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Can your unemployment benefits affect your 2020 taxes?

More than 40 million Americans received unemployment benefits for the tax year 2020, which means more people may receive a tax bill after filing their taxes. Optima CEO David King and Lead Tax Attorney Philip Hwang provide helpful tips on what you can do to mitigate your tax situation and how to file a tax extension with the Optima® TAX APP if you need more time to file.

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Why You should consider Filing a Tax Extension

The IRS recently declared that they will be extending the tax deadline date from April 15, 2021 to May 17, 2021. However, if an individual requires additional time to file their taxes, they have the option to file a tax extension with the IRS or by using the free Optima® TAX APP. It is important to note that even if a tax extension has been filed, you must still pay your income tax in full by the tax deadline.

Here are some common reasons why taxpayers should consider filing a tax extension:

  1. Incomplete tax documentation. If you decide to file a tax extension, it allows you additional time to review all your tax documents to ensure that they are accurate. In addition to this, if you lose a tax form such as a W-2, you will need to contact your employer and wait for a new copy to be sent to you. Filing a tax extension will allow you time to receive your tax forms and properly file your taxes.
  • Unexpected life events. Even if you have every intention to file your taxes, sometimes life events get in the way that make it near impossible to do so. If you have a death or illness in your family or you fall victim to a natural disaster, it may prevent you from filing on time. Filing a tax extension will allow you more time to work through a life event or wait out a natural disaster.
  • IRA conversions. Delaying filing your taxes in order to obtain more tax savings could be a reason to file a tax extension. The IRS allows taxpayers to “recharacterize” their Roth IRA back into a traditional IRA at any time before filing their tax return, this allows an individual to avoid paying taxes on the balance. Since this conversion may take some time, filing extension can provide you with extra time to file and could eliminate your obligation to pay the IRS once your conversion is approved.

Penalties for late payment

Regardless of when you file your tax return, if you fail to pay your tax liability before the tax deadline, the IRS can place severe penalties against you. The IRS will charge one-half percent each month until the amount of taxes owed is paid.

If an individual fails to file a return by the extension date, the IRS penalty increases to 5 percent per month, for a maximum penalty of 25 percent.

Need more time to file your taxes? Download the Optima® TAX APP to get additional time to file your free federal tax return.

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The Complete Guide to Tax Relief for Small Businesses

If you own a small business, you are entitled to claim tax credits that will help reduce the total amount of taxes you may owe to the government.

Tax season for small businesses can be a confusing time for many business owners, especially if they do not know what they qualify for. Optima Tax Relief helps break down everything small businesses need to know when it comes to filing their taxes or seeking tax relief.

How much Tax does a Small Business pay?

Taxes can be complicated, which is why many small businesses struggle come tax time to understand why they have a tax liability. Some business owners may not even know the corporate income tax rate or what tax cuts they may be eligible for. In addition to income taxes, businesses are also responsible for paying their payroll taxes, unemployment taxes and many others.

According to the Small Business Administration, small businesses are expected to pay an average of 19.8% in taxes based on the type of small business they have. Small businesses with one owner can expect to pay a 13.3% tax rate on average while small businesses with more than one owner will pay an average of 23.6%. Small business corporations, such as small S corporations, will pay an average of 26.9%.

Small Business or Self Employed?

The terms “small business” and “independent contractor” are both commonly used to define a self-employed individual. These two terms are often confused with each other; here is how to tell the differences.

A small business ownership is defined by having others who work for you either as independent contractors or employees. If your business does have employees, you oversee their taxes and are responsible for obtaining Workers’ Compensation Insurance in order to meet your state’s requirements.

Self-employed individuals are responsible for filing a self-employed tax return and paying quarterly estimated taxes if they are expected to owe at the end of the tax year. Self-employment taxes are made up of Social Security and Medicare taxes that are typically withheld from a full-time employee’s paycheck.

Savvy self-employed workers might file their taxes quarterly to avoid penalties and a larger tax bill at the end of the year. For those who are in a self-employed partnership, taxes are typically paid by each member of the partnership based on their income or losses.

If you own a business or are self-employed, you can reach out to a licensed bookkeeper or accountant for guidance to get the most out of filing your taxes and to avoid ending up with a potentially avoidable large tax bill.

