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What Does the IRS Do with Form 8300?

The main purpose of the IRS is to collect funds that are due and payable to the US government’s Treasury Department. To that end, taxpayers are required to report their taxable income and pay taxes on that income. This  system is known as voluntary compliance.

Voluntary Compliance: Trust, but Verify

But as we all know, Uncle Sam doesn’t just take taxpayers’ word on the reporting of taxable income. Every year at tax time, we are required to file our income from work via forms known as W-2s or 1099s. The W-2 Form  records income earned as wages while various versions of Form 1099 provide the IRS with records of non-wage income. Information from these forms ensures that the Treasury Department has an accurate record of payments and revenues received by taxpayers.

But many businesses deal in transactions involving large sums of cash. Car and boat dealerships, art galleries, antique and collectibles merchants are just a few examples. Nonprofit institutions such as hospitals and colleges also deal with large cash transactions such as endowments for new equipment or buildings, or scholarship funds, respectively.

The Full Rundown on Form 8300

Form 8300 is designed to provide the Treasury Department with information pertaining to these large cash transactions. In 2011, nearly 200,000 paper submissions of Form 8300 were filed with the Treasury department. Since 2012, the IRS has made e-filing available for Form 8300 free of charge.

Federal law requires individuals or businesses receiving more than $10,000 in a single cash transaction or in two or more related transactions within a 12-month period to file Form 8300 within 15 days of receipt. Transactions must be received in the course of business from a single payer or agent. Businesses and individuals may also voluntarily file Form 8300 concerning suspicious transactions of any amount. (IRS.gov)

Information from Form 8300 is added to the Financial Crimes Enforcement Network (FinCEN) database. The information is then cross-referenced with other FinCEN information such as Suspicious Activity Reports and Currency Transaction. The Treasury Department uses information from these cross-reference reports to create traceable money trails that expose criminal activities. (FinCEN)

Form 8300 provides the IRS and FinCEN with a tangible record of large cash transactions. FinCEN has its own ideas about what constitutes cash and what does not – and how individual or related transactions are determined.

Cash Transactions

On its face, the definition of a cash transaction is obvious: it involves currency, either domestic or foreign. But wire transfers, which are readily accessed as cash don’t count, and don’t need to be reported on Form 8300. But, for the purposes of Form 8300 any of the following DO count as cash and transactions for more than $10,000 in any of these forms must be reported:

  • Travelers’ Checks
  • Cashier’s Checks
  • Bank Drafts
  • Money Orders

Types of Transactions That Do Count

Some exchanges, such as sale or rental of tangible goods or intangible property exceeding $10,000, are obvious forms of transactions. Cash exchanges, contributions to trust or escrow funds, loan repayments and conversions from cash to checks or bonds that exceed $10,000 also count. The IRS also considers transactions that take place within a single 24-hour period to be related transactions for the purposes of filing Form 8300.

Tax-exempt charitable organizations need not report cash donations or sales proceeds that are related to their tax-exempt status of more than $10,000, but cash in excess of $10,000 received from business transactions does. An example would be a college receiving a large donation to its endowment. But the same college would have to report receiving more than $10,000 in cash for tuition. 

Penalties for Failure to File Form 8300

The penalty for failure to file Form 8300 in a timely fashion is $100 per occurrence. For businesses with annual gross receipts of $5 million or less, the annual aggregate limitation is $500,000. If the deficiency is corrected within 30 days, the annual aggregate limitation for businesses with annual gross receipts of $5 million or less is reduced to $75,000. The total annual limit for businesses with annual gross receipts of more than $5 million is $1.5 million.

Deliberately failing to file the form carries a much higher financial cost. The IRS imposes a penalty of $25,000 or the actual amount of the transaction up to $100,000 for each occurrence, whichever is greater. There is no annual limit for intentionally failing to file form 8300.

Failure to Furnish Full Information

The IRS requires taxpayers to include the names and Taxpayer Identification Numbers (TIN) for each person involved in cash transactions over $10,000 on Form 8300. If individuals refuse to provide their TIN, taxpayers should file Form 8300, along with a statement detailing attempts to obtain the required information. Taxpayers should also retain records that verify when and how attempts to get the required information were made, and be prepared to provide copies of those records to the IRS.

