Trading Stocks and What it Means for Your Taxes

stocks 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.

Brokerage Accounts and Taxes

When you sell the stock shares in a brokerage account, you may be responsible for capital gains taxes. Capital gains tax can affect you in two ways, depending on your circumstance:

Short-term Capital Gains Tax

This tax applies to profits from sold assets that were held for a year or less. The rates for short-term capital gains tax match your income tax bracket.

Long-term Capital Gains Tax

The long-term variant of this tax applies to sold assets held for longer than a year. The rates are 0%, 15%, or 20% depending on your filing status and taxable income. It’s important to note that long-term capital gains tax rates are usually lower, so it may work in your best interest to hold that stock for a little longer.

How Dividends Affect Taxes

There are two types of dividends and they’re usually considered taxable income, qualified and nonqualified. Qualified dividend rates range from 0%, 15%, or 20% (the same rule for long-term capital gains tax). Nonqualified dividends are ordinary dividends that have the same tax rate as your income bracket.

Taxpayers in higher brackets typically pay more taxes on dividends. Overall, dividend investments can drastically alter your tax bill.

How to Reduce Taxes on Stocks

Holding onto shares long enough for them to become qualified dividends can result in reducing taxes.

If possible, you should hold onto your assets for a little longer than a year. Long-term capital gains tax rates are often lower when you sell your stocks. Making a profit from stocks is all about strategy and figuring out what falls in line with your financial goals.

Tax Debt Assistance

If you find yourself in debt with the IRS due to stock investments, you may qualify for relief. Give us a call for a free consultation at (800) 536-0734.

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Tips for Choosing a Tax Professional

tax professional

There is no shame in needing professional help during tax season. In fact, if you’re able to afford tax assistance or find community resources, you’ll have a better likelihood of accurate returns. Getting your return completed correctly the first time means fewer delays and getting your refund faster. Choosing the wrong tax professional, however, could hurt you in the long run.

The IRS has shared several tips that could save you a lot of trouble while searching for a tax professional.

Tax Professional Qualifications

You should make sure the tax pro that you choose meets all of the necessary requirements. The IRS has a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. Enrolled Agents should be licensed by the IRS and must pass a three-part Special Enrollment Examination.

Certified public accountants are licensed by state boards of accountancy in the District of Columbia and U.S. territories. They must pass the Uniform CPA Examination and have completed a study in accounting at a college level. To maintain an active CPA license, it is required that a CPA completes specified levels of continued education.

Tax attorneys are licensed by state courts, the District of Columbia, or designees such as the state bar. If you’re considering hiring an attorney specializing in tax prep, they should still have a degree in law and passed a bar exam.

Tax Professional History

Conducting your own research is crucial to choosing a tax professional. Sources such as the Better Business Bureau can give you some history on the professional that you’re considering. Notable things in their background would be disciplinary actions and the status of their license. The State Board of Accountancy is used for CPAs, the State Bar Association for attorneys, and the IRS verifies enrolled agent status here.

Service Fees for Tax Professionals

The goal of the tax preparer should not be larger refunds than their competitors. Tax preparers that charge by taking a percentage of your refund may not have your best interest in mind. More money sounds great at first, but compliance with the IRS is the ultimate goal. You want to be sure that the tax pro is not using deductions you don’t qualify for, or other means to increase your refund and make more money.

There is never a reason to show your personal documents or Social Security number to a tax preparer when you’re asking about a quote.

Book a Tax Professional Early

You don’t want to wait until the last minute to find a tax professional. As soon as the tax season ends, it’s a good idea to contact a tax preparer for next year. Fly-by-night preparers are high risk investments.

Providing Documentation

Keep records and receipts handy for filing season. This will make the tax preparer’s job a lot easier, and increase the likelihood of accuracy for your return. A good tax preparer should ask questions to figure out your total income and tax deductions, or credits.

Blank Tax Returns, Signing, and Filing

You should never sign a blank tax form, even if the preparer sent it to you. Always review your return thoroughly and ask questions if you’re confused. This is important, you want to make sure the refund is going directly to you, and not through the preparer. They should also provide you with a copy of the completed return.

