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Taking a CARES Act Retirement Withdrawal could Lead to a Tax Liability

If you’re out of work due to the coronavirus and in need of money fast, you might want to consider withdrawing from your retirement savings. Taxpayers who have had a negative impact on their finances due to the pandemic should know that temporary changes to the rules under the CARES Act allows taxpayers to make early withdrawals from their traditional individual accounts. Here is everything you need to know about making an early distribution and what the possible tax implication could be for you.

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Is My Social Security Number Required in Order to File My Taxes?

For those that are filing for the first time on their own, it can seem overwhelming trying to figure out what information you need to provide to the IRS in order for your return to be accepted. One question that many people ask is if a social security number is necessary to have when filing their taxes. Here’s everything you know about if your social security number is required and what you should do if you don’t have one.

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The IRS to Contact Taxpayers Who are Eligible for a Stimulus Check

Due to the ongoing coronavirus pandemic, many Americans have been struggling to stay financially afloat. To help offset the many expenses that households across America are facing, the government issued out $1,200 stimulus checks to qualifying taxpayers. If you have yet to claim your check or didn’t realize that you were eligible for relief money, you can expect the IRS to contact you to notify you about your check.

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If a Second Stimulus Check is Approved, When will it Arrive?

Ongoing negotiations are underway to pass another relief package to assist Americans that were affected by COVID-19. It is assumed that another economic relief rescue package will be passed and taxpayers will be paid out for a second time this year however, it will depend on how quickly the IRS can distribute the money to qualifying Americans. Here are important stimulus check facts taxpayers should know.

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Going Green can get You a Bigger Tax Refund

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

Going green has tax benefits that could potentially reduce your total tax bill when filing your taxes. More taxpayers are taking advantage of these tax incentives by buying alternative vehicles, using Energy Star products or installing energy equipment in their home. Here are the top green tax credits you should be claiming.

  1. Clean energy vehicle savings

Although tax credits for most hybrid vehicles have expired, there are still ways that taxpayers can take advantage of having an alternative vehicle. 

There are certain vehicles that could qualify under the Alternative Motor Vehicle Tax Credit. The amount of the credits vary based on the make, model and year of the vehicle that a taxpayer is attempting to claim. Additional requirements to be aware of before claiming the tax credit are:

  • The car was purchased before 2017.
  • You are the original owner of the vehicle.
  • You drive your car primarily in the U.S.

For those who purchased a plug-in electric vehicle, you could be eligible for the Qualified Plug-In Electric Drive Motor Vehicle Credit. The credit applies to new electric vehicles bought after December 31, 2009. In order to qualify for the credit you will need the following:

  • The vehicle must have been purchased new.
  • The vehicle must have been made by an eligible manufacturer under the Clean Air Act.
  • Have at least four wheels.
  • Have the ability to be driven on highways and public streets.
  • Have a weight rating of less than 14,000 pounds.
  • Purchased an electric motor that uses a rechargeable battery to generate at least 5 kilowatt hours of capacity.

Tax credits for both of these can range from $2,500 to $7,500 based on the vehicle’s battery capacity and the overall size of the vehicle.

  • Make a donation for a smaller tax bill

Taxpayers who make charitable contributions such as cellphones, game consoles, computers or any other qualifying electronic donation, can write it off based on the fair market value. In order to be eligible for the tax credit, you must have the following:

  • A donation that is valued at less than $500, no forms will be required to be filled out.
  • Charitable deductions exceeding $500 must be submitted with Form 8283, which lists the name of the organizations and types of donations made with your tax return. 
  • Keep a receipt for your files.
  • Use Energy Star products

The Energy Star program of the U.S. Environment Protection Agency and the U.S. Department of Energy helps taxpayers save money when they go green. Taxpayers should be advised that not all Energy Star products qualify for the incentive and some tax breaks for energy expired in 2011. There are still a few credits available through 2021 for certain energy programs that have been mentioned above.