Top Small Business Tax Deductions

  • Advertising and promotion costs are considered miscellaneous expenses and if they are ordinary and reasonable, they can be deducted on a small business tax return.
  • Business meals can be deducted both individually and in groups with some limitations.
  • Business insurance expenses can generally be deducted for the ordinary and necessary cost of insurance if it is for your trade, business, or profession.
  • Business interest and bank fees can be deducted based on the interest charged both on business loans and business credit cards. Deductions can also be used to write off any fees and additional charges for a business bank account and credit card.
  • Car or Truck Expenses can be deducted if you own a business or are self-employed and use your vehicle for business-related purposes.
  • Depreciation can be deducted in order to reduce the value of an asset over time due to its age, wear and tear, or decay.
  • Education can be deducted if it maintains or improves skills required for your current job. Tuitions, books, supplies, lab fees, and similar items can also be deducted.
  • Employee Benefit Programs and Qualified Retirement Plans can mostly be deducted but are subject to limits on contributions that are to a retirement plan.
  • Home office expenses can be deducted if you use your residence regularly and exclusively as a principal place of business or a place to meet customer or clients.
  • Interest can be deducted on a business loan as long as you are using your loaned funds for business purposes.
  • Legal and professional fees that are related to running your business are considered deductible. This includes fees charged by lawyers, accountants, bookkeepers, tax preparers and online bookkeeping services.
  • Moving expenses directly related to the moving of business equipment, supplies, and inventory from one business location to another can be deductible.
  • Rent expenses can be deducted if the rent expense is for property solely used for business.
  • Salaries and benefits paid to an employee are tax-deductible expenses if they are deemed to be ordinary and necessary.
  • Supplies for the offices such as printers, paper, pens, computers, and work-related software can be deducted.
  • Travel expenses such as the standard mileage rate, as well as business-related tolls and parking fees can be deducted for your vehicle. Lodging and non-entertainment-related meals can also be considered deductible.
  • Utilities such as real estate taxes, repairs, maintenance, and other related business expenses can be deducted. 

How do LLCs Avoid Taxes?

Having a limited liability company, otherwise known as an LLC, is a legal entity that allows individuals to own and operate a business. LLCs are popular because they offer the same limited liability as a corporation but are much simpler and less expensive to run.

An LLC provides income tax flexibility compared to a sole proprietorship, partnership, and many other popular forms of business organizations. The taxation of an LLC is defined as a pass-through. This means that LLC’s earnings can be passed straight through to the owner or owners without having to pay corporate federal income taxes first.

The IRS also allows an LLC to determine which way their business will be taxes. Owners can choose to be taxed as a sole proprietor, a partnership, an S corporation, or a C corporation.

How can a Small Business Avoid Paying Taxes?

Here are five ways to reduce your taxable income on your small business:

  1. Employ a family member. The IRS allows a variety of options when deciding whether or not you want to employ a family member, all with the potential benefit of sheltering income from taxes. For example, if you have a sole proprietorship, you do not need to pay social security, Medicare and Federal Unemployment Tax if you are employing your children.
  2. Start a retirement plan. If you own your business, then you give up the 401(k) match that is matched by an employer. However, as a small business owner there are multiple retirement account options that can maximize retirement saving and allow you an individual to rake in the benefits.
  3. Change your business structure. Small business owners should consider a Limited Liability Company (LLC). Small business owners may be able to eliminate or decrease the employer-half of taxes for Social Security and Medicare taxes.
  4. Deduct travel expenses. You may be able to reduce your taxes if your job requires that you travel a lot. Although business travel is deductible, it is important to keep in mind that personal travel cannot be added to your business tax return.
  5. Save money for healthcare. The best way to reduce small business taxes is to put aside money for healthcare needs. Small business owners can accomplish this by using a Health Savings Account (HSA) if you have an eligible high-deductible health plan.

Hire a Tax Professional from Optima Tax Relief

Optima Tax Relief is a tax resolution firm with more than 25 years of experience that specializes in providing tax relief to individuals and small business owners that are struggling with IRS or State tax issues. Small businesses that need assistance with filing their taxes or getting out of collections should consider using Optima’s services to get compliant with the IRS.

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The Complete Guide to Hiring a Tax Professional

Most people require assistance when it comes to preparing and filing a tax return. Some may even find themselves having to provide additional information to the IRS and do not know what it is or where to find it.

Hiring a tax professional could save individuals both time and money when dealing with the IRS. Tax professionals can also prepare tax returns, help file income taxes, and assist taxpayers when it comes to dealing with the IRS, tax notices, tax liabilities, audits, and more.

