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Unemployment Fraud could affect Individuals this Tax Season

With millions of Americans out of a job due to the ongoing pandemic throughout 2020, many received unemployment benefits issued out by state agencies.

 As taxpayers begin to file their taxes, they need to be aware of scammers who are seeking to exploit people out their money by filing for fraudulent unemployment benefits by using stolen identities.

Taxpayers should also be aware that the benefits they do receive from their state agency will be viewed as taxable income and will also be issued a 1099-G that should be kept with other important tax documents and used when filing your taxes.

If you feel you are a victim of fraud because you received a Form 1099-G for 2020 unemployment compensation that you did not get, you should take the following steps:

  • Contact issuing state agency to report fraud. The U.S. Department of Labor maintains a list of state contact information to report unemployment compensation fraud.
  • Ask state agency to issue a corrected 1099-G. The state will need time to investigate the fraud complaint and make any correction.
  • File an accurate federal tax return reporting only income received, even if a corrected 1099-G has not yet been received.
  • Follow Federal Trade Commission recommendations for identity theft:
    • Review free credit reports for signs of additional fraud from the credit bureaus.
    • Consider a credit freeze or credit fraud alert through the credit bureaus.
  • File an identity theft complaint with the U.S. Department of Justice’s National Center for Disaster Fraud (NCDF) by completing an NCDF Complaint Form online, or by calling 866-720-5721.

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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Filing your Taxes may be much harder this year

Taxpayers have received an additional month to file their federal tax returns due to COVID-19 along with new stimulus provisions that made the current filing season even more complicated. With so many changes that happened to individuals throughout the ongoing pandemic, taxpayers should be cautious how they file their taxes. Here is everything you need to know before submitting your tax return to the IRS.

Unemployment benefits

Millions of Americans received 2020 unemployment benefits meaning that their taxes will be much more complex compared to their prior returns. Unemployment benefits are subject to federal income taxes and in some cases, state income taxes. Individuals who did not have their taxes withheld from their jobless benefits may end up having a tax bill after filing their taxes.

Under the new $1.9 trillion stimulus deal, the first $10,200 in unemployment benefits are not taxed on the federal level for eligible filers. The newly added tax exemption applies to the 2020 tax year and for households earning up to $150,000.

Taxpayers who have filed their federal tax returns and did not take the $10,200 tax exemption on unemployment benefits do not need to amend their return. If the IRS owes you a refund, then they will send you a second refund for the difference.

Working from home

Individuals who made the transition from working in the office to working from home during 2020 may be wondering what they can deduct from their tax return.

For regular employees of companies, they are unable to deduct any expenses incurred from their work-from-home office. This is due to the Tax Cut and Jobs Act which eliminated the unreimbursed business expenses deduction. There are several states that do offer a deduction for unreimbursed employee business expenses on their state returns:

  • Alabama
  • Arkansas
  • California
  • Hawaii
  • Minnesota
  • New York
  • Pennsylvania

Self-employed workers have the option to deduct expenses that are related to their business from self-employment income on Schedule C or Schedule F. Self-employed workers have the ability to take a home office dedication for a space that is used exclusively for business.

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 happens if I miss the Tax Deadline

Failing to file your tax return before the tax deadline could result in the IRS filing on your behalf, and more often than not, the IRS will file a return that is unfavorable to you. Optima CEO David King and Lead Tax Attorney Philip Hwang provide helpful tips on what to do if you receive a balance due notice and how to file your own return to replace the one that was filed by the IRS.

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

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

The IRS recently announced that the federal tax deadline has moved from April 15 to May 17. Taxpayers need to be aware that although the IRS is allowing them additional time to file federal tax returns, their state tax extensions may differ. Read more to see when your state tax filing deadline is.

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

Taxpayers who reside in an area that was severely impacted by winter storms and declared a disaster area by the Federal Emergency Management Agency automatically qualify to file their taxes up until June 15th. The new extension will also extend the 2020 contribution deadline for those affected into individual retirement accounts (IRAs) until June 15.

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Working from Home could mean You will face a Double Tax Hit this Tax Season

Millions of Americans have gone from working in an office to working from home. Those who worked their office job in one state but resided in another, may need to file their taxes differently this year and could face certain tax implications.

