Tax Returns

What Should You do if You Owe the IRS Money?

Having a tax liability with the IRS can be stressful to deal with.  It may even sound easier to avoid your debt altogether. For some taxpayers, paying back your balance to the IRS can prove to be difficult, especially if you don’t have the means to do so. You may feel as though you are backed up against a wall and that there is no hope to help resolve your current situation.  However, there are solutions to keep yourself compliant and out of collections with the IRS so you don’t have to live in constant fear that the IRS is coming after you. The IRS offers solutions for those having difficulty paying their balances in full.

Setting up a Payment Plan

It is important to first understand how much you owe. You can verify the amount owed by referring to your tax returns or by directly contacting the IRS to discuss your balance, including any tacked-on penalties and fees.  The IRS will provide you with a 433F form to fill out your income and expenses. When completing the form, be sure to exclude non-allowable expenses, such as credit card payments, pet-related expenses, or magazine subscriptions.  The IRS typically accepts payment agreements if your balance is under $10,000 and the proposed payment will pay the balance in full.  Your agreement is also required to include any accrued interest and/or penalties.

The IRS Offers Hardship Options

For those who are either unable to pay back their tax liability in full with the IRS or don’t have the ability to be on a monthly payment plan due to financial difficulty, the IRS offers hardship options. The IRS has two options available to those who need temporary relief. The first is a Currently Non Collectable agreement. The IRS will review your income, expenses, and assets to see if you are earning very little to no income. Another hardship option the IRS provides is the Partial Pay agreement. This agreement is similar to a regular installment agreement where you would make monthly payments to the IRS. However, with this agreement, you are only paying back part of the taxes you owe over time. The IRS will review this agreement approximately every two years to see if your financial income has changed. If your income has changed or you have started a new job, the IRS will send you a notice informing you that your income reflects that you have the ability to pay and request that you set up a payment plan with them. If you are attempting to request a hardship agreement with the IRS, they will request the following:

  • Last three months’ worth of bank statements 
  • Proof of income for the last three months
  • The market value for all assets
  • A list of everything that a taxpayer may own (Retirement savings, bank accounts, all sources of income, real estate property, vehicle statements, life insurance policies, etc.)

Request for an Extension 

If you do have the ability to pay your balance in full but need some time to get the money together, the IRS will allow you to request a one-time extension. You can request up to 120 days to pay your tax balance in full. It is important to keep in mind that the IRS will apply a 0.5% penalty per month for the unpaid balance and will only allow you to make this extension once. If you do miss the extension date, you will fall back into collections.

The IRS offers an array of options to ensure that you stay compliant and out of collections. If you are having difficulty paying your full tax balance to the IRS right away, it is important to know your options and what you can do to protect yourself. If you are unsure of what to do, you can always speak to a tax relief company such as Optima Tax Relief or the IRS to get a better understanding of what works best for you. 

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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The Difference Between a Lien, Levy, and Garnishment

The IRS can be problematic to deal with – especially if you don’t have a clue about anything tax-related. For those who owe a liability to the IRS, it is important to understand how the IRS works in addition to any potential action the IRS can take against you. If a tax balance is owed, they can place you into collections, garnish your paychecks, place a lien on your physical assets, or even levy your bank account(s). Here is what you need to know about the IRS taking action against you, and how to prevent yourself from falling into collections.

Liens

A lien is something that the IRS can place against you if you owe a tax liability. The IRS has the ability to place liens on physical assets such as a home or vehicle in order to ensure they receive the maximum amount of money if a taxpayer intends on selling their assets; they will take a portion of the profit of the sold asset and apply it to the balance owed to them. You can avoid having a lien placed against you by paying your balance owed in full and on time or, if you cannot afford to pay your balance off, you can contact the IRS to see what type of payment plan options you can be placed on. 

