Tax News

Taxpayers are given guidance on Premium Assistance and Tax Credit for Continuation Health Coverage

The Internal Revenue Service issued out guidance on tax breaks under the American Rescue Plan Act of 2021 for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Notice 2021-31 provides assistance to employers, plan administrators, and health insurers regarding the new credit available to them because of their providing continuation health coverage to certain individuals under COBRA. The notice also contains information on the calculation credit, how individuals are eligible, the premium assistance period, information vital to employers, plan administrators, and insurers to understand the credit.

The American Rescue Plan allows for a temporary 100% reduction in the premium that individuals would need to pay when they choose COBRA continuation health coverage following a reduction in hours or involuntary termination of employment. The implementation of the new law provides a tax credit along with it for entities that maintain group health plans which includes, employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are accessible for events under comparable state laws which can also be referred to as “mini-COBRA.”

COBRA provides assistance for certain former employees, retirees, spouses, former spouses, and dependent children by allowing access to temporary continuation of health coverage at group rates. COBRA typically covers health plans that are maintained by private-sector employers with 20 or more full-time and part-time employees. COBRA also provides coverage for employee organizations or federal, state, or local governments. State mini-COBRA laws often provide similar benefits that are accessible for insured small employers and are not subject to Federal COBRA.

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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Taxpayers may have to pay back some of the new $3,000 Child Tax Credit

The IRS is expected to begin distributing monthly payments for the enhanced child credit beginning in July. Some recipients of this child credit need to be aware that they may be obligated to pay back a portion of those funds at the start of tax time next year.

The passing of the American Rescue Plan allows for advance payments of the child tax credit to be issued out to qualifying taxpayers in periodic installments. Americans can receive up to $300 a month per child, however, the child credit advance payments will be estimated by the IRS based on the available data they have on file for an individual such as income, marital status and number and age of qualifying kids.

 If the IRS has outdated data on an individual, this may trigger an overpayment of the tax credit. This will require the individual who received the additional money to pay back any excess funds. Receiving the advance payment could mean it could reduce the refund amount or increase the tax payment for an individual come next tax season.

The IRS references 2020 tax returns and if unavailable, 2019 returns, in order to determine a taxpayer’s total tax credit amount for 2021.  The American Rescue Plan raised the maximum credit amount to $3,000 per kid ages 6 to 17, and $3,600 for younger children. The remaining half would be claimed during tax season next year.

An individual may receive a tax bill if a payer’s income increases dramatically from the income reported on a 2020 return. This may also reduce someone’s credit amount or disqualify them based off their earnings.

The Treasury Department created an online portal for taxpayers to update their information if it changed during the calendar year. The portal allows individuals to change the following: marital status, income changes and number of kids.

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 extends e-signature authorization for 6 months

On December 11, 2020, the IRS announced that they would be extending and accepting electronic or digital signatures on certain tax forms that previously could not be electronically signed. The original authorization was from August 28 through December 31, 2020. However, due to the ongoing public health crisis, that period has now been extended from January 1 through June 30, 2021.

The IRS will allow the following forms to be e-signed remotely before being printed and mailed to the agency. The IRS believes that this will help assist tax professionals and their taxpayer clients by minimizing the need for in-person contact. 

Here is the list of forms that can be e-signed: 