Failure to furnish the names of individuals who are required to be included on Form 8300 carries penalties of $100 per violation.  The annual aggregate limit for penalties is $500,000 for businesses with annual gross receipts of $5 million or less. Penalties for businesses with more than $5 million in annual gross receipts have an aggregate annual limit of $1.5 million.

If the deficiency is corrected within 40 days, the penalty is decreased to $30 per incident. Annual aggregate limits for penalties imposed on businesses with $5 million or less in annual gross receipts that correct deficiencies within 30 days is reduced to $200,000. The annual aggregate limit for penalties imposed on larger businesses that correct deficiencies within 30 days is $250,000.

As with deliberate failure to file Form 8300, the IRS imposes harsher penalties on taxpayers who deliberately omit information. The penalty for intentional failure to furnish required information is $250 per incident or 10 percent of the aggregate annual limit of items that should have been reported, whichever is greater. There is no annual aggregate limitation on penalties.

Side Hustles and Taxes: What You Need to Know

Have you ever used PayPal or Venmo? These third-party payment apps have gained the attention of the IRS. Many Americans use these apps casually for group outings, while others have been using them for their side-hustle transactions. Filing requirements have drastically changed in 2021, now requiring taxpayers to report income of $600 or more using one of these apps. Philip Hwang, Lead Tax Attorney, and Optima CEO, David King provide useful tips so that you can understand whether or not you owe, and when you should file your side-hustle income.

Need more time to file your taxes? Download the Optima® TAX APP to file a free tax extension today.

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Reduced Refunds: Will Your Refund Be Garnished?

reduced refund garnished refund

You may have already received your tax documents for the 2022 season and it’s time to file. Many taxpayers experience some anxiety around filing season because of uncertainty. Will you owe the IRS? Will your refund be garnished? There are a few instances where you can expect the IRS to reduce your refund, or garnish the whole thing.

Unemployment Taxes

Since the start of the pandemic, more Americans have relied on unemployment than ever before. Being aware of unemployment taxes and withholding taxes from each check is extremely detrimental to your following tax season.

If you received Unemployment benefits during 2021 and you didn’t withhold taxes, you can expect to owe the IRS this year.

Tax Withholding Estimator

You don’t have to wait until you file to figure out what you owe. Taking advantage of tools like the IRS Tax Withholding Estimator can help you understand what you will owe and why. Doing this in advance can allow you to start saving, or prepare to make a payment plan with the IRS.

If you’re a business owner, or 1099 filer, you should expect to withhold taxes quarterly. Failing to pay throughout the year leaves you with a large sum during tax season. You can also use the Tax Withholding Estimator to learn more about what you owe.

Child Support

Owing court ordered payments such as child support can also garnish your refund. Child support agencies collected over $30 billion in back child support through the federal tax refund offset program since 2010.

To learn how much you owe in child support, you can visit your state’s child support website (childsupport.ca.gov for Californians) and use the guideline calculator. If you have any bills, letters, or contact information regarding your case, you can utilize that information as well.

How to stop the IRS from taking your refund?

Given the state of the economy, a lot of people are experiencing hardship right now. The IRS is not oblivious to the possibility that you can’t afford to pay them right away. You can see if you qualify for Currently Non-Collectible (CNC) status, which will temporarily stop the IRS from collecting payments from you. Letters, calls and other means of collection activity must desist once your status changes to CNC.

You must be able to prove hardship and that you need the money for your livelihood. Livelihood can be travel expenses for work, buying food for your family, continuing an education, etc.

Do you owe a large sum in back taxes that you can’t pay back?

Give Optima a call for a free consultation at (800) 536-0734 to learn what your options are for tax debt relief. You may qualify for the IRS Fresh Start Program, which can get you on an affordable payment plan, or even reduce your liability balance.

Need more time to file your taxes? Download the Optima® TAX APP and file your extension for free.

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Selling Real Estate While You Owe Taxes

Are you preparing to sell a property, but you have a tax liability? Liens can be a hindrance to real estate transactions, but they don’t have to be. Optima’s Lead Tax Attorney Philip Hwang shares some vital tips with CEO David King on how to deal with your lien before selling. The Tax Show hosts cover everything from how to find out if a lien has been filed, to how to withdraw a lien. Give yourself plenty of time to sort out your lien with a tax professional before refinancing or selling your home.

Need more time to file your taxes? Download the Optima® TAX APP to file a free tax extension today

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Tax Season 2022 Guidelines

tax season 2022

The start of the 2022 tax season is just around the corner! Are you prepared?