The Benefits of Hiring a Tax Professional

Types of Tax Professionals

There are various types of tax professionals who specialize in focused areas of tax relief or tax prep and carry specific professional licenses.

  • Certified public accountants or CPAs can provide a variety of services such as:
    • Maintaining financial records.
    • Examining financial statements.
    • Providing auditing services.
    • Preparing tax returns.
  • Some CPAs specialize in tax planning and preparation such as:
    • Tax audits.
    • Payment and collection issues.
    • Appeals.
  • Enrolled agents are trained to find federal tax matters and are licensed by the IRS. Enrolled agents can assist with the following:
    • The preparation of both individual and business tax returns.
    • The representation of clients.
    • Other aspects of being a tax professional.
  • A tax attorney is licensed by the state to practice law. Most states require an attorney to have a law degree and pass a test administered by the state (bar exam). Tax attorneys can assist taxpayer with:
    • The preparation of tax returns.
    • Tax planning.
    • Providing advice to clients on long-range strategies for reducing their taxes.
    • Like CPAs and EAs, tax attorneys have unlimited rights to represent a client before the IRS.

Areas of expertise

There are a range of services that tax professionals can provide to taxpayers that can help them understand their taxes better. Based on what service you need, choosing the right tax professional or tax preparer can help you get back on track with your taxes, small business, and much more.

  • Enrolled Agents are IRS-authorized tax professionals who work alongside the U.S. Department of the Treasury by providing representation to individuals who need tax assistance.
  • Certified Public Accountants (CPAs) have state certifications to practice accounting. These experts can help individuals navigate certain tax situations. CPAs are licensed to represent taxpayers before the IRS.
  • Retirement tax professionals can help individuals know how their retirement options will impact their taxes. These types of tax professionals have received advanced training in tax preparations specifically for retirement plan contributions, distributions, and rollovers.
  • Small Business/Sole Proprietor tax professionals specialize in working with small businesses’ tax returns and educate their clients on how to properly prepare both their personal and company returns. These types of tax professionals have specialized training in sole proprietors, partnerships, and S corporations.
  • Investment Income tax professionals specialize in big or small investments, and gains or losses. These tax professionals also show your current and future tax situations.
  • International Taxation tax professionals assist individuals who have lived or worked abroad. These tax professionals are trained in international taxation which includes, claiming foreign earned income exclusions, the foreign tax credit, or treaty benefits for nonresident aliens.

Professional Licenses

Enrolled Agents (EAs) and Certified Public Accountants (CPAs) are both experienced professionals who maintain high ethical standards. The main difference between an EA and CPA is that an EA specializes specifically in taxation. CPAs can provide a wider scope of tax services for individuals.

Working with an EA would be beneficial for those who have IRS issues such as individuals who are in collections or dealing with an audit with the IRS. An EA would be best suited for someone who needs assistance with the IRS to help them with their tax concerns. EAs are also a great option for those who need tax preparation assistance and planning advice for both individuals and businesses.

CPAs specialize in tax preparation that can help individuals identify both their credits and deductions that can help them qualify for an increase in their refund or help lower their tax bill. CPAs are also beneficial if someone needs their tax information compiled, reviewed, or audited. 

When should I hire a Tax Professional?

You should hire a tax professional if you are short on time, are unsure how to file your taxes correctly, or feel overwhelmed by IRS forms with preparing your taxes. Tax professionals can help answer tax questions that you may have and even resolve most tax issues you may have.

The tax code can be very complicated and if you are unsure on how to handle your tax matters, a tax professional can assist. For example, a tax professional can help reduce the risk of any audit and know how to deal with the IRS on your behalf if you do end up being audited. Tax professionals can also help taxpayers avoid making costly mistakes on their tax return such as missed deductions or triggering an IRS letter. Tax professionals can also review previous tax returns to see if there were any errors and needs to be amended.

How to find the right Tax Professional for you

Individuals searching for tax assistance should follow these steps in order to find a tax professional who best fits their needs:

  1. Confirm your preparer has a tax identification number (ITIN).
  2. Make sure to confirm tax fees to ensure you are not being overcharged.
  3. Avoid tax preparers who do not e-file tax returns.
  4. Make sure that your tax preparer signs their name and provides their Preparer Tax Identification Number (PTIN) on your tax return.
  5. Make sure your tax professional can respond to the IRS. Enrolled agents, CPAs and attorneys that have a PTIN can represent you when it comes to IRS audits, payments, and collection issues.

