Tax News

IRS Sets Guidelines Based off Trump’s New Payroll Tax

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.

The IRS has received guidance on President Trump’s payroll tax deferral that puts employers on the hook to collect any taxes that are due after the holiday ends. 

The executive order was signed by the president on August 8, 2020. President Trump called for a deferral of the employee’s portion of the payroll tax that was set from September 1st until the end of the 2020 year. 

As of right now, both employees and employers share the responsibility for a 12.4% levy that funds Social Security and a 2.9% tax support to Medicare. 

The executive order put into place by President Trump applies specifically to Social Security tax and would directly affect workers who receive a bi-weekly pay that is less than $4,000 on a pretax basis. 

The IRS released a three page notice that postpones the due date for these taxes until April 30, 2021. Once the deadline passes, penalties, interest and “additions to tax” will begin to accrue.

Since there is no guarantee that the employee’s share of deferred taxes will be forgiven, employers may not want that responsibility. 

Employers are typically responsible for withholding and depositing payroll tax. If an employer chooses to not withhold employees shared taxes, the IRS can’t collect and the worker is held responsible for the tax.

Before the release of President Trump’s order, industry groups were concerned that employees could possibly be left owing deferred taxes next year if they receive extra cash in their paycheck. 

With the new guidance put into place by the IRS, many questions are still left as to how the IRS will get its share of deferred payroll taxes and the steps employees will have to take in order to make arrangements with workers to collect the money. 

If you need tax help, contact us for a free consultation.

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IRS Declares Tax Deadline will Remain on July 15

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.

The IRS has recently announced that after careful consideration, and despite requests to extend the deadline, they will not be delaying the current tax filing deadline of July 15th. The IRS is encouraging taxpayers to file for a tax extension if they require more time to file their taxes. The tax extension will provide those who cannot meet the current tax deadline the ability to file up until October 15.

This is a change in direction from last week, when Treasury Secretary Steve Mnuchin announced that there was consideration to extend the tax deadline until September.  Several groups, including the National Taxpayer Union and the National Treasury Employees Union, were amongst the many to request an additional tax extension. 

The tax deadline, which had originally been scheduled for April 15, was initially extended by three months to allow taxpayers more time to file their taxes due to the coronavirus pandemic.   Many businesses have closed or have been operating under reduced hours due to the pandemic, and with many Americans using social distancing in order to protect themselves and others around them, these businesses and their employees might find themselves unprepared to pay off any tax liabilities in time.

Many small businesses and taxpayers who were hopeful that the tax deadline would be extended will be greatly impacted by this decision, as they will not be given any additional time to pay off their tax liabilities. Although there is still time to file taxes and request a tax extension, taxpayers will be required to pay any outstanding tax debt in full before the July 15 deadline in order to avoid any penalties.

If you need tax help, contact us for a free consultation.

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Tax Implications Baseball Players Could Face When Changing Teams

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.

Major League Baseball and the Major League Baseball Players Association (MLBPA) reached an agreement this week to resume the play of baseball, which was suspended before the 2020 season started due to the outbreak of Covid-19.  Regardless of whether or not they would have come to an agreement, players who were scheduled to become free agents this offseason would have still done so, even if no games were played.  

One of the most interesting players who is expected to become a free agent is Mookie Betts, an outfielder currently under contract for the Los Angeles Dodgers.  Betts, a former MVP and World Series Champion with the Boston Red Sox, is expected to receive multi-year contract offers from several different teams.  However, the states in which those teams play their home games can have an interesting effect on how much Betts will need to pay annually in income taxes.  Let’s take a look at what kind of tax implications Betts would be looking at if he received identical ten-year offers at $30 million a year from teams in California, Massachusetts, New York, and Texas.

1. Starting with California, the most logical suitor for Betts would be the team that just traded for him last off-season, the Dodgers. According to the 2019 tax rates compiled by the Federation of Tax Administrators, California is in the top ten highest income tax states coming in at a tax rate around 13.3%. This means that Betts can expect a large percentage of his paycheck to go towards state taxes.