The IRS announced that tax season will officially open on Monday, January 24, 2022. Last year, the season started almost a month later due to the pandemic, but we advise that you take advantage of filing early.

Free Filing

The IRS has also opened Free File on January 14, 2022. This program applies to you if you made $73,000 or less in 2021 in AGI (Adjusted Gross Income). Your AGI would be found on Form 1040. Note that this amount is calculated before claiming any standardized or itemized deductions.

You can file electronically to lessen the likelihood of any delays. You can use a commercial filing software of your choosing, or utilize IRS.gov/freefile to see the Free File options.

If you require filing assistance, the VITA program is also in effect. This program allows volunteers to help other taxpayers in their communities with their filing. Optima Tax Relief is a VITA partner, and our volunteers will be assisting again this year. Check with your local county office, or local tax service to see if you qualify for free assistance.

Important tax deadlines

The deadline to file income tax returns for the 2021 tax year is April 15, 2022. If you feel that you need more time, you should apply for an extension as soon as possible. You can file a tax extension for free directly through our Optima® TAX APP. Requesting an extension in a timely manner pays off, as you will more likely be approved and given until the extension deadline to file.

The extension deadline is October 17, 2022, which allows plenty of time to gather necessary documents that might be held up early in the year. However, by delaying your filing, you are also delaying your refund and there is no way of knowing exactly when you will receive it. This is why tax professionals encourage everyone to file as soon as they can. The longer you wait to file, the longer you will have to wait for your refund.

Worried about owing from previous years?

At Optima, we assist our clients with catching up and amending previous tax returns. This can possibly help decrease the amount that you might owe in back taxes and get your account in compliance.

Owing the IRS is a confusing and stressful time. To ensure that you receive the best possible outcome for tax relief, consider working with the professionals at Optima. Call us today for your free, no obligation consultation at (800) 536-0734.

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NFT Taxes: Everything You Need to Know

nft taxes

The age of digital assets dawns as we witness a rise in various forms of cryptocurrency. The latest trend has gained the attention of creatives and art lovers alike: NFTs. Whether you’re a buyer or creator, income taxes still apply to your NFT.

What are NFTs?

Non-fungible Tokens are digital content ranging from images, to video, or even music that can be bought or sold using a unique data technology. What makes NFTs especially unique is that they become logged and authenticated on cryptocurrency blockchains, which is what makes them impossible to hack or be stolen.

NFT Creator Taxes

Creating, or minting an NFT is not taxable, however, a sale where you receive subsequent proceeds, or an exchange is taxable. When you receive payments via royalties, patents, and other intellectual properties the payment is taxed as ordinary income.

NFT Owner Taxes

The four types of NFT owners are:

  1. Investor
  2. Hobbyist
  3. Business Collector
  4. Dealer

Each owner type buys NFTs for different reasons. Investors hope to profit, hobbyists are collectors, business collectors use NFTs for displays and special logos, and dealers buy and sell to the other three types. What they all have in common is capital gains tax.

An NFT sold or disposed of within the year it was purchased is subject to short-term capital gains taxes. The taxes are based on income level, but can be as high as 37%.

Donating an NFT is not a taxable event.

Long-term NFT Guidance

Because NFTs are still new, the IRS has yet to release official guidance on long-term ownership. Tax professionals are speculating that NFTs will be compared to collectibles in the future and receive the 28% collectibles capital gains tax rate.

However, for now, it seems that there is a large grey area surrounding the long-term tax rules of NFT owners and dealers.

Before Filing Returns for NFT Assets

It’s best to work with a tax professional before filing returns if you own NFT assets. Tax professionals have enough knowledge of the tax code to help prevent future penalties, which can protect your assets in the long run.

If you have a current liability with the IRS, call Optima at (800) 536-0734 for a free consultation before you file this tax season.

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Optima Newsletter – January: 2022 Filing Reminders

2022 Filing Reminders

It’s the start of a new year, which means that tax season is right around the corner. A few things have changed in the last couple of years, so it’s important to make sure you’re up to date on current tax news before you file.
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IRS Enforcement is Back! What You Need to Know

CEO David King highlights the difficulties of dealing with IRS Enforcement; otherwise known as Collections. Optima’s Lead Tax Attorney, Philip Hwang, shares his insight and offers “Tax Pro Tips” ranging from IRS authority, to what you can expect when you’re subjected to IRS collection actions. 
Watch Video
Click here for more from The Tax Show for People Who Owe.