Levies

The IRS will send several collection notices warning a taxpayer of their intent to levy if the balance owed has yet to be paid in full. A levy occurs once the IRS considers you a delinquent taxpayer and they will go after your bank accounts, wages, or property in order to settle the debt that is owed. In some cases, the IRS will only seize a small sum of money from a taxpayer.  Other times, they will take a taxpayer’s entire savings and apply it to their tax balance. To stop an IRS levy, you can contact them directly and request they release the levy if you can prove that you are currently in a hardship. They will also release their levy if you can pay the amount owed in full, the collection period to collect the liability on your balance has ended, or the value of your property is more compared to the amount owed to the IRS. 

Garnishments

The IRS can also garnish your wages if you have an unpaid balance. The IRS can legally seize your income and apply it to the balance owed to them and garnish your paychecks, commissions, or any bonuses. There are a couple of ways to stop the IRS from garnishing you, you can either pay your balance in full or contact the IRS to set up a payment plan or hardship agreement if you qualify. 

The IRS will act against those who fail to pay their tax balance and they can and potentially will attempt to garnish, levy, or place a lien against you should you ever owe a tax liability. It is expected that all taxpayers remain compliant with the IRS and adhere to the most current tax laws in order to stay out of collections. 

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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Criteria for Qualifying for a First-Time Abatement

The IRS’s first-time abatement penalty waiver was created as a way to combat penalties that accrued on a specified tax year due to either a failure-to-file, failure-to-pay, or failure-to-deposit penalty. Although this waiver was introduced over a decade ago, most taxpayers don’t realize that this form is accessible for them to remove any penalties that were tacked on to one of their tax years. If you meet one of the following criteria, this form may be able to help you reverse any penalties that were applied to your balance.

Failure to file your tax return or filing it late

Tax season can be one of the most stressful times of the year. Not knowing whether you’re going to receive a refund or owe the IRS can cause some taxpayers to avoid filing their tax returns altogether. For every tax year that is not filed or is filed late, the IRS will automatically tack on penalties for a failure to file. According to the IRS, the penalty for filing late or not filing at all is 5% on your balance every month. 

Failing to pay on time or make estimated tax payments

If you owe a balance after filing your tax return, the IRS will expect that you pay it off by the tax deadline. For those who are 1099 earners, it is strongly suggested that you make estimated tax payments throughout the year to ensure that you do not owe after you file your taxes. In the event that you fail to pay your balance in full, make estimated tax payments or negotiate an agreement with the IRS by the requested date, the IRS will begin to place penalties and interest against you until your balance has been paid in full. 

Failure to deposit certain taxes as required

Employers are responsible for withholding taxes from their employee’s paychecks. If they fail to periodically remit these amounts to the United States Treasury, the IRS will assess a failure to deposit penalty. The IRS sends a letter to every business that has employees that explains its federal tax deposit schedule, ensuring the business is aware of how frequently it is required to make its federal tax deposits. If a business fails to make them as scheduled in the correct amount or by the requested timeline, the IRS will charge a federal tax deposit penalty. 

It is safe to assume that most taxpayers don’t want to pay their taxes in addition to any penalties and interest that may have accrued, which is why the IRS created the First Time Penalty Abatement. To qualify, the IRS usually requires you to not have incurred any penalties for the past three years, have filed all your tax returns or an extension, and have made payment arrangements for any outstanding debt with the IRS. Taxpayers can request this form from the IRS or visit the IRS website to download the form.

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 Could Happen If You Don’t File Your Tax Return?

It is not hard to fall behind on your taxes. This can happen for a number of different reasons, such as you were unable to afford any tax services, you simply forgot about the tax deadline, or you suffered a serious illness which left you unable to file your tax return. It can be easy to avoid filing your tax return and ignore any serious repercussions – until the IRS starts sending you notices informing you of your unfiled tax years or a delinquent debt you have failed to pay. The IRS has the ability to take action against you for failure to file so it is important to know what the possible consequences could be for not filing your tax returns. 