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How the IRS Taxes Cryptocurrency

Individuals who invest in cryptocurrencies need to be aware that they could face tax implications when they file their taxes. Read more to find out what you need to know before you invest in crypto and how to ensure you avoid any tax time surprises.

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IRS Explains Extended Payroll Tax Due Dates

calculating taxes with calculator

The IRS has provided guidance to employees who chose to defer payroll taxes. The IRS reminds these employees they can withhold and pay their deferred taxes throughout 2021 instead of just within the first four months of the year.

Notice 2020-65 allowed employers to have the option to defer employee’s Social Security taxes from September 1, 2020, to December 31, 2020. Qualifying employees are typically paid less than $4,000 every two weeks, or equal to the amount for the other pay periods. It is important to also know that every pay period is considered separately. The employee portion of Social Security taxes such as Old Ate, Survivors, and Disability Insurance, or OASDI, is calculated at 6.2% of employees’ wages.

The deadline period in which employers must withhold and pay applicable taxes has been postponed from April 30, 2021, to December 31, 2021. Because of this, any associated interest, penalties, and additions to tax for late payment of any unpaid applicable taxes will begin to accrue on January 1, 2022, rather than on May 1, 2021.

Notice 2021-11 amends Notice 2020-65 by extending the period of time employers have to defer employee’s Social Security taxes. Payments that were made by January 3, 2022 will be considered timely because December 21, 2021, is a legal holiday. Penalties, interest, and additions to tax start on January 1, 2022 for any unpaid balances.

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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How the IRS Taxes Cryptocurrency

If you invest in cryptocurrencies like Bitcoin, be aware that there may be certain tax implications you may face when filing your tax return. Here is everything you need to be aware of before you invest in crypto and how to make sure you avoid any tax time surprises.

Crypto can be used to purchase practically anything. If you choose to convert your currency to cash rather than pay in the crypto form, you could potentially be liable for capital gains tax. Another determinant that could affect the outcome of your taxes is whether you earn money on the transaction. This will also determine whether you must pay capital gains or declare a loss. Declaring a loss could reduce your tax bill by offsetting other gains of up to $3,000 in your adjustable gross income.

How to track your crypto transactions

Individuals should track the following activity when investing in crypto:

  • The market value of your Bitcoin.
  • When it was earned, mined, or purchased.
  • When it was used, sold, or cashed out.

Cryptocurrency exchanges that are used to make payments of more than $20,000 or for more than 200 transactions may lead to a form 1099-K being generated. This form will reflect any exchanges made using a cryptocurrency. If you do not reach these minimums, you will need to keep track of transactions and report any gains or losses on your tax forms.

Using crypto as income

Investing in crypto means that you must declare it as a source of income if you received a profit. Crypto will be considered taxable income if an individual mined their crypto or earned it as a form of income from their employer or someone who hired them as an independent contractor.

If you received Bitcoin in exchange for services in January 2020, you would declare that income as the currency’s value in January 2020. For those who continue to hold Bitcoin, you do not have to pay taxes in its current value until you convert it to cash.

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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Working from Home could mean You will face a Double Tax Hit this Tax Season

Coronavirus has caused millions of Americans to move from working in the office to working at home. Meaning, if you worked your office job in one state and resided in another state, but now work and reside in the same state, you may need to file your taxes differently from prior years.

Previously, individual’s income taxes were assessed based on the state where they lived. Commuters who came from neighboring states were typically covered by agreements that allowed them to avoid double taxations. However, with so many people telecommuting and moving further and further away, they may be at risk for having to pay extra taxes.

Six states are known to have something called the convenience rule. This rule allows companies located in their jurisdictions to issue an income tax on their employees even if they no longer reside in the state where they once commuted to work.

While there are some states that have agreements that help provide tax relief to individuals, telecommuters who moved elsewhere during the pandemic, may be hit with additional income taxes from the state where their company is based.

There are many states that have rules in place to prevent individuals from being hit with double taxation if they do have to commute out of state for work. States like Vermont, Connecticut and Virginia provide tax credits up to a certain limit to their residents who work in bordering states.

Because of the pandemic, telecommuting has become far more prevalent and could eventually change the way both businesses and employees are taxed in the future. Many companies may eventually make the shift from having a physical work location to a virtual one meaning that many taxpayers may be able to work from the comfort of their own homes.

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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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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