  • Form 11-C, Occupational Tax and Registration Return for Wagering 
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit 
  • Form 637, Application for Registration (For Certain Excise Tax Activities) 
  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return 
  • Form 706-A, U.S. Additional Estate Tax Return 
  • Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions 
  • Form 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust
  • Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations 
  • Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts 
  • Form 706, Schedule R-1, Generation Skipping Transfer Tax 
  • Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return
  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return 
  • Form 730, Monthly Tax Return for Wagers 
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations 
  • Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation 
  • Form 1120-H, U.S. Income Tax Return for Homeowners Associations 
  • Form 1120-IC DISC, Interest Charge Domestic International Sales — Corporation Return
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return 
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons 
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return 
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts 
  • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies 
  • Form 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B) 
  • Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship
  • Form 1128, Application to Adopt, Change or Retain a Tax Year
  • Form 2678, Employer/Payer Appointment of Agent 
  • Form 3115, Application for Change in Accounting Method 
  • Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts 
  • Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner 
  • Form 4421, Declaration — Executor’s Commissions and Attorney’s Fees 
  • Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes
  • Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues
  • Form 8038-G, Information Return for Tax-Exempt Governmental Bonds 
  • Form 8038-GC; Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales 
  • Form 8283, Noncash Charitable Contributions 
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms 
  • Form 8802, Application for U.S. Residency Certification 
  • Form 8832, Entity Classification Election 
  • Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent 
  • Form 8973, Certified Professional Employer Organization/Customer Reporting 
  • Agreement
  • Elections made pursuant to Sec. 83(b) 

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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Taxpayers can opt out of Child Tax Credit monthly payments

The expanded child tax credit was established in the American Rescue Plan which was signed into law in March. The maximum enhanced child credit is $3,600 for children younger than the age of 6 and $3,000 for those between the ages of 6 and 17.

The credit will be issued out as an advance on 2021 taxes in monthly installments. Households that receive the full amount of these payments should expect to get $300 per month for children under the age of 6 and $250 for those between the ages of 6 and 17.

Who qualifies for the full credit?

The full credit is available for married couples who filed their taxes jointly, have children and an adjusted gross income of less than $150,000, or $75,000 for individuals. The credit is set to phase out for taxpayers who make a higher income. Individuals who earn $95,000 and married couples earning $170,000 filing jointly will be disqualified from receiving the credit.

Taxpayers that make too high of an income to receive the expanded child tax credit may still be eligible for the regular child tax credit, which is $2,000 per child under the age of 17 for families making less than $200,00 annually, or $400,000 for married couples.

How to qualify for the new child tax credit

For the most part, eligible families will not have to do anything at the moment. The IRS will utilize 2020 tax returns to determine eligibility or 2019 returns for those who have yet to file their taxes. The IRS began sending out 36 million letters to families that may be eligible to receive both the credit and the monthly payments.

Families that typically do not file their taxes because their income does not meet the income threshold standards in order to file a return but have children in their household who are eligible, can now sign up for the benefit.

How will payments be sent?

Taxpayers who opted for direct deposit and placed their banking information on their tax return in order to receive their tax refund can expect to also receive the monthly child tax credit via direct deposit. For those who do not have direct deposit, the IRS will send out paper checks and debit cards to some families.

Can I opt out? What will happen?

Families that do not want to receive the monthly payments for the credit, can opt out through the IRS portal. Once a person opts out of the payments, they will no longer get the monthly amounts but will still receive the full credit they are eligible for when they file their 2021 taxes.

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

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The IRS issues a temporary increase in Meal Deductions for Businesses

The IRS recently announced that they will allow a temporary increase in the allowable percentage that a business is able to deduct for both food and drink expenses at restaurants. This could be beneficial for some truckers that take these deductions out on their yearly return.

The temporary increase began on April 8, and both the IRS and the U.S. Treasury Department issued guidance related to the Taxpayer Certainty and Disaster Relief Act of 2020. The Act provides a temporary exception to the 50% limit on the amount that businesses are able to deduct for food and beverages.

This new temporary exception now allows a 100% deduction for food and beverages from restaurants. Beginning January 1, 2020, through December 31, 2022, businesses will have the option to claim 100% of their food or beverage expenses paid to restaurants as long as the business owner or the employee of the business is present when food or beverages are provided, and the expenses are not extravagant. This new guidance has modified Section 274 (n)(2) for meal and entertainment expenses.

Although this new guidance changes one section of the rules, it does not address the section that covers travel expenses. Currently, a large number of requests have been made to both the IRS and the Small Business Administration to provide further clarification on what additional expenses may be deductible for businesses.