The IRS can file a substitute return for you

The IRS can file a Substitute for Return, or SFR, on your behalf if they notice a failure to file for any tax year or years. The IRS does not file an SFR as a courtesy for those who fail to file their tax return and will not include any exemptions or deductions. Because of this, filed SFRs can reflect that a taxpayer owes a tax liability. The IRS will also send out an informative collection notice stating that a substitute return was filed or if there is a tax balance associated with the SFR.

The IRS has no time limit to collect from you

When it comes to the IRS taking collection action, the IRS has no timeline as to when they can stop. Once the IRS assesses a balance against you, they can garnish your wages, levy your bank accounts, and place liens on your physical assets. Just because you have past tax years that are unfiled, it does not mean the IRS has forgotten. It could even mean that the IRS will have the ability to hold you liable for your tax balance for up to 10 years from the date that your balance was assessed. 

Failure to file your tax return could be considered a crime

For some taxpayers, failing to file your tax return could mean getting in serious trouble. The IRS could consider this a crime and assume that you are evading the liability that they have assessed on your behalf. Consequences for not filing your tax return could mean jail time or fines as high as $250,000. 

Why it is beneficial to file your missing tax return

Filing all outstanding tax returns is important in order to avoid having the IRS take collection action against you. Although there is not a time limit for you to file any past tax years, the IRS does put a limit on receiving a refund for a previous tax return. The IRS also allows you to collect on a tax refund for up to three years from the due date of your return.

Filing your tax returns may not be the most exciting thing to do and some may even dread the filing season as it comes every year. Regardless of how you feel about having to file, it is a requirement in order to stay compliant and out of collections with the IRS. If you do have unfiled tax years, it can be beneficial to speak with a tax attorney or a tax resolution company in order to resolve any outstanding debt you have for the unfiled years or any tax debt that was assessed against you when the IRS filed an SFR for you. 

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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Common Mistakes Taxpayers Make when Filing their Tax Return

Tax season can be stressful, especially when you’re unsure if the information you provided on your tax return was accurate. The IRS encounters errors on a regular basis, often causing delays when processing your tax return or sending your tax refund on time. There are many of these common mistakes taxpayers make when filing their tax returns that lead to these delays.  Here are some ways you can avoid those mistakes and ensure that when you file, you file properly.

Make sure to include all income on your tax return

Many taxpayers underreport their income. This is usually an innocent oversight, such as forgetting to include income from rental property, retirement income, 1099 income, stocks, or other supplementary incomes. It’s important to remember that your income is directly reported to the IRS, so accidentally leaving out any source of income could leave you at risk to be audited. Reporting all income when filing your taxes is necessary for your tax return to properly process and be accepted with the IRS.

Choosing the right filing status

Failing to select the correct filing status on your tax return could potentially cause future tax problems. For example, some married taxpayers will choose to file single when they should have chosen between Married Filing Separate or Married Filing Joint. This could raise a red flag with the IRS if a person repeatedly selects the wrong filing status. Don’t forget – if you are married but living separately, you can still claim single on your tax return. 

Know who you can claim on your tax return

Claiming ineligible dependents on a tax return could also signal a red flag with the IRS. The IRS will only allow you to claim dependents if you are supporting the person that is being claimed and may even ask you to provide substantiation to prove it. Make sure to keep any receipts as proof, because if you are audited and you cannot provide supporting documentation, penalties and interest will be added to whatever balance may be owed – or even be deducted from your refund.

Double-check your tax return

Make sure to never use anything but your full name when filing your taxes. Using a nickname could cause your tax return to be rejected or in a worst-case scenario; the IRS could consider it identity theft if you file your return with your full name the following year. Some other common mistakes that could be avoided by simply double-checking the information provided include, failing to sign your tax return when mailing it off to the IRS or placing incorrect bank account numbers on your return. While these mistakes may seem minor and relatively insignificant, they can cause major problems for your tax returns for years to come.