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

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Having the Right Payroll Service can Protect Employers from Fraud

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.

Choosing a company to handle your payroll tax should be chosen carefully in order to avoid missed deposits for employment taxes and unpaid bills. Every year, there are a few payroll service providers who don’t submit their client’s payroll taxes and close down. 

Clients of a payroll firm are typically responsible for paying the taxes that are due even if the employer sends funds to the payroll service provider for required deposits or payments.

Employers need to understand their payroll and employment tax responsibilities in order to file properly. When looking to hire a payroll service to handle your payroll taxes, here are two options to consider:

  • Certified professional employer organizations (CEPOs) are liable for paying the customer’s employment taxes, filing returns, and making deposits and payments for the taxes reported related to wages as well as compensation.
  • A payroll service provider that informs the IRS of its relationship with a client using Form 8655, Reporting Agent Authorization, which is signed by the client. Reporting agents must deposit a client’s taxes using the Electronic Federal Tax Payment System and can exchange information with the IRS on behalf of a client, such as to resolve an issue. 

It’s encouraged that employers enroll in the Electronic Federal Tax Payment System (EFTPs) to ensure that the payroll providers use EFTPS to make deposits. The service provides employers with easy online access to their payment history when deposits are made under their Employer Identification Number, enabling them to monitor whether their payroll service provider is meeting its tax deposit responsibilities.

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

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This Tax Break Could be Yours if You Make the Right Moves

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.

During tax season, most taxpayer’s goal is to save as much money as possible and to receive the biggest refund check. Regardless of your age, salary, and financial situation, no one wants to deal with a tax bill after filing their tax return. 

There are a few tax breaks that are difficult to come by. For example, if you don’t own a home, you won’t be able to itemize any expenses such as, mortgage interest on your tax returns. It’s important to keep in mind when filing that if you’re a moderate to high income earner, you may miss out on certain tax credits that low-income filers may qualify for.

Taxpayers should research what tax breaks they will qualify for based on their filing status and financial situation. Here is a way for taxpayers to get a tax break when filing their next return:

Max out your retirement plan contributions

It’s necessary for most people to start saving for their retirement as early as possible and now, there are tax benefits to save money while putting it away in your retirement. 

Both traditional IRA and 401(k) contributions are made with pre-tax earnings. Every dollar put into your retirement, is a dollar of income the IRS can’t tax you on. The savings associated with your retirement will determine the tax bracket you fall into.

If you’re looking to get a tax break on your 2021 taxes, be sure to contribute to a traditional retirement plan, not including a Roth account. If you’re investing in Roth contributions, you need to know that it’s made up of after-tax dollars so you won’t see the benefits of immediate tax savings. 

For those wanting to lower their tax bill in 2021, try maxing out your retirement plan in order to see the most savings when filing your taxes. This could potentially lead to you receiving a higher refund or reducing your tax bill.

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

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Businesses Might have to Pay for Higher Unemployment Taxes

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

States are currently in position to raise taxes on businesses starting next year and decrease jobless benefits for workers as the pandemic continues and the economy takes a downturn due to the increasing amount of businesses closing down and many Americans still out of a job.

Industries such as bars and restaurants were impacted the most by the employment crisis and may also have to deal with the largest tax hikes.

Millions of Americans received government aid during the past six months in order to make ends meet, and hundreds of thousands file new unemployment applications for aid each week.

The unemployment insurance system was created in 1930 and has already depleted the trust funds states use to pay benefits. Multiple states have already needed to borrow money after these trust funds had been drained. It is expected that many other states will need to do so by the end of the recession, according to unemployment experts. 

Because trust funds are funded solely by payroll taxes that are levied on employers, it is almost certain that levies alone will not recover all the money used to assist with unemployment. States will need to increases taxes in order to replenish the money that has already been lost.

Although a state tax increase is inevitable, tax rates will depend on the balance in state unemployment trust funds. In many states, low balances will automatically trigger higher tax rates, and vice versa. 