10 Questions to ask a Tax Professional

  1. Do you have an IRS-issued Preparer Tax Identification Number (PTIN)?
  2. How do you keep up with the latest tax law? Are you regularly taking education courses?
  3. Do you offer a free initial consultation?
  4. Will you be the one preparing my return or someone in your office?
  5. Do you offer IRS e-file, and will my tax return be submitted to the IRS electronically?
  6. Will you keep my records and receipts on file? How long will you keep my records for?
  7. When do you require payment?
  8. When can I expect to receive my completed tax return?
  9. What happens if I get audited?
  10. Do you outsource your tax preparation?

Things to look out for when hiring a Tax Professional

Taxpayers should be aware of any red flags they experience when looking to hire a tax relief professional. Here is what individuals should look out for before hiring a tax professional:

  • Check the preparer’s qualifications.
  • Review the preparer’s history.
  • Ask about services and fees.
  • Make sure that the preparer offers e-filing.
  • Ensure your preparer has open availability if you have additional questions regarding your taxes.
  • Never sign a return if your preparer has added their name or PTIN.

How much does it cost to hire a Tax Professional?

The average cost of hiring a tax professional will depend on the complexity of the case that they are working on.

Consequences of not Hiring a Tax Professional

The federal tax penalties you could face by not hiring a tax professional to help you prepare your taxes could far outweigh the cost of soliciting tax help. Here are the repercussions individuals could face if they choose to not hire a tax professional:

  • Filing your own taxes could be time-consuming and confusing if you have never filed before.
  • You can miss out on tax preparation fees that could have been deductible.
  • You could miss out on certain credits or deductions if you are not aware of them.
  • If you get audited, you will not have a tax professional that can assist you through the process.
  • Filing your own taxes could lead to you making avoidable mistakes that could cause you problems with the IRS down the road.

Tax Relief Services at Optima Tax Relief

Optima Tax Relief offers tax relief services to individuals who are struggling with their IRS or state tax debt. Taxpayers that need assistance with tax preparation, setting up a payment plan with the IRS, getting out of collections, resolving an audit, or are looking to see if they qualify for a possible reduction in their total tax debt, should consider using Optima’s services.

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Here’s how Taxpayers Can get Ready to File their 2021 Taxes

taxpayers have not started already, they should consider beginning the process of gathering tax documents and scheduling a tax filing appointment in order to ensure that their tax filing experience goes smoothly.

Here are some ways individuals can prepare in advanced:

Check your withholdings ASAP! Taxpayers should review their withholdings from the prior year to see if they were withholding enough during the year or if they should prepare to expect a tax balance with the IRS. For individuals who are still unsure if they had enough federal taxes taken out, they should review the following:

  • You received a smaller refund than expected after filing your 2019 taxes last year.
  • Owed an unexpected tax bill last year.
  • Experienced personal or financial changes that might change your tax liability.

To avoid any tax time surprises for future years, taxpayers can utilize the Tax Withholding Estimator to perform a quick paycheck or pension income checkup. Doing this in advance, can help taxpayers avoid owing a tax liability.

Gather and store all tax documents for at least three years

Whether you store your documents electronically or keep physical paper statements, having an organized recordkeeping system is vital to filing an accurate tax return. Taxpayers should have the following tax documents on hand:

  • 2019 tax return.
  • Form W-2 from employers.
  • Form 1099 from banks and other payers.
  • Forms 1095-A from the marketplace for those claiming the premium tax credit.
  • Form 1099-NEC, Nonemployee Compensation.
  • Notice 1444, Your Economic Impact Payment.

Verify your mailing and email address

In order to ensure all tax forms get sent to a taxpayer on time, people should double-check and confirm with their employer(s) and bank that their current mailing and email addresses are still correct.

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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Taxpayers in Texas have until June 15th to File their Taxes

Individuals or businesses located in Texas will have until June 15 to file their taxes and make payments since the state has been officially declared a disaster area.

Last year, the IRS filing deadline was delayed to July 15 for all taxpayers due to the ongoing pandemic. The agency just declared that this year they will also be delaying the federal tax filing deadline to May 17 nationwide to not only allow taxpayers more time to file their taxes, but to allow the IRS more time to distribute the third stimulus check to qualifying individuals.

