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Small Businesses that Took out PPP Loans may face Tax Implications

The federal COVID Relief bill provided small businesses with forgivable loans to assist them throughout the ongoing pandemic. Although this bill has provided considerable assistance, small businesses may still have to deal with a tax hit when it comes to filing their state tax returns.

Some borrowers may be eligible for PPP loan forgiveness if at least 60% of their proceeds go towards payroll expenses. Partial loan forgiveness may also be available to those who fall sort of the threshold. PPP borrowers are also able to claim tax deductions for expenses that were covered with forgiven loan proceeds. PPP loans that aren’t forgiven, must be repaid and are subject to an interest rate of 1%.

Taxpayers need to be aware that some states may block PPP borrowers from claiming deductions on state tax returns or from having their balances zeroed out without paying any taxes on it.

Every state will vary in their approach to the Internal Revenue Code and can decide whether or not they will adopt changes to the federal law. Some states may follow their own rules when determining each individual’s income while others will choose to follow the federal code.

States have the ability to take different approaches when interpreting the COVID relief measures which includes the possibility of disallowing tax-free PPP forgiveness or blocking deductions associated to PPP.

Another factor that may determine whether or not states will consider the PPP loan as income is the state sales and income tax revenues. Due to COVID-19, many states have seen a decline in state income amid layoffs and businesses having to close down.

Taxpayers should review their state’s tax filing guidelines to determine how they should file and if they should prepare to owe a state balance.

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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2021 Tax Filing starts on Feb. 12. Here’s what to do to get Your Tax Refund Quickly

The IRS recently announced that tax season will start on Friday, February 12, 2021, which is when the tax agency will begin accepting and processing taxpayers’ 2020 tax returns.

The new filing date allows the IRS an ample amount of time to do additional programming and testing of IRS systems following the December 27th tax law changes that allowed the distribution of Economic Impact Payments as well as other benefits.

The programming tests that the IRS will be running are to ensure that all their systems run smoothly. This testing period allows the tax agency to work out any delay in issuing refunds to tax filers. These changes will also ensure that eligible taxpayers will receive any remaining stimulus money as a Recovery Rebate Credit when they file their 2020 tax return.

In order to speed up the process of processing and sending refunds during the pandemic, the IRS strongly recommends taxpayers to file their taxes electronically with direct deposit. Individuals can start filing their taxes immediately with tax software companies. These groups are accepting tax returns now and returns will be transmitted to the IRS starting February 12th.

Taxpayers should be aware that under the PATH Act, the IRS is unable to issue out a refund involving the Earned Income Tax Credit or Additional Child Tax Credit before mid-February. This law provides additional time to help the IRS stop fraudulent refunds and claims from being issued to scammers.

The IRS estimates that nine out of ten taxpayers should receive their refund within 21 days from when they file electronically with direct deposit and there are no issues with their tax filing.

Here are some tips for taxpayers to make filing easier:

  • File your tax return electronically and use direct deposit in order to receive your refund quickly.
  • Check the IRS website for the latest tax information.
  • Those who didn’t receive a payment or only received a partial payment may be eligible to claim the Recovery Rebate Credit when they file their 2020 tax return. 
  • Stimulus payments received separately are not taxable, and they will not reduce a taxpayer’s refund when they file their 2021 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.

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What Taxpayers need to be Aware of when Reporting Virtual Currency to the IRS

Individuals who have invested in Bitcoin have watched the value of it increase exponentially within the last few years. Taxpayers who are considering selling it or keeping any gains they’ve earned from it should be aware that virtual currency is still considered taxable and may get them into trouble should they fail to report it to the IRS.

Over the course of 2020, the value of Bitcoin has gone up by more than 150%. Whether you have sold or kept your Bitcoin shares, be prepared to place it on your upcoming tax return in order to ensure the IRS does not come after you.

One question taxpayers should ask themselves before filing, is if at any time during 2020, did they receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency? If the answer is yes, then the IRS will require you to report it on your taxes.

Tax filers will also need to double-check their return when filing through a CPA to ensure that transactions have been reported properly and that all boxes that apply to them have been checked off.

Not only does the IRS want to know about any virtual currency that you bought or sold, they also expect taxpayers to check the “Yes” box on the front of your tax return if you have received any crypto for free. This also will apply if you have received your Bitcoin in exchange for goods or services or if you have traded it for other property, including other virtual currency.

Individuals will need to keep meticulous records of their transactions over the course of the year in order to have the most accurate information when providing this information over to their CPA or if they are filing on their own.

If major cryptocurrency exchanges have occurred, you may be provided with a Form 1099-K. This form is typically sent to people who have had gross payments exceeding $20,000 and if they have made more than 200 transactions.

If you received a virtual currency from an employer, then it will be treated as wages and both federal income taxes and FICA taxes will apply. It will also be reported on your Form W-2, which should be given to you by your employer at the beginning of the year.

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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When Can Taxpayers Expect to Receive their Stimulus Payment? 

