Retirement Distribution Tips

retirement

There are many benefits to contributing to a retirement account. Although saving money has never been a bad idea, 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.

401(k) Contributions

Tax-deferred retirement accounts can grow to a substantial sum, tax-free. This is due to the interest compounding over time. By maxing out your 401(k) contributions, you will be able to lower your taxable income. The maximum contribution amount allowed for 2021 is $19,500, but if you’re 50 or over, there is an additional catch-up limit is $6,500.

IRA Contributions

An IRA is an Individual Retirement Account. By contributing to an IRA, you can also reduce your taxable income for 2021. If you want the impact to show on your 2021 taxes, the deadline for IRA contributions is April 18, 2022. Of course, you should start contributions before then to see faster results in your account growth. Your tax-deductible contributions have a maximum limit of $6,000 for an IRA. If you’re 50 or older, you can add an extra $1,000.

Saver’s Credit

Some retirement contributors are automatically eligible for the Saver’s Credit. This credit can be worth up to $1,000 if filing single, or $2,000 if filing jointly. You can claim Saver’s Credit for your contributions to an IRA, SEP (Simplified Employee Pension), 401(k), 403(b), or 457 plan. Traditional IRA or Roth IRA contributions are also eligible. You’re eligible for the credit if you’re age 18 or older, not claimed as a dependent on another person’s tax return, and not a student.

Need help with filing?

Programs such as VITA, or Volunteer Income Tax Assistance, and Tax Counseling for the Elderly (TCE) were created to help seniors with basic tax return preparation. Optima Tax Relief has partnered with VITA in the past and continues to do so this tax season.

Should you find yourself in a situation where you owe the IRS a large sum of back taxes, you may be eligible for Optima’s relief services. Give us a call at 800-536-0734 for a free consultation today!

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2022 Filing Reminders

2022 filing

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.

When is the tax deadline?

Although 2021 was another difficult year for many Americans, the tax deadline was not pushed back for this season. The deadline is Tax Day, which falls on Friday, April 15. It’s best to complete your return as soon as possible, but an extension is available if needed.

Filing for an extension

Extensions are accessible to all taxpayers, however, the deadline to prepare and e-file extension Form 4868 is April 18, 2022. A tax extension gives you an additional six months to file your tax return, making the new deadline October 15, 2022. Please note that filing an extension is not an extension of time to pay your tax bill.

If you miss the October 15 deadline then you would need to file a paper return as the IRS stops accepting e-file returns after that date.

Recovery Rebate Credit

The Recovery Rebate Credit is helpful if you did not receive the full amount of an Economic Impact Payment, or stimulus. This credit is based on your 2021 tax information, so you’ll have to file a tax return even if you don’t usually do so. When you file, you will need to know the amount that you should have received. This amount can be found in a letter that the IRS will send (Letter 6475). You can avoid delays by ensuring that the amounts are correct.

The IRS will send Letter 6475 at the start of the year so that you can claim the amount of the third Economic Impact Payment and any Plus-Up Payments.

Do you owe back taxes?

If you find that you owe the IRS a large sum, it could be due to not filing previous years. Taxpayers who don’t meet their tax obligations may owe a penalty, and the IRS may charge interest on a penalty if you don’t pay it in full. Optima Tax Relief assists businesses and individuals with their tax case, starting with a free consultation. You can call us at 800-536-0734 to begin your journey to relief.

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What are Gift Taxes?

gift taxes

The holiday season is upon us, and so is the season for giving. Gifts are wonderful ways to show your appreciation to those around you, but are you aware of gift taxes? By federal definition, a gift is something of value transferred to another individual. Gift taxes are federal taxes paid by the individual that gives the gift.

Gifts that are taxed usually have a significantly high value. Money, cars, or homes are considered to be taxed gifts. The recipient of the gift can be subjected to paying taxes if the person donating didn’t intend for it to be a gift. Of course, not every gift qualifies as one that must be taxed. The IRS sets limits on how much you’re able to give another person before paying federal taxes.

What you should know about gift taxes

Some highlights that you should remember when giving a high value gift are:

  • Anything above IRS limits is taxed (annual and lifetime exclusions are implied).
  • Gift tax ranges from 18% to 40%.
  • Gift tax is a federal tax.
  • Gifts given to spouses, political organizations, charity, or used for medical and educational expenses are excluded if the gift is valued at less than the annual exclusion amount.
  • To avoid the gift tax, gifts must be split or given in trust.