You also want to make sure that your tax professional e-files your return. Filing electronically and choosing direct deposit is the quickest way for you to get your refund.

Preparer Tax Identification Number

All paid tax preparers must sign returns and include their PTIN, or Preparer Tax Identification Number by law. If your preparer does not have a PTIN, do not move forward with their paid services.

Optima’s Tax Services

Optima specializes in tax debt relief, and provides tax prep and filing services to our clients. If you are in need of assistance with IRS compliance, give us a call for a free consultation at (800) 536-0734.

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Common IRS Tax Forms

tax form

Save yourself some time next tax season by learning about the IRS tax forms you’ll need to file. Use this page as a guide to help you understand the most common tax return forms.

Form W-2, Wage and Tax Statement

The W-2 is one of the most common IRS tax forms for employed taxpayers. This form tracks how much you paid in taxes throughout the year, and how much you’ve earned. Employers withholding income for Medicare and Social Security are expected to issue a W-2 by the start of tax season (no later than January 31).

Form W-4, Employee’s Withholding Certificate

You’ll receive Form W-4 to determine how much an employer should withhold from your paycheck for federal income tax. You should update this form as major life changes occur that will affect your filing status (such as marriage).

Form 1099-MISC, Miscellaneous Income

The miscellaneous income form is applicable to taxpayers that earn money from rent, royalties, and other income that involve large payments from individuals or entities. The IRS will provide Form 1099-MISC.

Form 1040, U.S. Individual Income Tax Return

This form allows you to declare your filing status, apply standard deductions, claim credits, and most importantly, determines how much you owe the IRS.

Form 1040-SR, U.S. Tax Return for Seniors

This alternative option to the 1040 is simplified with enhanced readability for senior citizens. Ideally, seniors will be able to document their sources of income such as IRA distributions, Social Security, investment income and annuities, with much more ease.

Form 1099-G, Certain Government Payments

This form is most common for filers that receive unemployment benefits. Unemployment is taxable income and must be reported in your annual tax return. Other government payments included in this form are taxable grants and payments from the Department of Agriculture.

Form 1098-T, Tuition Statement

College students will receive Form 1098-T for paying tuition expenses. As a student, you could qualify for tax credits and deductions when you file.

For More Assistance with IRS Tax Forms and Tax Debt

Optima’s tax professionals help a variety of cases with IRS compliance and tax debt relief. Clients are also able to enroll in our protection plan for account monitoring and filing services.

Give us a call at (800) 536-0734 for a free tax debt relief consultation today.

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What if I Can’t Pay My Installment Agreement?

CEO David King and Lead Tax Attorney Phil Hwang reconvene to continue the discussion on IRS installment agreements. In this episode of The Tax Show for People Who Owe, the hosts discuss solutions to unaffordable payment plans. What should you do if you can’t make a payment? Tune in for suggestions.

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The Consequences of Tax Debt

tax debt

Owing the IRS can be a scary and confusing time, especially if you don’t know what to expect. The IRS has protocols and collection activity that it’s known for to collect past due balances. Being aware of such consequences may inspire you to take care of your tax debt sooner than later.

Interest and Penalties

Interest is added to your tax liability daily until paid; with a 25% maximum penalty. In April 2022, the IRS raised its interest rates for the quarter for quarterly taxpayers, such as businesses and self-employed filers.

Penalties include:

  • Failure to file – same due date as your return or extended return.
  • Failure to pay – due on the date you receive a notice, or the IRS assess the penalty.
  • Accuracy-related – same due date as your return or extended return.

IRS Wage Garnishment

The IRS has the ability to garnish your wages when you have an unpaid balance. This means that your income can be seized and applied to your tax liability. Garnishments can be taken out of paychecks, commissions, and bonuses. By paying the balance in full, or setting up a payment plan, you can stop garnishments.