The IRS and the Treasury Department have already begun to distribute a second round of stimulus checks to individuals. For those who opted for direct deposit, they can expect to receive their money very soon if they haven’t already. Taxpayers who are receiving their economic impact payment in check form, can expect to receive it throughout all of January.

Read more here

If Student Loan Forgiveness is Adopted, it Could Impact Your Taxes.

Student debt cancellation is currently being discussed between Senate Minority Leader Chuck Schumer and President-elect Joe Biden. Because of the ongoing pandemic, many Americans are struggling to financially stay afloat because of the ongoing pandemic. Student loan relief could help those who don’t have the ability to make their monthly payments. Here are some possible tax implications you could face if your student debt goes away.

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Tax Implications when Buying & Selling Stocks 

Although the stock market has been unstable throughout the course of the pandemic, millions of individuals have still been investing in stocks and making the most of stock prices that have hit their lowest. Those who have been investing in the stock market or have sold any stock will need to report any capital gains they received to the IRS in order to avoid any tax implications.

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Small Businesses have been hit with a PPP tax Change. Here’s Everything You need to Know.

The IRS has added additional information to the Small Business Administration’s Paycheck Protection Program. The additional details entail that tax-deductible items will not be deductible if they were paid through PPP funds.

Read more here

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What is Income Tax?

Governments require money as a way to operate which is why income taxes were put into place and are generally based off the amount of money an individual earns in a year. Most money that is received is subject to being taxed such as salary, interest, dividends, rents, royalties, lottery winnings, unemployment compensation and the earnings from a business you own.

Where does income tax come from?

Income tax is typically paid for by workers and people with income. Corporations, trusts, estates and many other types of entities also pay income tax on the profits they receive.

Many states also impose a similar form of taxation on individuals and entities that have a significant connection to the state. As of 2020, there are several states that don’t charge income tax. For those living in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you are most likely responsible only for federal income tax.

Voluntary reporting of income tax

The U.S. income tax system is a voluntary system. Although it is a voluntary system it does not mean that paying your taxes is optional. The federal government relies on taxpayers to voluntarily report all income that is earned on their tax return and calculate the appropriate tax using the current tax laws.

The IRS has ways to ensure that income taxes are paid and receives copies of taxpayer’s W-2 every year should a taxpayer not file their taxes. The IRS can also calculate your taxes and send you a bill based off the tax forms the IRS has received. Additionally, the IRS charge interest and penalties against those who owe a tax balance.

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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Small Businesses have been hit with Another PPP tax Change. Here’s Everything You need to Know.

The IRS has added to the Small Business Administration’s Paycheck Protection Program. The new guidance was issued on November 18th and offers additional details the entail tax-deductible items will no longer be deductible if they were paid with PPP funds.

Small businesses have been prohibited from deducting expenses in 2020 taxes that are associated with PPP loan forgiveness even if it takes until 2021 or 2022 to reach actual forgiveness, or if the business has yet to fill out a forgiveness application.

Businesses that plan to defer 2020 tax liabilities for the year while waiting for their loans to be forgiven may no longer be allowed due to the new guidance that the IRS has provided around the PPP.

Without the PPP, small business would be forced to lay off their staff in order to save on any expenses they may incur throughout the year. The only reason why staffing levels have been able to maintain at their current rate is due to the PPP.

Many businesses will still financially benefit from PPP loans even though there are limits on tax deductible items.

The Biden administration may review the current guidelines for the PPP loan in order to see if there are any alterations that need to be made to it. However, it is unlikely that they would be able to entirely reverse guidelines created for the loan.

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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If a $50,000 Student Loan Forgiveness is Adopted, it Could Impact Your Taxes. Here’s How.

Senate Minority Leader Chuck Schumer has requested that President-elect Joe Biden forgive up to $50,000 for student loan borrowers.

Debt cancellation is something that has been highly considered but often carries with it a tax bill for the borrower. Schumer believes that Biden can help avoid that entirely.

Many households that are currently suffering financially due to the ongoing pandemic would need the problem of student loan debt addressed, including the issue of monthly payments and balances that have continued to accrue interest.

There are several situations that could allow for tax-free debt forgiveness under the current law:

  • The first to consider is the Public Service Loan Forgiveness program. A borrower’s remaining federal loan balance will be wiped after 120 qualifying payments. Students must be working from a government organization or a 501(c)(3) not-for-profit.
  • Those who have student loans should be aware that nearly 180,000 unique borrowers have applied to have their debt wiped clean while only 3,469 have been forgiven from the U.S. Department of Education.
  • A taxpayer will be granted relief from their student debt due to death or total and permanent disability of the student is also considered tax-free.

Back in January, The IRS and Treasury Department gave tax relief to defrauded students who have had their balances wiped when their colleges closed. As of now, it still remains to be seen how Congress or how the new Biden administration will assist student loan borrowers with taxes that comes directly from debt forgiveness.

We will continue to update you with new information as this story develops.