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

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

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The IRS to Contact Taxpayers Who are Eligible for a Stimulus Check

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

The IRS has started to reach out to over 9 million Americans who may be eligible for a federal stimulus check but have yet to claim their coronavirus relief payment. 

Those who qualified for the past stimulus check but didn’t receive it will be sent a letter from the agency regarding the money they are owed on September 24th. The letter will inform recipients that they are eligible for the payment if they meet the certain criteria. Taxpayers must be a citizen or a resident alien and also have a valid social security number.

Currently, Washington, D.C., has the largest share of Americans who are entitled to a check, based off the state data issued by the IRS. Alaska is currently in second, with about 4.2% of the state’s residents who are expected to receive a letter from the IRS notifying them about claiming their money.

California has the most residents, at 1.2 million, which could be eligible for claiming their check but still have yet to. Texas currently has 796,000 pending, Florida has 567,000, followed by New York with 538,000 and Georgia with 349,000 unclaimed stimulus checks.

The relief payments are meant to target middle to low income households by providing $1,200 for single taxpayers, $2,400 for married couples and $500 per child under 17 years old. In order to deliver the first round of stimulus checks as quickly as possible, the IRS relied on taxpayer’s most recent tax returns which included either their banking information or home addresses for paper checks.

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

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Renting out a spare room and taxes – everything you need to know.

Tax Tips For Landlords

If you have decided to join the sharing society and rent out a room or part of your home, either through a service like AirBnB or independently, you should inform yourself about the implications of renting out a room and taxes.

Renting a room requires some work up-front, and ongoing management. You have several tasks ahead of you. You will most likely want to spruce up the place with comfy furnishings and linens, and maybe a fresh coat of paint. Check the legal regulations for renting in your local area, you may discover there are limitation on the type of rentals you can offer, be they short-term or long term.

And then, there’s landlord tax. Running afoul of the IRS can potentially wipe out any financial gains you may reap from opening your home to complete strangers – be sure to abide by the laws of landlord tax. Fortunately, you can reduce your potential tax bite with diligent record keeping. Here is everything you need to know about renting out a room and taxes.

Do I have to pay taxes if I rent out a room in my house? – The 14 Day Rule

The most convenient and potentially lucrative scenario would be to completely avoid reporting or paying income taxes on the income you earn from renting out your couch or your spare room. Well, you can, if you meet two relatively easy requirements set by the IRS.

First, you must use the residence as a home at least 14 days out of each calendar year. Second, you must limit the time that you rent any part of the residence that you use as a home to 14 days or less each tax year. That’s it.

So if you have a primary residence plus a vacation home where you spend at least two weeks of the same year, you could rent out rooms in both and collect rental revenue for 28 days (14 days for each residence) completely tax free. It gets better: the IRS places no upper limit on how much income you earn as long as you don’t exceed 14 total days of rental per property. (IRS.gov)

If you live near the town where the All-Star game for a major sport is being played that year, you could rent out one room or the entire place for the week, rake in major cash and never report a dime on your tax return. Pretty sweet. But if a renter burns a hole in your floor, you are stuck paying for the repairs.

What happens if I use my rental property more than 14 days?

Should you exceed the 14-day threshold, matters become somewhat more complex. First, you must determine whether you or one or more family members resides in the residence or uses it for personal purposes for at least 10 percent of the time that you rent at fair rental price. You don’t have to be there at the same time you’re renting, but your time in the residence must equal at least 10 percent of the total rental time. So if you rent out your vacation home for 300 days each year, you or another qualifying person will need to live there for at least 30 days during the same year for the IRS to qualify the residence as a home. For the purposes of this article, the assumption will be that the residence qualifies as a home for IRS purposes. (IRS.gov)

The rules differ for rental properties that are used for what the IRS calls “personal purposes” rather than as residences. There are also different regulations that apply if you use the rental property as a residence, but don’t live there enough of the time for the residence to qualify as a home. To sort out those types of issues, consult with a professional such as an attorney with Optima Tax Relief.