IRS Levy

You would receive a notice prior to the IRS levying the balance. This consequence is for delinquent taxpayers and involves the IRS legally seizing your bank accounts, wages, or property to settle the tax debt. To stop a levy, contact the IRS directly. If you can prove that you’re in hardship, they may release the levy. You can also pay the balance in full to release a levy sooner.

IRS Lien

Liens are placed on physical assets, such as homes or vehicles, to satisfy tax debt. This means that the IRS takes possession of your assets, or collects a portion of what you make for selling them. You can avoid a lien by paying your balance in full, on time, or by contacting the IRS for a payment plan.

IRS Passport Denial

Major tax debt can result in the denial of acquiring a passport. State Departments can also revoke an existing passport if you’re delinquent. The IRS is allowed to deny citizens the right to travel internationally. If you receive a notice while overseas, you may receive a temporary passport to return to the US.

You can reverse passport denial by changing your status (no longer seriously delinquent), if the debt becomes legally unenforceable, or by satisfying the tax debt.

Unaffordable Tax Debt

If your tax debt has gotten out of hand, give us a call for a free consultation at (800) 536-0734. One of our associates can help you understand your options for tax debt relief.

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Tax Reduction Strategies

tax reduction

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.

Retirement Contribution

A simple way to reduce your taxes is by making retirement account contributions. You can make these contributions to any traditional IRA until the filing deadline in April. The amount you owe in federal taxes will be reduced as a result of 401(k) and IRA accounts being deducted from your taxable income.

If you have a Roth account, it’s funded with after-tax dollars. This doesn’t equate to a tax deduction, but the money in the account is tax-free even in retirement.

Deferring Income

By deferring your income, such as year-end bonuses, you can reduce your tax burden for the year. The amount of taxes reduced depends on the amount contributed over the year.

While you are able to defer wage and salary, it’s often more difficult for taxpayers to do so. It’s in your best interest to defer income if you will remain in the same tax bracket or lower the following year. This is to prevent a larger tax bill in the future. If you believe you will be in a higher tax bracket next year, you can accelerate income so that you can pay it on a lower bracket now, than a higher bracket later.

Deductions for Military Members

Being a member of the military reserves and traveling more than 100 miles from home qualifies you for a deduction for unreimbursed travel expenses. Eligible expenses include transportation, meals, and lodging.

As an active-duty service member, moving costs for permanent station changes can be deducted.

Flex Plans

Flexible spending accounts are fringe benefits offered by employers to steer part of your pay into a special account. This account can be used to pay bills for childcare and medical expenses.

The money in flex accounts is free of income and Social Security taxes. However, there is a use-it-or-lose-it rule that can forfeit the excess money that isn’t used by the end of the year.

Is there a way to reduce tax debt?

Tax debt relief is available, and can come in different forms for eligible cases. At Optima, we assist our clients by using programs such as the IRS Fresh Start Program. Give us a call at (800) 536-0734 for a free consultation today.

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What are Non-Taxable Earnings?


There are instances where income will not be taxed, whether or not you report it during tax season. Understanding which earnings are taxable versus non-taxable could save you a lot of time and trouble when you file your tax returns.

Non-taxable earnings

The following forms of income are non-taxable:

  • Most healthcare benefits
  • Scholarships and student loans
  • Welfare payments
  • Reimbursements
  • Child Support payments
  • Inheritance
  • Gifted money (unless of significantly high value)
  • Alimony
  • Cash rebates

In order for income to be considered non-taxable, it must be legally exempt.

Taxable vs Non-taxable Income

Some examples of taxable income would be employee wages, or constructively received income. Constructively received income is income that is available to you before the end of the tax year. This could be in the form of cash or deposit.

If an agent receives income on your behalf, this is called assignment of income. Assignment of income is still taxable, even if a third party is accepting your earnings.

Prepaid income is another taxable compensation that may include payment for future services.

Are royalties non-taxable income?

Copyrights, patents, and other properties such as oil and gas are examples of royalties. These items are taxable as income.

Are business and investment earnings non-taxable?