Any area that was impacted by winter storms and declared a disaster by the Federal Emergency Management Agency should review the IRS website to see if their area qualifies for the June 15 tax deadline.

The new extension will also affect individuals who have until June 15 to make 2020 contributions to their individual retirement accounts. Businesses normally have until March 15 to file a return, but those impacted by the winter storms have also been extended the same June 15 deadline courtesy. Quarterly estimated tax payments have also been extended in order to allow those in disaster areas more time to pay their taxes.

Taxpayers who will be unable to file their taxes before the deadline and need more time, have the option to request an extension until October 15 from the IRS. Even though the IRS does grant extensions, individuals should be aware that they will still be required to pay what they owe otherwise they will face interest and penalties.

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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Did your State Tax Filing Deadline Change? Here’s what You need to Know.

The IRS just announced that they will be extending the federal tax deadline from April 15 to May 17. This will allow taxpayers additional time to file their tax return during the ongoing pandemic and give the IRS some breathing room to also distribute the third round of stimulus checks to qualifying individuals. Although the federal tax deadline has been extended, taxpayers should be aware that state tax extensions may differ. Here are all the updated state tax deadlines you should be aware of.

Tax Extensions By State

As of now, 35 states have issued their guidance on state tax extension deadlines to May 17, 2021:

Arkansas recently announced that it will waive requirements for a written request for an extension to file an individual income tax return for the duration of the emergency. The state of Arkansas will also extend the tax filing and payment deadlines to May 17, 2021. The Arkansas tax extension will also apply to 2020 S corporation, fiduciary and estate, partnership, and composite returns.

California will extend its state tax filing deadlines and payment due date for individuals to May 17, 2021. Taxpayers should be aware that the California tax extension does not apply to estimated tax payments due April 15, 2021.

Connecticut has extended its state tax filing deadline for individuals to May 17, 2021. The Connecticut tax extension aligns with the new federal deadline.

Colorado has announced that 2020 individual income tax payment and filing deadline has been extended to May 17, 2021. Although the Colorado tax deadline has been extended, penalties and interest will be assessed if a payment is made after the tax deadline. The Colorado tax extension does not apply to estimated payments for the 2021 income tax year that are due on April 15, 2021.

The District of Columbia income tax returns have been extended until May 17, 2021. The state filing deadline also applies to all D20, D-30, D-40, standalone Schedule H, D-41, D-41, D-40B and D-65 tax filers and combined return filers. Taxpayers should be aware that The District of Columbia  tax extension does not apply to estimated tax payments due on April 15, 2021.

Delaware has extended its deadline to May 17, 20201 for both income tax returns and composite returns. The Delaware tax deadline extension does not extend to estimated payments for the 2021 tax year and will remain on April 30, 2021.

Georgia will extend the 2020 state individual tax filing payment deadline to May 17, 2021. The Georgia tax extension will not apply to estimated tax payments due on April 15, 2021.

Idaho recently introduced legislation to extend its tax filing deadline to May 17, 2021 to allow individuals more time to file their income tax returns. A decision on if an Idaho deadline extension will be granted is expected to be made on or after April 6, 2021.

Illinois 2020 state tax filing and payment deadline for individuals has been extended to May 17, 2021. The Illinois tax extension will not apply to 2021 estimated tax payments due on April 15, 2021.

Indiana announced that individual tax returns and payments originally due by April 15, 2021 will be extended to May 17, 2021.

Kansas has extended its tax filing, payment deadline for individual returns, and 2020 fiduciary income returns, to May 17, 2021. 2021 Kansas estimated tax payments will still be due April 15, 2021.

Kentucky the 2020 state tax filing and payment deadline for individuals has been extended to May 17, 2021. Taxpayers are reminded that the Kentucky tax extension does not apply to 2021 estimated tax payments due April 15, 2021.

Massachusetts will allow individuals additional time to file and pay their taxes by extending the tax deadline to May 17, 2021. The Massachusetts tax extension deadline will not apply to 2021 estimated tax payments.

Maine has announced that the state tax and payment deadline for Main 2020 individual income taxes has been extended to May 17, 2021.

Michigan has extended the state tax filing deadline and payment deadline to May 17, 2021. The first quarter estimates for tax year 2021 remain due on April 15, 2021.