Why do gift taxes exist?

To prevent taxpayers from giving items to others as a means to avoid paying taxes, the federal gift tax was created. It also aides in preventing undue hardship, as it obliges the donor and recipients to honor their tax liability. Form 709 is the federal gift tax return that donors must complete and submit with their annual returns.

How do gift taxes work?

Rates for gift taxes are based on the size of the gift. You only have to worry about paying the tax if the amount of the gift exceeds $15,000 for 2021, or $16,000 for 2022. If you plan on giving a gift that exceeds $15,000 this year, then you must file Form 709 during the 2022 tax season.

The limit is per person, rather than per gift. You are able to give gifts up to $15,000 to multiple people without incurring a gift tax.

Charitable gifts

While you don’t have to pay gift tax on charitable donations, you may qualify for a deduction when you file. This can put money back in your pocket when you receive a refund. Read more about charitable donation deductions here.

If you find yourself in debt due to gift tax, or other tax penalties, call Optima at (800) 536-0734 for a free consultation!

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How to Claim Charitable Donation Deductions on Your Tax Return

charitable donation deductions

The holidays often inspire more taxpayers to donate than any other time of year. Charitable donations are often deductible when filing returns and can provide you with more money back for your refund. However, if you are expecting an itemized deduction, you should know that there are limitations for qualified contributions.

What are qualified organizations?

Your chosen organization must qualify under section 170( c ) of the IRS code for you to file an itemized deduction. Qualified entities include:

  1. A state, possession of the US, the US, or the District of Colombia.
  2. A corporation, community chest, foundation, fund, trust, organized or created in the US and operated exclusively for charitable, religious, educational, scientific purposes, cruelty prevention, or literary purposes.
  3. A religious organization (church, synagogue, etc.)
  4. Nonprofit volunteer fire company
  5. Local, federal, or state law created civil defense organization
  6. War veterans’ organization or its auxiliary, post, trust, or foundation
  7. Domestic fraternal society operating under the lodge system (the donation must be used exclusively for charity)
  8. Nonprofit cemetery (funds must be used for the care of the cemetery as a whole)

What are deduction limitations?

In short, you can only deduct up to 50% of your gross income in contributions. Donations to organizations for veterans, cemeteries, fraternal societies, and some private foundations are limited to 30% of your adjusted gross income. You can utilize the IRS Tax Exempt Organization Search to indicate the limitations for your deduction.

The importance of correctly filing deductions

When you choose to utilize deductions, whether for charitable donations or work-related expenses, it’s important to only file deductions that you qualify for. This may sound like common sense, but selecting deductions that you don’t qualify for can result in a penalty from the IRS. Owing the IRS is more trouble than what it’s worth, so if you’re unsure about which deductions you qualify for, it’s best to ask a professional.

Did you make a mistake while filing?

Mistakes happen, but when the tax debt starts to pile on there are professionals available to assist you. Optima Tax Relief offers free consultations for tax debt relief at (800)536-0734.

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How to File Business Taxes for an LLC

Being an owner of a limited liability company (LLC) allows for more flexibility with how the IRS taxes your earnings. LLCs don’t have a unique set of tax rules, so how you choose to tax your earnings will determine which rules you must adhere to. Your choices for tax rules include partnership, corporate, and sole proprietor. Each of these options come with their own filing requirements.

It’s important to choose how you want your earnings to be taxed because the IRS will automatically treat your business as a partnership. This designation doesn’t fit if you’re a sole proprietor or prefer to file as a corporation. Once you choose your tax rules, you cannot change the designation again for five years, which is why you must choose wisely.

Sole Proprietorship/Single Member LLC

As a sole proprietor, you are personally responsible for all tax returns and payments. When you prepare your income tax return, you must include a Schedule C attachment. The Schedule C reports the income and deductions from your business. Any profits calculated on Schedule C are included with the rest of your income on Form 1040.

Partnership LLC

As a partnership, your tax rules indicate that you are responsible for filing annual tax returns on IRS Form 1065, but the company is not responsible for paying the tax on business earnings. Instead, each individual owner (partner) files and reports their income via their own tax returns. Each owner’s earnings are reported by the LLC on a Schedule K-1.

Corporate LLC

With a corporate designation, your business is treated as a separate taxpayer from yourself. The responsibility of reporting income and deductions falls on the business itself. This can be achieved through filing Form 1120 annually and paying income tax on time.