2. Betts’s former team, the Red Sox, would offer some tax relief in comparison if he were to return to playing his home games in Massachusetts. There is a flat tax rate of 5.13% on most types of income. Seven states also participate in having a flat income tax, and of those seven, Massachusetts has the highest state income tax rate, as well as the highest maximum marginal tax bracket in the United States. Although this income tax is not as high as California’s state tax, Betts should expect his paycheck to be significantly impacted by the deducted state tax. The amount of money Betts receives each paycheck will also be affected by how much he withholds.  In order to receive the most when filing his taxes, Betts would need to withhold the maximum to avoid owing the state any money.

3. Some of the largest contracts in baseball history have been issued by the Red Sox’ biggest rival, the New York Yankees, so it stands to reason that they would be interested in procuring his services for their roster for the next decade. New York’s maximum marginal income tax rate is one of the highest tax rates in the United States, ranging from 4-8.82%. Like California, Betts can expect a big chunk of his income will be heavily taxed by the state.

4. In sharp contrast, there are certain states where players can sign where there is no income tax at all.  One of these states is Texas, which has two teams that may be interested in signing Betts: the Texas Rangers and the Houston Astros.  Texas relies heavily on income from sales and excise taxes and in some areas of Texas, state tax can be as high as 8.25%.Although Texas residents don’t have to worry about state income tax, they do still have to ensure that they are withholding enough income in order to avoid owing the IRS at the end of every tax year. Should Betts fail to pay taxes on any earned income he receives through baseball, he would owe a tax liability and receive a penalty for failing to make estimated tax payments during the year. Failure to pay off any owed tax debt would eventually result in the IRS taking collection actions against Betts by garnishing his paychecks, levying his bank account, or even possibly taking any assets he may own to relieve the unpaid tax debt.

The best players will receive offers from several different teams, and will therefore have the option to seek long term contracts to remain in one city for the rest of their careers.  This is a major decision for these players and their young families, and talking heads in the sports media will argue and speculate over where they will ultimately sign a deal to play.  There are many factors for them to consider, including climate, proximity to their hometowns, the quality of local schools for their children, and often most importantly, the amount of money or years offered by the team.  But one underrated factor that players are surely considering is the income tax implications for living in the states they choose.

If you need tax help, contact us for a free consultation.

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Is the IRS Really Calling Me?

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.

  • Taxpayers can expect to see an increase in identity and tax theft during tax season. 
  • Scammers most commonly reach out to taxpayers by calling them or leaving an automated message.
  • The IRS will never leave threatening voicemails about your tax account and will typically send notices via ground mail to notify you of any discrepancies they may have found. 

During tax season, tax filers can expect to see an increase in fraudulent activity from scammers looking to make money quick. As a taxpayer, you must be vigilant of any criminal activity that may be occurring and always be sure to protect your sensitive information.

The IRS will never email, call, or reach out to you via social media although, quite a few people have reported receiving supposed messages from someone claiming to be from the IRS via one of the platforms mentioned above every year. 

The most common way a scammer will attempt to reach out to a taxpayer is by phone call. Most people who see that an unknown caller is calling them will ignore the call and go about their daily routine only to check their phone later and see that they have received an automated message that is supposedly coming from the IRS. 

These messages will typically tell you that they’re from the IRS and that they’re calling you regarding a time sensitive and urgent matter regarding a large sum of money you owe. These messages may even sometimes claim that you will get sued or arrested if you don’t respond immediately.

Some people may even encounter speaking to someone that is impersonating an IRS agent. These scammers will threaten to take action against you if you do not send them the tax balance you supposedly owe right away and sometimes will ask that the payment be made using random forms of payments such as placing the money on gift cards. The impersonator may even ask for personal information like your social security number or banking information over the phone. 