What IRS forms are needed for rental property?

As a contractor with AirBnB living within the United States, you would complete Form W-9, Request for Taxpayer Identification Number and Certification. You would also receive Form 1099, Miscellaneous Income before you file your federal income tax return for the following year. (International contractors complete different forms.) If you operate as an independent, you will need to maintain your own records for rental income and expenses, preferably separate from your personal household expenses.

If you provide sleeping space, but no frills, report income and losses on Schedule E, Supplemental Income and Loss, attached to Form 1040, Form 1040NR or Form 1041. If you splash out on fluffy towels, turn-down service, and catered breakfast in bed for your guests, report income and expenses through Schedule C, Profit or Loss from Business, also filed with Form 1040, Form 1040NR or Form 1041.

In either case, you are also allowed to deduct the costs of repairs, depreciation (by filing Form 4562, Depreciation and Amortization), uncollected rents and actual operating expenses. But if a renter trashes the place and you file Schedule E, you will also need to complete Form 6198, At-Risk Limitations or Form 8582, Passive Activity Loss Limitations. If you’re not sure which form you should complete, consulting a tax professional is your best strategy.

What is considered fair rental price and how is it calculated?

If you live in the heart of Manhattan or in a condo overlooking Lake Michigan in Chicago, you might think that setting your rents at bargain basement levels would help you beat the competition. If you set your prices too low, you may well attract the unfavorable attention of the IRS.

That doesn’t mean that you must charge exactly what every other landlord or private renter in your area charges for rent. It does mean that you must set prices for your rental that are comparable to the going rent for similar properties in your area – what the IRS calls “fair rental price.”

If you fail to charge fair rental prices or if you never report a profit from your rental, the IRS may decide that you’re not serious about making money. You don’t have to show a profit every year, but he IRS assumes that you have a genuine profit-making motive if you show gains during at least 3 of the most recent 5 years, including the current year. (IRS.gov)

The Hobby Loss Rule

If you fail to show profit you could you could be hit by the so-called “hobby loss rule,” which prevents you from using losses related from your venture to offset other income on your federal tax return. Instead, you use must losses related to your rental activities as itemized deduction on Schedule A. Deductions would be limited to the following strict limitations.

  • Deductions such as mortgage interest and taxes are allowed in full
  • Deductions like advertising, insurance and premiums are allowed only to the extent that gross income exceeds deductions from the first category
  • Deductions such as depreciation and amortization are allowed only to the extent that gross income exceeds the amount of deductions taken for both of the prior two categories.

Participating in the Sharing Economy

Knowing the ins and outs of renting out a room and taxes can be tricky. However, this article is not intended to discourage you from renting out a room in your home, being a live-in landlord, or otherwise participating in the sharing economy. It’s a potentially exciting way to meet interesting people from all over the country or even other parts of the world.

But just as you want your house or apartment to look its best, you’ll also want your financial house to be in order, too. That way you can concentrate on being the best host you can be, without being hit with unpleasant surprises at tax time.

Need some help with landlord tax? Consult one of our tax professionals to learn more about renting out a room and taxes.

Taking a CARES Act Retirement Withdrawal could Lead to a Tax Liability

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

With taxpayers still dealing with the financial fallout from the COVID-19 outbreak, many are falling on hard times and needing to get cash quick. The Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, has a provision that can aid Americans that are financially strapped.

The CARES Act makes it easier for taxpayers to withdraw funds from their retirement accounts like 401(k)s and traditional Individual Retirement Accounts (IRAs). The temporary changes made to retirement accounts allows taxpayers to make early withdrawals without worrying about tax penalties as well as relaxed rules on loans you take out from your retirement.

Here is everything you need to know about the CARES Act.

