head of Household status. You must be unmarried.

What does the IRS mean by “unmarried?”

Unmarried means that you’re filing a separate return and your spouse didn’t live with you for the last half of the year. Two people cannot file as head of household on the same return.

If you share a child (biological, stepchild, or foster) with your former spouse, your home should be the primary residence of the child to qualify for head of household status. If you are unable to claim the child as a dependent, this could make qualifying a bit more difficult.

Pros of filing as Head of Household

This filing status offers a better standard deduction amount than most others, even with a lower tax bracket. The deduction may not be as favorable as joint filing, but it’s a considerably larger deduction than filing single by roughly 50%. The standard deduction for 2021 head of household status was $18,800.

Tax debt and filing assistance for Head of Household status

Tax debt with the weight of other financial burdens can be a stressful ordeal. As a head of household filer, you may qualify for relief. Give Optima a call for a free consultation today at 800-536-0734.

Received an IRS notice? Try out the Optima Tax App to analyze your notice in the palm of your hand.

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Tax Tips for Remote Workers

remote workers

There has been a surge in remote work since 2020, qualifying employees for certain tax deductions.

Tax Deductions for Remote Workers

Generally, your home office must be used for the sole purpose of your work to qualify for deductions on your tax return. Expenses such as internet, phone bills, and similar items could also be for personal use. Items you might consider deducting would be a computer purchase for the sole use of your job, a special phone line, other equipment and materials required for your work, or maintenance for the upkeep of said equipment.

Another qualifying factor for a home office would be a space that is utilized specifically for meeting with clients. If your work requires you to have a physical space to host meetings, store inventory, or to conduct business that is not virtual, you may qualify for deductions when you file.

Leased Office Space for Remote Workers

As a self-employed or remote worker, you may have a separate space for your work. However, a leased office, or a workstation located on premises that is not your home would not qualify as a home office. The IRS will see this as an optional work environment.

Records and Receipts for Remote Workers

No matter your work location, it is imperative that you document and keep track of all records pertaining to work-related purchases. Receipts and records are the only tangible evidence of your expenses that can qualify you for deductions. You must know the exact dollar amount of your expenses; estimations of round, even numbers will often flag your return.

Too many round numbers for your expenses could trigger an audit.

Simplified and Direct Deductions: What’s the difference?

The simplified method for home office deductions is done by expensing $5 per square foot of your office, up to 300 square feet max. This method can qualify up to $1,500 in deductions.

The direct method requires you to track all your expenses and maintenance costs for your home office. This method allows you to qualify for a bigger deduction.

Tax Debt Relief for Remote Workers

Whether you work from home or in an office, Optima assists self-employed and W-2 workers with tax liabilities. Give us a call at 800-536-0734 for a free consultation today.

Download the Optima Tax App to analyze your IRS notice instantly.

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Optima Newsletter – July: How the Economy Affects Your Taxes

How the Economy and Inflation Affect Your Taxes

The IRS updates certain tax provisions annually to account for inflation, so your tax and investment plans should change accordingly.

How to Avoid Having Your Tax Refund Garnished

CEO David King and Lead Tax Attorney Phil Hwang discuss these circumstances and what you should do if you’re thinking your refund could be at risk for IRS seizure. 

Trading Stocks and What it Means for Your Taxes

While stocks may seem like an effortless path toward financial stability, they do affect your taxes. Understanding what’s expected when you file can keep you out of trouble with the IRS.

Tax Reduction Strategies

While taxes are inevitable, you want to make sure that you’re not paying more than you have to. You can legally reduce your taxes by using strategies that you may not be aware of.

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The Fair Debt Collection Practices Act: What is it and how does is protect taxpayers?

fair debt collection

Being in debt is a stressful circumstance that collectors can often intensify with unfair practices. Therefore, the Fair Debt Collection Practices Act (FDCPA) prohibits companies from using such practices to collect debts from you.

What Does the FDCPA Cover?

Mortgages, credit cards, medical, and personal debts are all covered by the FDCPA. The collectors that are prohibited by this act include the following:

  • Collection agencies
  • Debt buyers
  • Lawyers who regularly collect debts as part of their business
  • Other entities that buy past-due debts from creditors to collect them

Business debts are not covered by the FDCPA. It also doesn’t cover collection by the original creditor that you’re indebted to.

FDCPA Communication Restrictions

Debt collectors are not allowed to contact you under certain circumstances.