For the time being, businesses or individuals that are planning on taking the deduction should save all their meal receipts and speak with a tax professional to discuss if claiming 100% of their meal receipts or claiming the standard per diem deduction would get them the best return when filing. It is important to note that owners and operators are not eligible to claim 100% of their meals and the per diem.

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 Adds New Guidance about Form 1040 Cryptocurrency

The IRS released updated guidance for their Frequently Asked Questions section on their website which states, “If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question.”

Taxpayers who are unsure on how they should report their cryptocurrency on their taxes should seek assistance from tax professionals in order to ensure that they are filing their tax return correctly. Here is everything taxpayers need to know before completing their taxes.

Payment for Services – Taxpayers who receive cryptocurrency as a form of payment for providing services is considered a type of self-employment. Income from self-employment is usually reported on an individual’s 1040 using a Schedule C which often results in self-employment tax in addition to income tax.

Gifts –Gifted cryptocurrency is not considered taxable for the recipient. The giver of a gift may need to complete a gift tax return and possibly pay a gift tax. The IRS will also monitor for gifts that are disguised as taxable compensation or payment for other property or assets.

Airdrops – Airdrops are viewed by the IRS as found money and is considered reportable and taxable as income. Drops of cryptocurrency that appear in your account or wallet are also taxable events and will need to be reported on your tax return.

Cryptocurrency trades are reported the same way stocks are—by using Form 8949 and Schedule D with a Form 1040. Short-term gains are taxed as ordinary income. Long-term gains get the more favorable capital gains tax rates. The IRS does not expect taxpayers to report every single stock purchase they make at the time if they do not sell or otherwise dispose of it.

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 IRS has Received More Tax Returns compared to last year. Here’s why.

Many taxpayers have been filing their taxes at a faster rate compared to last year. This could be because people are looking to receive their tax refund in addition to their stimulus check.

The IRS began accepting and processing tax returns on February 12th this year, slightly later compared to last year. The IRS did this on purpose in order to have more time to accept and process tax returns and distribute out stimulus checks to qualifying taxpayers.

On February 12, the agency received 55 million returns in the first weekend alone. The returns were comprised of not just individual tax returns but also business returns and a variety of other types of returns.

In the first eight days of tax return intake, the IRS received 34.69 million individual returns, according to the agencies statistics. Last year on February 21, the IRS received 49.8 million returns, which is 30.5% fewer compared to this year. It is important to note that these numbers reflect before it was announced we were in a global pandemic.

The IRS extended their April 15 deadline to May 17 in order to allow individuals more time to file due to COVID-19. Taxpayers still have the option to file a tax extension for October 15 if they need additional time to file their taxes.

Texans, however, now have until June 15 to file their taxes due to the winter storms that affected them.

It is also important to note that although the federal deadline has been extended, individuals should check in with their state to see if their state tax deadline has also changed or if it has remained the same.

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

Individuals or businesses located in Texas will have until June 15 to file their taxes and make payments since the state has been officially declared a disaster area.

Last year, the IRS filing deadline was delayed to July 15 for all taxpayers due to the ongoing pandemic. The agency just declared that this year they will also be delaying the federal tax filing deadline to May 17 nationwide to not only allow taxpayers more time to file their taxes, but to allow the IRS more time to distribute the third stimulus check to qualifying individuals.

Any area that was impacted by winter storms and declared a disaster by the Federal Emergency Management Agency should review the IRS website to see if their area qualifies for the June 15 tax deadline.

The new extension will also affect individuals who have until June 15 to make 2020 contributions to their individual retirement accounts. Businesses normally have until March 15 to file a return, but those impacted by the winter storms have also been extended the same June 15 deadline courtesy. Quarterly estimated tax payments have also been extended in order to allow those in disaster areas more time to pay their taxes.

Taxpayers who will be unable to file their taxes before the deadline and need more time, have the option to request an extension until October 15 from the IRS. Even though the IRS does grant extensions, individuals should be aware that they will still be required to pay what they owe otherwise they will face interest and penalties.

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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