Eligibility on early withdrawals from retirement accounts with the CARES Act

Some tax-advantaged retirement account holders may not qualify for some of the CARES Act’s relaxed early distribution and loan provisions. Legislation restricts relief to certain participants with a valid COVID-19 related reason in order to receive early access to funds. This includes:

  • If you have been diagnosed with COVID-19.
  • If your spouse or dependent is diagnosed with COVID-19.
  • Experiencing a layoff, furlough, reduction in hours, or inability to work due to COVID-19.
  • Lack of childcare because of COVID-19.
  • Closing or reducing hours of a business due owned or operated by an individual or spouse due to COVID-19.

Additional rules for early distribution

Eligible participants in tax-advantaged retirement plans typically have 401(k)s, 403(b)s,457s, and Traditional IRAs. This includes taking an early distribution of up to $100,000 during the calendar year 2020 without having to pay the 10% penalty tax that is typically imposed on most retirement account withdrawals before an account owner is 59 ½.

The act also suspends the mandatory 20% tax withholding requirement that is typically applied to early distributions from a 401(k) or other workplace retirement plan. The CARES Act allows taxpayers up to three years to redeposit the withdrawn money back into their retirement account or pay it all back in 2020 if your income is much lower this year. 

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

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If a Second Stimulus Check is Approved, When will it Arrive?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

With negotiations underway to pass a new economic rescue package with a second stimulus payment also being mentioned, we can forecast that qualifying Americans could be getting paid by the government a second time this year. Should a second stimulus check become a reality, it will depend on how quickly the IRS can start sending out money to taxpayers. Here are some important stimulus payment facts American should know about.

Recently, House Speaker Nancy Pelosi as well as House Democrats provided a new relief proposal. Pelosi has also agreed to resume negotiations with Treasury Secretary Steve Mnuchin to discuss laying out a new bill that includes another stimulus check, as well as other items like aid for airlines and restaurants. 

If another stimulus check is passed, it could take about a week to orchestrate the first payment. Potential dates have also been speculated, based on the House of Representatives and Senate, to happen anytime in October to the middle of November. This is of course contingent on a bill being passed that includes Americans receiving a stimulus check.

So far, the IRS has sent out money to at least 160 million people in three different ways. There are those who filed for direct deposit, taxpayers who chose to receive a paper check, and others with more complicated scenarios who are still waiting for their payments. It is expected that if a second round of stimulus checks are distributed, the IRS will use the same system they previously used when the first checks went out.

Taxpayers who have their direct deposit information on file with the IRS or add their direct deposit information if the registration opens up again, should be the first in line to receive their second stimulus check. An electronic transfer of funds is a faster and much more efficient way to receive your money.

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

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President Trump Pushes for Stimulus Checks and Massive Economic Relief

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.

President Trump recently called on congressional Republicans to back a massive economic relief bill that contained “much higher numbers” and larger stimulus payments for Americans suffering financially from the ongoing pandemic. The bill was just recently proposed and is completely different from the plan from what the Senate GOP was backing in the most recent days.

Although President Trump has expressed support for this new bill, he has yet to endorse it. The $1.5 trillion plan was unveiled on Tuesday by a bipartisan Problem Solvers Caucus in the House. If passed, the proposed bill would provide another round of $1,200 stimulus checks to qualifying Americans, a provision that has currently been omitted from the $300 billion plan the Republican senate has been attempting to pass. 

Congressional leaders in both parties recently made it clear that they don’t support the Problem Solvers proposal. Many Republicans agree that the new bill would cost too much and Democrats don’t think the bill provides enough relief for many businesses and Americans.

With President Trump’s renewed interest in providing such generous aid to the American people, it could possibly open up additional talks between Democrats and Republicans to come together and find a reasonable solution to assist U.S. citizens.

Signs are pointing to possible movement with coronavirus relief legislation being worked on. A growing number of House Democrats and House Republicans continue to work towards finding a resolution.  

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

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

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