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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When Can Taxpayers Expect to Receive their Stimulus Payment? Your Questions Answered.

A second round of stimulus checks are starting to be issued out by the IRS and the Treasury Department to individuals as of last week.

Taxpayers should be aware that the distribution of their payment could potentially take several days to post to individual accounts. Those who opted for direct deposit on their tax return will likely be able to view the payment as pending or as a provisional payment in their account before the scheduled payment date of January 4, 2021, which is the official date the funds will be made available.

Paper checks have already began being distributed to taxpayers and will continue to be mailed out through all of January. A handful of individuals can also expect to be mailed debit cards in January. The IRS strongly recommends people check their mail carefully and to be aware that sending out the checks will take the IRS more time to process compared to those who chose direct deposit as their method for their impact payment.

No action is required on the taxpayer’s end and those who are eligible for the second stimulus check will receive the payment automatically and should not contact their financial institutions or the IRS with payment timing questions.

Eligibility

U.S. citizens and resident aliens who are not eligible to be claimed as a dependent on another person’s income tax return, are eligible for this second payment. Qualifying individuals can receive up to $600 or $1,200 for married couples and up to $600 for each qualifying child.

Individuals who have an adjusted gross income for 2019 up to $75,000 ($150,000 for married couples filing joint returns) will qualify for the full amount of the second stimulus payment. Filers who earn income above these amounts will receive a reduced amount.

Check the status of a payment

Taxpayers now have the ability to check the status of both their first and second payments by using the Get My Payment tool on the IRS website.

Payment not received or is the incorrect amount? Taxpayers can now claim this on their 2020 tax return

Payments will be made to those who have provided valid routing and account information on file. If a payment was sent to an account that is no longer valid, the financial institution that received the payment must return it to the IRS. If you have yet to receive your full payment by the time you file your 2020 tax return, you may claim the Recovery Rebate Credit on your tax return.

Updating bank account or mailing information

Eligible taxpayers should be aware that the IRS does not have the ability to change an individual’s payment information such as a bank account or new mailing address. Eligible taxpayers who do not get a payment or it is less than expected may be able to claim it on their 2020 tax return as a Recovery Rebate 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.

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Tax Implications when Buying and Selling Stocks During a Market Downturn

The stock market can be extremely volatile, especially throughout the entirety of this year due to the pandemic, businesses closing down, and unemployment numbers increasing, and of course, the presidential election that just took place.

Millions of American invested in the stock market and took advantage of stock prices when they hit their lowest while millions of others chose to sell the current stock they had in order to avoid any additional losses they could face in the near future.

If you currently invest in the stock market or sold your stocks this year, you may be wondering if you will face any tax implications when it comes time to file your taxes. Here is everything you need to know about reporting your stocks on your tax return.

Taxes on Capital Gains

Shares of stock that were sold at a higher rate compared to when you purchased them means that you will be responsible for reporting and perhaps paying on any capital gains you may have created. One thing to consider when selling during a downturn is how long you’ve had your stock for. You may have a tidy gain even if it has fallen from its previous highs.

Long-term vs. Short-term Capital Gains

Taxpayers that have a gain on a sale of security they have held for over a year will receive the benefit of lower long-term capital gains tax rates depending on their income. However, if their gains come from the sale of a stock that has been held for one year or less, their stock sale will be taxed as a short term capital gain.

Offsetting Capital Gains with Capital Losses

If you’ve sold losing stock and have a capital loss, you can offset your losses with your capital gains. This is also known as tax-loss harvesting meaning investors analyze their capital losses so they can offset their capital gains.

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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Tax Tips for Taxpayers Filing Federal Tax Returns Amid the Pandemic

The IRS is encouraging all tax filers to prepare in advance when it comes time to file their 2020 tax returns. Taking necessary action ahead of time can help a taxpayer file a much more accurate return and avoid making simple mistakes.

Taxpayers should start gathering Forms W-2, Wage and Tax Statement, Forms 1099-Misc, Miscellaneous Income, and other income documents in order to help determine what credits and deductions you could be eligible for. If you received Notice 1444, Your Economic Impact Payment, you’ll want to calculate any Recovery Rebate Credit that you may be eligible for on your 2020 federal income tax return.

It is important to know that most income will be considered taxable and that this will also include unemployment compensations, refund interest, and income and virtual currencies.

For those who have an Individual Tax Identification Number, you will need to double check that it has not expired before filing your taxes in order to avoid any processing delays. If your ITIN has expired, the IRS recommends submitting a Form W-7, Application for IRS Individual Taxpayer Identification Number. Those who fail to renew their ITIN could face a delayed refund or may even be ineligible for certain tax credits.

The IRS recommends that tax filers use the Tax Withholding Estimator on the IRS’s website. This will help determine if you are withholding the correct amount for federal on your paycheck in order to avoid having a balance when file their taxes. If you need to adjust your withholding for the rest of the year, you should submit a new Form W-4, Employee’s Withholding Certificate, to your employer.

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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