Retirement Distribution Tips

Retirement accounts can help reduce your taxable income and possibly increase your tax refund. Some accounts may have a year-end deadline for your contribution and required distributions, while others allow additional time.
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Rules for Claiming a Dependent

Dependents are usually children or relatives in your household that require your care. These characteristics allow you to be eligible for some tax deductions and credits. Knowing when to claim a dependent and how will be vital to preparing your tax return this season.
Read More

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What is Expense Fraud?

expense fraud

Employees are usually reimbursed for work-related expenses. When you file or report these expenses, it’s important to make sure the numbers are as accurate as possible. Over-claiming expenses, turning in receipts for unused items, or even spending more than the allowed amount are common expense fraud offenses. Whether you’re an employer or employee, it’s important to understand what can be determined as reimbursement fraud to avoid mistakes and spot schemes as they occur.

What are examples of expense and reimbursement fraud?

A typo or honest mistake can be fixed, but ongoing fraudulent numbers can significantly hurt a company over time. Actual expense fraud is deliberate and usually a premediated attempt to inflate reimbursements. See some examples below:

  • Claims for items that weren’t purchased (office supplies, lunches, etc.)
  • Bills for canceled trips, such as hotel costs and travel tickets.
  • Bills for non-reimbursable expenses (anything that isn’t work-related or is done in leisure)
  • Separate mileage bills from employees who travel together
  • Inflated totals for any of the above expenses. For example, if an employee were to take a trip that costs $415.00, but the employee rounds up to $420.00 on the bill. This would be an act of expense fraud.

Employees often don’t associate these acts with fraud because the word “fraud” sounds so heinous. Poor judgement can easily become a case, so it’s important that companies have a clear expense policy. Expense policies are put into place to dissolve any confusion about protocols and procedures when dealing with company money.

The 4 Types of Expense Fraud

The above examples of expense and reimbursement fraud can be categorized into one of the four types outlined by the Association of Certified Fraud Examiners:

  1. Mischaracterized expenses. This occurs when an employee mixes their personal expenses with business expenses.
  2. Fictitious expenses occurs when the employee submits fake receipts.
  3. Overstated expenses are inflated costs.
  4. Multiple reimbursements occur when an employee submits multiple receipts for the same item.

How to avoid expense fraud in your company

  • It’s good to start with a clear and concise expense policy. Employees should be able to understand exactly what is expected when turning in reports and receipts.
  • Provide tools for employees to easily report expenses. Simplify the process with software, or similar resources to make reporting easy and accurate.
  • Consider your current system’s efficiency. Company cards or virtual transactions are easy to track.
  • Audit occasionally to encourage honest reporting.
  • Fair allowance rates can also prevent expense fraud. When your employees travel out of town, consider the rates of where they are and ensure the allowance can cover those expenses. Sometimes, an employee may consider expense fraud as a last resort.

Do you owe back taxes and want to regain compliance with the IRS?

Optima Tax Relief offers free consultations over the phone for tax debt assistance. Give us a call today at 800-536-0734.

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IRA Hardship Withdrawal: Everything You Need to Know

If you’re facing financial hard times, your retirement funds begin to look like a good source of much-needed cash. In cases of dire emergency, you may indeed be able to make withdrawals from those funds before you reach retirement age. However, the potential short-term and long-term consequences can be severe. Nonetheless, if you must make an early withdrawal from an Individual Retirement Account (IRA) or 401(k), there are certain circumstances under which you can minimize the bite by Uncle Sam.

The COVID-19 pandemic and the 2020 CARES Act have made it easier for taxpayers to withdraw funds from their retirement accounts. Learn more about taking a CARES Act retirement withdrawal HERE.

3 Types of Retirement Funds

There are three primary types of tax-optimized retirement funds in the United States:

  • Traditional IRAs
  • Roth IRAs
  • 401(k)s

Traditional IRAs

Traditional IRAs are drawn from pre-tax earnings. When you deposit funds in a traditional IRA, the taxes on those funds and your earnings are deferred until after you retire, presumably when your income is lower and you qualify for a lower tax bracket.