Always be mindful of how you are filing your taxes and make sure to check your tax return for accuracy before sending it to the IRS. Taking just a few minutes to verify your work can prevent these simple mistakes, and help you get the most out of your 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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Medical Identity Fraud – A Risk to Your Health and Wealth

Imagine this scenario: you’re sitting in a doctor’s office with a long-lasting fever after your camping trip. Because it may be an infection from a tick bite, the doctor decides to give you an antibiotic shot. She glances at your records, swabs your arm with alcohol, picks up the syringe and says “this little dose of penicillin should help…” and you interrupt: “wait, I’m allergic to penicillin.” “But, that’s not what your records say… we gave you penicillin last time you were here.”

Frightening? Yes. Impossible? Not at all.

Medical identity theft is on the rise and it can not only have crippling effects on your finances but can seriously put your health in jeopardy.

The Medical Identity Fraud Alliance, a group of concerned corporate and non-profit partners,  speculate that over 2 million Americans were put at risk of medical identity theft in 2014, a figure that leaped 22% from previous research. This doesn’t even take into account the nearly 80 million individuals affected by the Anthem data breach in 2015 – the country’s largest healthcare breach.

Identity thieves steal personal health information (PHI) such as social security numbers and medical insurance identification numbers for two main reasons:

  • For financial gain by filing fraudulent claims to your health insurer (including Medicaid/Medicare) in order to receive a reimbursement check
  • Free medical care of high cost or elective procedures or to secure prescription medication – specifically narcotics that can be abused or sold on the black market

Financial fraud such as a stolen credit card can be frustrating, but can be quickly resolved since it’s easier to detect, and often doesn’t have significant long-term financial impacts. Medical identity fraud, on the other hand can cost a victim $13,500 on average and be notoriously difficult to resolve.

Because of advancement in electronic communication and collaboration in the healthcare industry, PHI is more exposed and accessible. At the same time, this doesn’t always mean that your health provider is on the same page with your insurer. PHI is rarely tracked across multiple networks and this gap can make stealing and using it feasible.

Here are a few things you can do to minimize your risk of medical identity fraud:

  • Carefully read all correspondence from your medical provider and Health Insurance Company. Treat each line item like you might for a bank statement and ensure that each charge or claim is valid.
  • Safeguard your Social Security number and healthcare data. Make sure that when you provide it, it’s absolutely necessary. It’s always okay to ask.
  • Avoid putting medical procedures and hospital stays on social media. You never know who’s looking and this piece of data could be the last one that the thief needs to commit their crime.

Our identity protection program provides comprehensive, proactive monitoring for several data points, including your medical information. To learn more about how we can help you minimize your risk of medical identity theft, visit https://optimatax.idprotectiononline.com/enrollment/.

 

Deducting Your Gambling Income & Losses

We all know the thrill of winning from gambling whether you’re an avid gambler or the occasional one. But did you know that all winnings are fully taxable? No matter how small your winnings, they must be reported on your tax return. Gambling income includes but not limited to winnings from lotteries, keno, slot machines, table games (i.e. poker, craps, roulette, blackjack, etc.), racing or sports betting, and bingo.

Here’s where the deductions on your gambling losses come in – you may be entitled to a deduction if you had any gambling losses come tax filing season, but only up to the extent of your winnings for the year. For example, if you won $3,000 from gambling for 2016, the most you can deduct on your 2016 tax return is $3,000, no matter how much you lost. Losses must be reported on Schedule A as an Itemized Deduction, which are separate from winnings. Continue reading for important facts about claiming your gambling losses on your tax return.