  • Harassment: Debt collectors cannot harass you over the phone or by any other form of contact
  • Inconvenient Times: Debt collectors may not contact you at inappropriate hours or places. This includes before 8:00 a.m. and after 9:00 p.m. Contacting your place of work is also not allowed under the FDCPA.
  • Power of Attorney: Once you have attorney representation, the collector must cease contact with you. The attorney is now responsible as the main point of contact regarding your case. If you are contacted by a collector, you should inform them that you’re represented by an attorney and give them the attorney’s name.

Once you tell a collector to stop contacting you, they can only contact you to inform you that there will be no further contact, or to notify you that legal action (such as a lawsuit) is taking place.

Debt Information

The collector calling you for a payment is required by law to inform you about the debt. Things they should share include:

  • Identify the creditor (name and address of current or former creditor)
  • Amount owed
  • That you can dispute the debt

FDCPA and Tax Debt

The IRS must also abide by the Fair Debt Collection Practices Act. You have rights as a taxpayer that restricts their communication and enforcement practices. If you have unaffordable tax debt and need assistance with your case, give Optima a call for a free consultation at 800-536-0734.

Received a notice from the IRS? Download the Optima Tax App to analyze your notice instantly!

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How to Avoid Having Your Tax Refund Garnished

Worried about the IRS garnishing your refund? There are a few instances where this could happen. CEO David King and Lead Tax Attorney Phil Hwang discuss these circumstances and what you should do if you’re thinking your refund could be at risk for IRS seizure.

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New Consequences of Payroll Tax Debt

payroll

The responsibility of payroll taxes falls on the shoulders of employers, although they come from employee paychecks. The federal government, Social Security and Medicare heavily rely on taxes from employee wages.

IRS revenue officers are now tracking how unpaid payroll taxes were spent during their “trust fund investigation.”

Payroll Taxes Used for the Employer’s Benefit

Employers will now face more penalties for spending payroll tax money for their own benefit, or pocketing it for themselves. Maintaining a luxury lifestyle while owing payroll taxes can now lead to prosecution.

Revenue officers are being instructed to pull employer 1040 tax returns to learn whether the money that benefited them was reported as income. If the money was not reported as income, the RO will submit the returns and investigation records to the civil audit division. Another option is that the RO will refer the case to the IRS Criminal Investigation Division to review for criminal prosecution. The course of action made by the RO depends on the severity of the case.

What This Means for Business Owners

Business owners should utilize their tax professionals and seek advise to avoid any possible criminal activity. It’s important to review and track where the payroll money goes for the year. If you know that some of your payroll tax money went to yourself as an employer, you should prepare to amend your income tax returns before the IRS catches up to you.

Avoiding handling this matter could put you in a worse financial situation, or even lead to prosecution.

Payroll Tax Debt

If you are currently in unaffordable tax debt, Optima’s team of tax professionals may be able to aid your case. Give us a call at (800) 536-0734  for a free consultation today.

Received an IRS notice that you’re confused about? Download the Optima Tax App to understand the implications of your notice, and the next steps to resolving your tax issue.

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New IRS Voice Bot Options Shortens Wait Time

voice bot irs

Many taxpayers are hesitant about calling the IRS for several reasons, including the long wait time to speak with a representative. A phone call could take hours that you may not have to spare in your day to get answers to simple questions. The IRS launched what they believe to be the answer to this problem: voice bot options.

How the IRS Voice Bot Works

Generally, voice bots are artificial intelligence that allow callers to interact using verbal responses. Taxpayers with simple questions about payments, notices and other tax related inquiries can now avoid waiting for a live person to become available.

The voice bot offers services in both English and Spanish, aiding a large percentage of Americans.

Which Lines Have a Voice Bot?

While the IRS states that numerous lines now have voice bot options, it seems this feature will best be suited for Automated Collection System toll-free lines, Accounts Management, discussing payment plan options, and frequently asked questions.

So far, the voice bot has answered over 3 million calls. The IRS continues to add functions to help more taxpayers resolve their issues quickly.

Future Voice Bot Enhancements

Upcoming 2022 enhancements for the automated feature includes:

  • Account and return transcripts
  • Payment history
  • Current balance owed

The Economic Impact Payment line will also have responses for frequently asked questions.

Need more assistance?

Optima’s tax professionals may be able to assist you with your tax debt and help you reach IRS compliance. Give us a call at (800) 536-0734 for your free consultation today.

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