Roth IRAs

By contrast, Roth IRAs are drawn from post-tax earnings. Because you pay taxes on Roth IRA deposits upfront, you do not have to pay taxes on either the principal or the earnings, provided that your Roth IRA has been open for five years or longer and you are at least 59 ½ years old when you begin making withdrawals.

401(K)

401(k) funds are sponsored by your employer. You can invest either pre-tax earnings or post-tax earnings, with tax implications similar to those for a traditional or a Roth IRA. Many employers match their employees’ contributions dollar for dollar. The catch is that you can’t access your employer’s contributions to your 401 (k) until you are fully vested in the company, which translates to being employed for a certain length of time which varies but five years is common.

For what reasons can you withdraw from an IRA without penalty?

If you are younger than age 59½, taking withdrawals from either a traditional or Roth IRA or from a 401(k) will usually trigger a 10 percent tax penalty in addition to paying any income taxes that are due. However, there are exceptions that vary depending on whether you are withdrawing from a traditional or a Roth IRA or from a 401 (k). You can avoid tax penalties from withdrawing from a traditional IRA even if you are younger than age 59 ½ for the following reasons

  • Purchasing a first home.
  • Educational expenses for yourself or a family member.
  • Death or disability of a family member.
  • Covering unreimbursed medical expenses.
  • Purchasing health insurance coverage (only if you are not already covered).

To claim one of these exceptions, you will need to complete IRS Form 5329 along with your income tax returns the following year. Even if you avoid the penalty, you will still need to pay taxes on the money you withdraw. This means that you should withdraw enough to cover your needs, plus a little extra for taxes.

Is there a Roth IRA withdrawal penalty?

Yes, penalty-free early withdrawals for Roth IRAs apply to only two circumstances: first–time home purchase or death or disability of a family member. However, the penalty for early withdrawal from a Roth IRA only applies to earnings, since you have already paid taxes on the principal. You will also need to submit Form 5329 along with your tax return.

How do I avoid an early withdrawal penalty on 401(k) retirement funds??

It is possible to make early withdrawals from a 401(k). However, the IRS is especially harsh on early withdrawals from 401 (k) funds. You may make what are known as hardship withdrawals before age 59 ½ for the following reasons:

  • Purchase a first home.
  • Pay for college for yourself or a dependent.
  • Prevent foreclosure or eviction from your home.
  • Cover unreimbursed medical expenses for yourself or a dependent.

However, hardship withdrawals from a 401 (k) differ from hardship withdrawals from an IRA. You will be assessed a 10 percent penalty in addition to paying income taxes on your withdrawal. To avoid the 10 percent penalty on early withdrawals from a 401(k), you must fulfill one of the following circumstances.

  • Total disability.
  • Medical expenses that total more than 7.5 percent of your adjusted gross income (AGI).
  • Court order to give the money to a divorced spouse, child, or other dependents.
  • Permanent separation from your job (including voluntary termination) during or after the year you turn 55.
  • Permanent separation at any age with a plan for equal yearly distributions of your 401(k) (once you begin taking distributions, you must continue them until you reach age 59 ½ or for five years, whichever is longer).

A better option than a hardship withdrawal from your 401(k) may be to take a loan against the value of your 401(k) with an outside lender. The lender places a lien against your 401(k) which remains in place until you repay the loan. Your funds remain in your 401(k), safe from the reach of Uncle Sam. However, if you default on the loan, the lender will have the right to seize your 401(k) to collect payment.

Is it bad to withdraw from an IRA?

It should be clear that IRA and 401k withdrawal should be considered a last resort. Even if you avoid tax penalties, you are depleting the available funds available for your retirement so in this sense, it is a bad idea and if you can avoid it, you should. If you must borrow, borrow enough to cover your obligations plus taxes, and repay the funds as quickly as possible. After all, you are actually repaying yourself – and your future.

Need to speak with a licensed tax professional? Optima Tax Relief provides a comprehensive range of tax relief services. Schedule a consultation with one of our professionals today.

New Fresh Start Guidelines Announced. Do you qualify?

The IRS Offer in Compromise is the most sought-after tax debt resolution. It’s a settlement offer that can significantly reduce your tax liability. How do you know if you qualify? The IRS just announced new guidelines for its Fresh Start Program, which means you’re more likely to qualify now than ever before! CEO David King, and Lead Tax Attorney Philip Hwang discuss everything you need to know about the new guidelines.

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

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