Business earnings such as rental properties and other investments are very much taxable. Business owners are required to pay taxes quarterly to cover Social Security and Medicare tax.

While non-profit agencies are tax exempt, you still have obligations to file a return.

What to do if you have a tax liability?

Taxable and non-taxable income can be a confusing topic. It’s best to ask a professional for assistance if you’re unsure about how or when to report income. Should you find yourself in the midst of a tax liability that is unaffordable, give Optima a call at (800) 536-0734 for a free consultation.

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Student Loans and Taxes: What Current Students & Graduates Need to Know

student loans

Not all students are required to file taxes. However, there are instances where it may benefit you to report student loans.

Are students required to file taxes?

Your student loans do not count as income. Scholarships, fellowship money, and other resources given to you for school are not taxable. The taxable portion of the funds would be expenses such as travel, room and board, or optional expenses.

Tax Breaks for student loans

There are two types of credit that you may qualify for when you file: American Opportunity credit, or Lifetime Learning credit. Paying for education expenses is one of the qualifying factors in being eligible for education tax credit.

Qualifying costs include paying for books and tuition with a student loan. You can track your qualified expense payments through Form 1098-T, which is provided by your school. This form is simply a tuition statement.

Does filing jointly affect your student loans?

The short answer is, yes. Filing jointly can potentially increase or decrease your student loan payments. This is because repayment plans are income-driven, so they heavily rely on your filing status. The adjusted gross income in your tax return is used to calculate your payments.

Is there tax debt relief for students?

For complicated tax situations, it’s always best to work with a professional when you file. Selecting the wrong deductions or reporting your non-taxable income incorrectly can put you at risk for penalties. Over time, IRS penalties accrue interest, and a tax liability is the last thing you need to worry about on top of repaying education debt.

Optima assists clients with unmanageable tax debt find relief and remain compliant with the IRS. If you received a notice, give us a call for a free consultation at (800) 536-0734. You can also download  the Optima Tax App to use our Notice Analyzer.

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Do You Qualify for an IRS Installment Agreement?

Paying an IRS liability in full isn’t always an option. This is why the IRS offers installment agreements, or payment plans, to help taxpayers pay off their debt. For this week’s episode, CEO David King discusses installment agreement options with Lead Tax Attorney Philip Hwang.

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

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Can the IRS Automatically Complete Tax Returns?

tax returns

A new study shows that the IRS may be able to complete nearly half of the nation’s tax returns automatically. The study proves that over 60 million pre-populated tax returns can be correctly auto filled with information that the IRS previously collected.

The study was conducted by researchers from the U.S. Department of the Treasury, Minneapolis Federal Reserve and Dartmouth College. Random samples of 344,400 individual tax returns from 2019 were used in this study. The results show that the accuracy is higher for low- and moderate-income taxpayers. However, itemized deductions were more likely to have errors.

What do finance professionals think of automatic tax returns?

Certified Financial Planner and Enrolled Agent Tommy Lucas said he “absolutely agrees with these findings.” Adding, “It would save so many people the stress and headache of figuring out what documents they need, or how they are going to pay for their return to be done.”

What would automatic filing mean for the U.S.?

Automatic filing would allow your taxes to be filed without you preparing a return. Many other countries achieved return-free filing by using exact withholding, or tax agency reconciliation.

  • Exact withholding occurs when employers save the exact amount employees will owe throughout the year.
  • Tax agency reconciliation involves you, the taxpayer, approving a tentative pre-filled return.

What are the benefits of automatic, pre-filled tax returns?

Pre-filled tax returns would allow more people to file. Non-filers would claim refunds, or pay due taxes with automatic filing. Automated returns also have the potential to save taxpayers time and money, which is the point this research suggests. There are billions of dollars in tax refunds, waiting to be claimed by people who can’t afford to file, or may be missing a document to file.

What to do if you are if you are in tax debt

Optima Tax Relief services both individual and business tax cases. Give us a call at (800) 536-0734 for your free consultation today.

You can also download the Optima Tax App to help you understand what you should do if you received an IRS notice.

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