Although you and the other owners are not responsible to file the returns and pay the income taxes, the business earnings are taxed twice. The second tax occurs when the owners receive a dividend. Each owner of the LLC must report on the dividend as taxable income via Form 1040, which is their individual responsibility to pay tax on.

Filing business taxes for an LLC can be confusing. Should you find yourself in tax debt, give Optima a call for a free consultation at 800-536-0734.

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The Future of Child Tax Credit

Child tax credit has been a reliable source of additional income for families struggling through the pandemic. While there were plans to continue the monthly checks for at least another five years, it seems the program will be coming to an end in about one year.

What is changing and why?

Proposals to extend child tax credit for one year are being discussed by lawmakers. Initially, the benefits were to be extended through 2025, but it’s now one of the programs being cut as the federal government plans for more stimulus checks.

The previous benefit checks lifted 3.5 million kids out of poverty, according to CNBC. With results like that, many democrats are debating to keep the child tax credit for years to come.

Others, however, are criticizing the program’s broad focus. Some proposed changes from opposing views include:

  • Limiting the credit to families earning $60,000
  • Adding a work requirement

Limiting the child tax credit could limit its impact on American households. Those in favor of extending the credit are hoping that Biden will include children with individual taxpayer identification numbers—such as undocumented children. This would help an additional 1 million kids.

Are the child tax credit changes concrete?

Negotiations are ongoing regarding the future of this benefit. Should the enhanced credit end in a year, there will be benefit options available for those who need it. Prior to the American Rescue Plan boosting benefits, the child tax credit was $2,000 per child under the age of 17. The credit was also partially refundable up to $1,400. There are also programs such as Supplemental Nutrition Assistance Program benefits, which have been enhanced to help low-income families.

Whether the child tax credit enhancement will continue permanently, for another five years, or end in just over a year from now is still being decided. Though it seems the fate of the program will fall into a middle ground to provide a more focused poverty program.

Utilizing child tax credit and other programs

As of now, you are still able to utilize the program and other credit tax programs that you may be eligible for. The child tax credit isn’t gone yet, so it’s best to use it while you still can.

Should you find yourself with a tax liability and in need of additional help with resolving back taxes, the Fresh Start Program may be the best option for you. At Optima Tax Relief, we help clients resolve their tax debt through Fresh Start and help them stay on track after through our protection plan.

Give us a call at 800-536-0734 to speak with one of our tax associates today.

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Revenue Officers and Small Businesses

Many small business owners are at risk of being assigned a Revenue Officer (RO). If a small business withholds taxes from their employees but fails to hand it over to the IRS, the IRS can assign an RO, garnish bank accounts and wages, seize property and real estate, and even show up at your place of business. CEO David King and In-house Expert & Enrolled Agent Rosie Steele provide helpful tips on what small business owners should do if they are assigned an RO.

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

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IRS Signs Three New Collection Agencies

The IRS recently signed contracts with three private-sector collection agencies, taking effect Thursday, Sept. 23, 2021. Taxpayers that are behind on payments toward their debts may be contacted by one of the following agencies:

  • CBE Group, Inc., PO Box 2217, Waterloo, Iowa, 50704; (800) 910-5837
  • Coast Professional, Inc., PO Box 526, Albion, New York, 14411; (888) 928-0510
  • ConServe, PO Box 307, Fairport, New York, 14450; (844) 853-4875

What to expect from a private collection agency

Should you find that you owe back taxes to the IRS, you will receive notice prior to your account being transferred to a collection agency. A letter will arrive by mail and a representative will contact you regarding your account transfer. The rep and letter should state the agency name, contact information, and include a copy of Publication 4518.

The PCA (private collection agency) assigned to your account will also send a letter of its own. This letter will be a confirmation of the account transfer and identify the tax amount owed to assure their legitimacy.

How private collection agencies work

Your assigned PCA should identify themselves as contractors collecting taxes on behalf of the IRS upon contacting you. Collection representatives must adhere to the provisions of the Fair Debt Collection Practices Act, and provide the same respectful service expected of the IRS (see Taxpayer Bill of Rights). Private agencies are not authorized to take enforcement actions against taxpayers.

Discussing payment options

While payments should never be made to an agency other than the IRS, your assigned PCA is authorized to discuss payment options with you, including setting up payment agreements. When making a payment, be sure that checks are only payable to the United States Treasury.