Here are 5 important facts about deducting gambling income and losses:

  • You must report the full amount or your winnings as income and claim your losses (up to the amount of your winnings) as an itemized deduction.
  • You cannot reduce your gambling winnings by your gambling losses and then report the difference.
  • Claim your gambling losses on Schedule A, Itemized Deductions, under ‘Other Miscellaneous Deductions’.
  • The IRS recommends that you keep a written documentation, like a notebook or a diary, for proof in case of an audit and to keep winnings and losses separate and organized. According to the IRS Publication 529 Miscellaneous Deductions, your notebook should contain at least the following:
    • The date and type of your specific wager or wagering activity.
    • The name and address or location of the gambling establishment.
    • The names of other persons present with you at the gambling establishment.
    • The amount(s) you won or lost.
  • According to the IRS, you should also have other documentation for additional proof through the following:
    • Form W-2G (if given), certain winnings; Form 5754, statement by person(s) receiving gambling winnings; wagering tickets; cancelled checks; substitute checks; credit records; bank withdrawals; and statements of actual winnings or payment slips provided to you by the gambling establishment.

To keep up to date with gambling tax laws and your responsibilities as a taxpayer, please refer to the IRS Help & Resource page or consult your local CPA or tax attorney.

Child Identity Theft

Parents do their best to keep their children safe. They advise them to wear a helmet when biking, avoid talking to strangers, and look both ways before crossing the street. But there’s one type of danger that’s hard to avoid. A recent study indicated that up to 10% of America’s youth have potentially been targets of identity theft.

The large majority of children under the age of 18 have blank credit profiles which make them uniquely valuable to identity thieves. There’s no credit profile established, children’s social security numbers can be paired with any name to buy cars, apply for loans, open credit cards, or procure driver’s licenses.

What makes child identity theft particularly troubling is that it can go unnoticed for several years leaving a complete financial disaster for the child when they turn 18 and begin applying for student loans, credit cards, mobile phones, or an apartment. If the incident occurred years in the past, it can be virtually impossible to track down the criminal.

How does this happen? Even more so than adults, children’s Social Security Numbers (SSN) are used frequently as a form of identification at schools, doctor’s offices, and any number of extracurricular activities. If a child’s SSN is easily accessible in a written file or on an unprotected computer network, it could be targeted by identity thieves. Additionally, credit bureaus do not have checks in place to verify the age on credit applications. An individual’s credit profile begins when the first application is received. If the application says 26, then the credit bureaus will assume that’s true.

While it’s impossible to absolutely prevent identity theft, there are a number of steps that can be taken to reduce your child’s risk:

  • If your child’s Social Security Number is being requested, it’s always okay to ask why it’s needed and if it’s completely neccessary. In most cases, an alternative identification number can be created.
  • don’t carry your child’s Social Security card with you. If your wallet or purse is ever lost of stolen, this could cause some big problems for you both in the future.
  • Shred or destroy any documents with your child’s SSN, such as medical or school records. If they need to be retained, make sure they are kept in a secure location.
  • Talk to your kids about the importqance of identity security. Let them know that they should never share their phone number, address, or SSN with anyone unless there’s a parent present.
  • Keep an eye out for suspicious activity. If credit card offers are arriving at your house with your child’s name on them, it’s a good sign that something isn’t right.
  • Once a year, ensure that your child’s credit is untouched by attempting to pull a credit report from any number of free credit report sites. If your child’s credit is secure, the credit bureau will not be able to provide a report. If you do request a credit report and one is returned, you should take immediate action.

One of the best ways to protect your child’s identity is to enroll them in our family identity protection program. You can monitor your child’s date from your own dashboard and receive an alert if any suspicious activity takes place by enrolling in Optima’s Family Protection Plan at https://optimatax.idprotectiononline.com/enrollment/.

 

 

Summer Travel Plans? Stay Protected From Identity Theft

 

The warm weather is finally here and with it comes the busy travel season that so many people have excitedly been anticipating. Some have been planning for months in advance, booking flights abroad and hoping to fit as many countries as they can into their itineraries.

Be cautious of being a target for identity thieves before you start to head out on your summer adventure. Travelers are an extremely attractive target for identity thieves, especially if you’re traveling to a place you’ve never ventured to before. Any locals – or scammers! – can probably pick up on this. Many travelers also rely on public Wi-Fi to look things up pertaining to their trip. Add to this the fact that you are likely carrying around more documentation than usual, and you’ve got all the makings for a sizable bull’s eye on their back.