The IRS will never leave you threatening voicemails about any possible tax balance or fraud regarding your account and will never ask for you to provide personal information or payments over the phone.  If the IRS is attempting to get in contact with you, they will send you a notice via ground mail letting you know if there are any discrepancies on your tax return and will allow you time to respond accordingly. 

Taxpayers should never return a phone call that they receive from someone claiming to be from the IRS and should instead contact the IRS directly to address any concerns they may have. Individuals can reach out to the IRS directly at 800-829-1040 and business owners can call them at 800-829-4933.

It is important to reiterate that the IRS will never discuss your personal tax issues through unsolicited emails, texts, or social media. Always be cautious of any phone calls you receive from someone claiming to be from the IRS who tells you that you owe money.

If you receive an unexpected and suspicious email from the IRS, forward it to phishing@irs.gov.

If you need tax help, contact us for a free consultation.

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Why You May Not be Receiving a Refund this Tax Season

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.

If you’ve filed your tax return and expected to receive a refund only to find out that you owe a tax balance, your return was rejected, or you received a notice from the IRS about your return, you may be wondering what you did wrong and how you can avoid any future tax time surprises.  

Here are a few reasons why you didn’t receive your refund:

  1. Your return contains inaccurate information. If your tax return contains numerical errors or other mistakes, this can slow down the processing time with the IRS. If an error is detected on your return, an IRS agent will have to manually review your return for any mistakes causing a delay in you receiving a refund until the mistake has been corrected.
  • Your tax return is incomplete. Failing to include information such as your social security number or misspelling your name could result in a delay when it comes to receiving your tax return. If you e-file your return and it’s missing a page, this will also stop you from getting a refund. Make sure to double-check all information placed on your return and that all pages are included before sending it off to the IRS.
  • You put the wrong banking information on your return. If you request to have your refund sent to your bank account, make sure the accounting and routing information you put down is accurate. If just one number is wrong on the banking information you provided, it could cause your refund to be sent to someone else’s account. 
  • You’re a victim of tax fraud. If your personal information has been stolen and someone has filed a fraudulent return on your behalf to claim your refund, you will need to contact the IRS and the Federal Trade Commission to file a fraud report and properly file your return.

If you need tax help, contact us for a free consultation.

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The IRS Urges Taxpayers to File Their Taxes in Order to Receive a Stimulus Check

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.

  • The IRS is urging taxpayers to file as soon as possible in order to reap the benefits of this package.
  • If you have yet to file for your 2018 tax year, this could potentially affect your ability to receive a stimulus check. 
  • The IRS recommends that taxpayers file their tax returns as quickly as possible and that non-filers consider contacting a tax professional to assist them with their unfiled tax years.

The new stimulus package is meant to assist both taxpayers and businesses that have been affected by the Coronavirus pandemic. The package is meant to provide relief and aid to those that have been left without a paycheck, become unemployed, or are a business that has experienced a loss of customers.

In order to qualify for any compensation received from the stimulus package, you must have filed your taxes within the last two years.

The IRS is urging taxpayers to file as soon as possible in order to reap the benefits of this package. The IRS has notified taxpayers that in order to receive any potential credits or rebates, your 2018 and/or 2019 tax returns will need to be filed. If you have yet to file for your 2018 tax year, this could potentially affect your ability to receive a stimulus check. 

Once delinquent returns have been filed and a taxpayer is fully compliant, they are able to resolve any outstanding tax liabilities by either negotiating an installment agreement or inquiring with a tax professional to see if they qualify for an Offer in Compromise with the IRS in order to obtain a “Fresh Start.”

The IRS recommends that taxpayers file their tax returns as quickly as possible and that non-filers consider contacting a tax professional to assist them with their unfiled tax years.

If you need tax help, contact us for a free consultation.

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Top 3 Apps that will Help You Stay on the Right Financial Path for 2020

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.