Minnesota will allow individuals to file their state taxes and make their payments without having to worry about penalties and interest accruing up until May 17, 2021. This grace period does not apply to individuals who need to pay their 2021 estimated tax payments.

Mississippi will allow 2020 individual income tax returns to be filed until May 17, 2021. It is recommended to pay any tax due on or before May 17, 2021 to avoid and penalties or interest.

Missouri announced its 2020 tax deadline extension and payment deadline from April 15, 2021 to May 17, 2021. The Missouri tax extension does not apply to estimated tax deadlines that will be due on April 15, 2021.

Montana has extended both its filing and payment deadlines for 2020 individual income tax returns to May 17, 2021. Taxpayers are reminded that quarterly estimated payments for 2021 income taxes have not changed.

Nebraska announced that its state tax extensions will apply to both 2020 state individual tax filing and payment deadlines. Individuals will have until May 17, 2021. First quarter estimates for the 2021 tax year will remain on April 15, 2021.

North Carolina announced its state tax extension deadline for taxpayers to file their 2020 individual income taxes has been moved to May 17, 2021. Penalties will not be assessed for individuals who file and pay their taxes after April 15, 2021. Payments made after this date will cause individuals to accrue interest. The North Carolina tax extension does not apply to trust taxes such as sales and use or withholding taxes. Estimated tax payments are still due on April 15, 2021.

North Dakota will allow individuals to file their states tax return and pay any related tax up until May 17, 2021. Penalties and interest will be waived until May 17, 2021.

New Jersey 2020 state deadline extensions for income tax filing and payment have been extended from April 15, 2021 to May 17, 2021. The extended New Jersey tax deadline does not apply to estimated tax payments for the 2021 tax year and are due on April 15, 2021.

New Mexico tax deadline extension for filing and paying 2020 personal income taxes has been extended until May 17, 2021.

New York has extended its 2020 personal income tax returns and any related payments until May 17, 2021. Any 2020 personal income tax returns and related payments of tax that was previously due on April 15, 2021 will not be subject to any failure-to-file, failure-to-pay, late-payments, or underpayment penalties or interest if filed and paid by May 17, 2021. The New York state tax extension does not apply to estimated tax payments for the 2021 tax year are due on April 15, 2021.

Ohio will extend its state tax deadline to file and pay 2020 individual income and school district taxes to May 17, 2021. 2021 estimated tax payment due dates have not been extended.

Oregon automatically extended its state tax extensions for 2020 income tax filing and payment due date for individuals from April 15, 2021 to May 17, 2021. Penalties and interest will begin to accrue an any unpaid balance beginning May 18, 2021.

Pennsylvania has announced its state tax extension for taxpayers to file and pay their 2020 personal income taxes will be May 17, 2021. 2021 estimated tax payment due dates were not extended. 

Rhode Island will allow individuals to file and pay their 2020 individual income taxes up until May 17, 2021. The Rhode Island tax filing extension does not apply to estimated tax payments for the 2021 tax year that are due on April 15, 2021.

South Carolina announced its state tax extension for filing and paying 2020 personal income taxes until May 17, 2021. This South Carolina tax extension does not apply to estimated tax payments for the 2021 tax year that are due on April 15, 2021.

Tennessee extended its due date for filing and paying the Hall income tax from April 15, 2021 to May 17, 2021. Franchise and excise tax have been extended to May 17, 2021 for individuals who file a franchise and excise tax return using Schedule J2, Computation of Net Earnings for a Single Member LLC Filing as an Individual. Both interest and late-filing penalties will not be applied to payments made and returns filed on or before May 17, 2021. Estimated tax payment due dates have not been extended.

Utah announced its tax deadline extension for filing and paying 2020 personal income taxes until May 17, 2021. The new Utah tax deadline does not apply to estimated tax payments for the 2021 tax year and are due April 15, 2021. Taxpayers are reminded that interest and penalties will not accrue if payment requirements are met by May 17, 2021.

Virginia has extended its state tax filing deadline for individuals to May 17, 2021. This relief does not apply to estimated tax payments for 2021 tax year that are due on April 15, 2021.

Vermont announced its tax extension for 2020 personal income tax filing and payment due date to May 17, 2021. Interest and penalties can be avoided if payment requirements have been met by May 17, 2021.

West Virginia will allow 2020 individual income tax returns to be filed until May 17, 2021. It is recommended to pay any tax due on or before May 17, 2021 to avoid and penalties or interest.