An American Express Spending & Saving Tracker revealed that 8 in 10 Americans have summer travel plans, with 72% of these planning stateside escapes and 15% traveling overseas. No matter how you dice it, there’s going to be a lot of movement in the skies and on the roads in the coming summer months.

With millions of people packing their bags and leaving their homes for adventures, retreats and getaways, there will surely be an uptick in opportunities for identity thieves this summer. Experian’s Summer Travel and Budget survey showed that identity theft personally affects nearly one in ten travelers and that one in five people have had sensitive information lost or stolen while traveling.

Below are quick identity protection tips for each stage of your summer travels and adventures:

 BEFORE YOU GO:

  • Check for any travel warnings or alerts for your destination country. The Department of State provides the latest security messages. It’s always best to be in the know about any crime – such as pick pocketing – happening in your destination country so that you can be as vigilant as possible.
  • Put only your last name and phone number on your luggage tags. Your full name and address are one too many personal details if put in the wrong hands.
  • Notify your bank and credit card companies of your travel plans. Many such companies now place freezes on accounts when they see suspicious activity like out-of-country use as a means to prevent fraud – it’s easy to avoid this inconvenience!
  • Don’t post any vacation plans on social media. It’s okay to be excited about your trip, but you don’t need to publicize it. You never know who could be lurking behind a computer screen happy to learn that your house will be unattended for a period of time.
  • Put a hold on your mail while you’re gone. An overflowing mailbox is a jackpot for an identity thief. It not only signifies that you’re away, but thieves can then steal the pieces that contain your personally identifiable information (PII).
  • Clean out your wallet and/or purse before leaving. Remove any receipts and expired cards, along with anything else you don’t absolutely need to be carrying with you. Keep only the credit and debit cards you know you will need to use while traveling. Less is more!

WHILE TRAVELING:

  • Limit your use of public Wi-Fi as much as possible. While these networks are incredibly convenient, they are very often unsecured. This means that any information you input while connected to the hotspot could be viewed by someone else. Never access your financial account or any other sites that require a password when using public Wi-Fi.
  • Use cash when possible and credit cards over debit cards. Travelers are often warned of the dangers of carrying around large amounts of cash. However, depending on where you are traveling, some merchants still practice questionable transaction processes – making cash a safer method of payment. In most cases though, using a credit card is considered safe. Furthermore, it’s almost always recommended to use the credit option of your card versus the debit option. If your card numbers ever get into the wrong hands, most credit card companies will quickly reverse or cover fraudulent charges, while recovering funds from your drained bank account can be more complicated.
  • Be cautious when using ATMs. Inspect the machine carefully before inserting your card. Fraudsters can attach card skimmers to the slot that capture your information when you insert it; very often, these look like they are part of the machine. Also, always shield the keypad when entering your PIN – scammers can also set up hidden video recorders. The safest ATMs to use are attached to banks in well-lit areas.
  • Lock up valuables and personal documents at the hotel. This includes boarding passes, confirmation emails, passports, and jewelry. Even hotel staff have been known to go through rooms while they are cleaning and steal items. Everything is much more secure in a safe!
  • Keep your phone password-protected. If you’re not the type of person to keep a password guard on your phone, make an exception while traveling. If your phone is ever lost or stolen, an identity thief could easily access banking apps and social media accounts.