Additional information about private collection agencies

For more information about private debt collection, click here. Ready to speak with a representative about resolving your tax liability? Optima’s team of tax professionals are here to help! Contact us at 800-536-0734 for a no-obligation consultation today. 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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IRS Audit Red Flags to look out for

The IRS has the ability to audit an individual’s tax return to ensure that there is not any fraudulent activity occurring. A general rule is that the IRS can go back at least three years for an audit; however, if there are major errors on your return, the agency does have the ability to go back another few years – but typically no more than the last six years.

If you are being audited, the most important thing to remember is that you will need to have solid documentation to back up any claims you make about your overall financial picture, particularly your deductions.

Here is a list of additional items that could get your return flagged by the IRS:

  • Claiming a home office deduction. Taxpayers are required to have a dedicated space in their home that is strictly used only for their business in order to take advantage of this type of deduction. This deduction allows an individual to prorate some of their household expenses such as utility bills, homeowner’s association fees and more on a fractional basis. When claiming this deduction, an individual will need to figure out how much square footage is dedicated to their business in their home versus how much square footage they have in their home at large.
  • Deducting unreimbursed business expenses. Unreimbursed business expenses are only deductible beyond 2% of your adjusted gross income. Most workers are also reimbursed by their employers for most out of pocket expenses. Expenses such as license fees, subscriptions to trade journals, tools and supplies, and specialty uniforms are deductible expenses. Non-allowable deductions such as commuting costs and everyday work clothes should not be placed on your tax return and could trigger an audit with the IRS. This could end up being very costly for an individual if the IRS rejects your deductions.
  • Claiming 100% business use of a vehicle. Taxpayers should consider keeping a paper log on their dashboard and writing down every mile that is used for work, the date and what it was for. If you do want to claim all the costs for a business expense, be sure you have another vehicle too.
  • Hiring a preparer who falsifies your return without your knowledge. Taxpayers should be cautious when hiring a tax preparer. There are many incompetent and unethical tax preparers who could end up costing you more than you expected. If the IRS sees a pattern of problems on your returns coming from one preparer, they may flag the entire operation’s returns for that year or the past several years. If an egregious error is found on your return, you will most likely be held accountable for it.
  • Taking an alimony deduction. Alimony is paid under divorce agreements and after the 2018 tax year, is no longer deductible. In addition, ex-spouses get taxed on alimony received under post-2018 divorce agreements. Individuals that attempt to deduct their alimony expense will likely trigger an audit with the IRS if there is a mismatch in reporting by the payer and the recipient of alimony on each of their tax returns

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 to Expect When You Call the IRS

Individuals seeking assistance from the IRS may be wondering if they have the option to contact the agency and what they should expect when speaking with an IRS agent. Whether you received a tax notice and are seeking more information on it, or you are looking to set up a payment agreement, here is everything you need to know before calling the IRS. 

Do not reach out to the IRS if you have tax questions or need assistance filing your tax return. Taxpayers should not waste their time waiting on hold trying to reach an agent to discuss any questions or concerns they have about filing their taxes. Instead, it is recommended to seek out assistance from a tax professional that can address any tax filing questions you have about your return and how to file it once it has been prepared.  

The IRS also has interactive tools on their website that can be used to provide updates on the status of a tax return or find out the status of a refund. The IRS has even established a portal for taxpayers to use when checking on their stimulus check status. 

Taxpayers should contact the IRS if they owe a tax balance but cannot pay the amount in full, if they are being audited, or if they have received correspondence from the IRS requesting them to call in. 

 Individuals who are unable to afford paying off their tax balance have the option to work with the IRS to establish a payment plan or apply for an offer for tax debt forgiveness. Taxpayers who are being audited should also reach out to the IRS to discuss their situation and should also get their tax preparer involved just in case additional information needs to be provided.  

When contacting the IRS, be prepared to verify your identity and your accounts. Taxpayers should have their name, date of birth, and social security number ready. If you are calling on behalf of someone else, you will need to provide proof of a power of attorney that shows you have permission and authority to do so. 

Once an IRS agent has verified your identity, you should have the following forms on hand for reference: 

  • Your completed tax return. 
  • Your EIN or Taxpayer Identification number. 
  • Proof of past payments if you have made quarterly payments or put money toward a debt to the IRS. 

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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