Wisconsin announced its state tax extensions for 2020 personal income tax filing and payment. Taxpayers are expected to file and meet any payment requirements by May 17, 2021 in order to avoid penalties and interest.

Texas, Oklahoma, and Louisiana state tax deadlines extended due to winter storms

The IRS recently announced that they will be providing tax relief to the victims of the winter storms in Texas, Oklahoma, and Louisiana. These states will have until June 15, 2021 to file their individual and business tax returns and make any tax payments. The May 17 tax filing deadline and payment extension relief does not apply to these three states. 

For additional information on your state’s tax deadline, you can visit the Federation of Tax Administrators website.

To learn more about the new tax filing deadline, click here.

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Are you eligible for the $1,400 stimulus check?

The recently passed American Rescue Plan means that millions of individuals will be receiving a third round of stimulus checks. Optima CEO David King and Lead Tax Attorney Philip Hwang answer questions about who is and who is not eligible to receive the most recent economic payment, as well as how to file an extension with the Optima Tax App to ensure the IRS has your most recent information.

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Did You Receive a Letter from the IRS? Here’s what to do.

For many taxpayers, it can be extremely confusing to decipher the information that the IRS is trying to convey to you in a notice. Individuals should first read the notice or letter they received in full before making any rash decisions. For those who are still unsure about what the IRS is trying to tell them, here are a few tips to help you figure out what your notice means.

Make sure the notice is for you

There is a possibility that the IRS may have sent a notice or letter that is not meant for you. The massive government agency handles millions of tax returns and is currently understaffed, underfunded, and the employees are overworked. With all of this in mind, it is inevitable that the IRS could make the mistake of sending you a notice. Make sure to read the notice and double-check that the information being requested pertains to you. If you do not find anything wrong with your tax return or believe that you do not owe a balance, contact the IRS to see if the notice was a mistake on their end.

What to do if you do not understand your notice

If you have received a notice and are unsure of what the IRS is trying to tell you, send a copy to your tax preparer so they can provide an explanation to you. You can also download the FREE Optima® TAX APP with IRS Notice Analyzer which will help you analyze your notice and measure the severity of your situation in just seconds. If you prepared your tax return yourself, look for issues that a preparer would look for: A date may have been misread, information that is being requested, or the IRS informing you of a tax balance.

If you have yet to resolve any tax issues that the IRS informed you of, there is a possibility that you may eventually have to face financial consequences with the IRS. Taxpayers should also be aware that tax items from a prior year could impact their current year’s return.

Make sure to keep your records

Taxpayers should keep their receipts and records for six years to ensure the IRS does not request any information from their past tax returns. It is also important to note that if you are going through an audit, the IRS will not accept credit card receipts even if you use a company credit card. The IRS will require taxpayers to provide the original vendor receipt.

Should the IRS audit your taxes, always be sure your tax records and receipts are on hand to ensure the process is seamless. This can help prevent the IRS from sending you a tax bill for issues on your return that could have been resolved if you had substantiation.

Download the Optima® TAX APP with IRS Notice Analyzer

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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Is Your Stimulus Check Taxable?

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The tax code states that individuals must pay taxes on any income that they have earned throughout the tax year. So, does that mean you have to pay taxes on any of the stimulus checks that you have received?

There are loopholes in the current tax law that prevent qualifying individuals from having to pay taxes on their stimulus checks. These payments are not considered income and are instead considered an advance payment on a tax credit. For those who receive tax credits, it is important to know that they are not considered a taxable credit.

Taxpayers filing their 2020 federal income tax return (Form 1040), will see an additional line on the second page for the “Recovery rebate credit.” Individuals should review this line on their return carefully, especially if they:

  • did not receive the full amount from the first and second stimulus check
  •  did not file a 2018 or 2019 tax return
  •  are married and one spouse did not have a Social Security number
  •  saw a decrease in income in 2020
  •  had a baby in 2020
  •  are a recent college graduate
  • had a significant change in circumstances in 2020.

For those who qualify for the stimulus check and have not received the full amount from either of the stimulus payments, this new credit will help you save a lot of money.

The first and second stimulus checks are calculated the same way and are based off the information that was provided on your 2018 or 2019 tax return. The tax credit will also be based on the number that an individual puts down on their 2020 tax return.  Taxpayers should be aware that failing to file their 2018 or 2019 tax return could result in a difference between the amount of their stimulus checks and credit amount.

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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