WHEN YOU RETURN:

  • Check your credit card and bank statements often for any fraudulent activity. It’s best to catch fraud as early as possible so that you can take action immediately. This minimizes damage and makes resolution that much easier.
  • Check your credit report throughout the year. Federal law requires the three major credit bureaus to provide you with a free credit report once a year. You can stagger these free reports every four months from each bureau so that you’re seeing your report somewhat regularly. Make sure you recognize everything that’s on there – if anything doesn’t ring a bell, look into it!
  • Change your PINs and passwords after a trip. This is especially important if you logged into any accounts while on the road or accessed an ATM. Traveling can open you up to all kinds of vulnerabilities; don’t take the risk with your PINs and passwords.
  • Make sure you properly dispose all trip confirmation emails and boarding passes. This means shredding them before tossing them into the recycling bin. These types of documents contain more information than most people think. Barcodes on boarding passes can actually contain your frequent flyer information, and other such documents reveal itineraries and other personally identifiable information that identity thieves would be happy to misuse.
  • Lastly, now is the time to post about your adventure on social media. Now that you’ve returned, you can share all those stunning snaps you shot. We really do want to hear about how much you enjoyed your vacation!

Of course, nothing compares to the peace of mind you will receive from Optima’s ID Protection Plan, which includes services like suspicious activity alerts and identity monitoring that will provide you with an extra boost of confidence when you return from a trip. Most importantly, if you do fall victim to identity theft, our 24/7 Identity Theft Resolution Service Team will work to restore your identity and prevent further damage.

Learn more and enroll in Optima’s ID Protection Plan at https://optimatax.idprotectiononline.com/enrollment/.

Tax Tips: Your Child’s Summer Camp And Daycare Expense Tax Credit

Summer is right around the corner – the wonderful season of good ol’ sunshine and time for relaxing. School is out for summer vacation and with it comes a whirlwind of family activities and the seasonal tradition of sending your kids off to summer camp. And if you’re a working parent who depends on summer day camp and and daycare, you know summer also means dishing out some extra expenses.

Fortunately, you may have a break. Some of the added expenses may help you qualify for tax deductions and credits that can save you some money next tax season. Here are nine facts you need to know for claiming summer camp and daycare expenses, also known as the Child and Depended Care Credit:

  • Earned income. To qualify, you (and your spouse if filing jointly) must have earned income during the year.
  • Expenses must be work-related. Essentially, this means you’re paying for the camp or daycare for the qualifying child so you can work, or look for work.
  • Correct tax forms. To be able to claim this credit, you must file a Form 1040, 1040A, or Form 1040NR; you cannot claim the credit on Forms 1040EZ or 1040NR-EZ.
  • Age of your qualifying child or dependent. Qualifying child must be under the age of 13 and must be your dependent when care was provided.
  • Some qualifying care restrictions. Expenses for overnight camps or schooling/tutoring costs do not qualify – it is not considered a work-related expense for purposes of the credit. You also cannot claim the credit if you paid for someone else’s child or if someone else paid for your child.
  • Specialized summer camps. Camps that specialize in a particular activity, such as sport camps, math camps, or even art camps can qualify for the credit. Keep in mind expenses that go towards required, but personal items for the camp such as sports equipment, clothing, art supplies or even a laptop don’t qualify – they are still considered personal accessories.
  • Health-related expenses. The costs of “preparing” for the camp or daycare, such as required vaccinations or wellness exams are deductible if you itemize on Schedule A and if the total medical expenses during the year exceed 10% of your AGI, or adjusted gross income.
  • Qualifying childcare provider restriction. Your childcare provider cannot be your spouse, dependent, or the child’s parent.
  • “Are we there yet?” The costs to take your child to and from the daycare or camp location in your own transportation doesn’t qualify as an expense for purposes of the credit; however, if there are transportation fees associated with or included in the camp or daycare during operating hours, the costs may qualify as an expense.

The purpose of this tax break is to financially assists working parents and guardians involved with raising children (or caring for a disabled dependent). The tax credit can be up to 35 percent of your allowable expenses, depending on your income. The total expense limit is $3,000 for one qualifying child or $6,000 for two or more qualifying children.

Of course, we all know the tax code is very long and complex, so other exceptions and restrictions may apply. You can check out the IRS publication 503, Child and Dependent Care Expenses for full details about this tax credit on their website.