  • There are apps that will help support your financial goals and monitor both your spending and savings.
  • Mint is a budgeting tool that monitors and categorizes and updates any transactions that you may make.
  • Pocket Guard is another budgeting app that allows the user to connect to their bank accounts, which enables the app to track recurring expenses as well as everyday expenses.
  • YNAB teaches you how to manage your money and shows you where you are spending your money. 

For those that made the New Year’s resolution to create a financial goal and maintain it throughout the year, you may be starting to get to the point where it’s challenging to keep it up – especially if you find yourself falling back into old patterns.   You may start to be tempted to spend your money on frivolous items or to go out and splurge on drinks and restaurants. There is still time to correct these habits and get back on track. Luckily, there are apps that will help support your financial goals and monitor both your spending and savings.

Mint is a budgeting tool that monitors, categorizes and updates all your transactions. It also provides you information on how you’re spending your money. Users are able to create and set budgets and will be notified if they go over their budget. The app also provides free credit score updates and monitoring.

Pocket Guard is also a budgeting app. It allows the user to connect their bank accounts, which enables the app to track recurring expenses as well as everyday expenses. This app also tracks any deposits that are made into your account. Pocket Guard will analyze your recurring expenses and see if there is a better deal out there for you which could allow you to save money with each purchase.

YNAB teaches you how to manage your money and shows you how you spend your money. This app provides detailed reports that reflect your spending habits on a month-to-month basis, as well as how to correct the areas in which you’re spending too much. 

Whether you’re looking to create a budget or save more money in the long run, each of these apps will help you do so as well as maintain your new year’s goal. There are plenty of financial apps out there to help get you back on track and testing a few out would help you find what works best for you. 

If you need tax help, contact us for a free consultation.

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Will Interest rates remain the same for the first quarter of 2020?

With tax season creeping upon us, some people may start to panic because they haven’t yet filed their tax return; some may even wait until the very last second before filing.  One of the reasons many Americans put off filing their taxes is because they know that they’re going to owe a tax liability and simply don’t want to deal with it. For those that have a balance with the IRS, they may have questions about whether or not they will accrue interest, how much interest they could accrue, how to avoid owing a balance, or how to prepare for next tax season. If you know that you’re going to owe the IRS at the end of the year, keep reading to find out how you’ll be affected and what you can do to prepare for the next tax season.

Interest rates

According to the IRS, if you end up owing a balance this tax season, interest rates will remain the same as last year for the first calendar quarter beginning January 1, 2020. Here are the interest rates that taxpayers can expect:

  • 5% for overpayments (4% in the case of a corporation).
  • 2.5% for the portion of a corporate overpayment exceeding $10,000.
  • 5% for underpayments.
  • 7% for large corporate underpayments. 

The Internal Revenue Codes determine their interest rates on a quarterly rate. These rates that have been announced this year are computed using the federal short-term rate and will be based on daily compounding.

How to avoid interest

If you have a tax liability, you can count on the IRS to notify
you of your balance due and what tax solutions they may have for you. In addition to what you owe, the IRS will tack on interest until your balance is paid in full. Some of the main reasons taxpayers
end up owing the IRS are:

  • Incorrect withholding amounts.
  • Failure to make estimated tax payments.
  • Underreporting income on their tax return.

So how can you avoid making the same mistakes listed above? The IRS provides tax relief help and encourages taxpayers that are W2 employees to do a paycheck checkup at least one time throughout the year to ensure they are withholding the correct amount to avoid any surprises like owing money come tax time. The IRS provides a withholding calculator for taxpayers to utilize when checking to ensure they’re on the right track. 

If you are a 1099 earner or even a W2 earner and you typically owe during tax time, it may be in your best interest to start making estimated tax payments quarterly. This will make it more likely that
when it’s time to file your taxes you won’t owe a liability, and will help you avoid any interest that would have been tacked onto your balance. IRS tax help for making your estimated tax payment can be found on their website

Another way to stop interest rates is by ensuring that you include all income on your tax return. Attempting to leave any income off your return could potentially lead to an audit, and if it’s found that income has been excluded, it could possibly lead to you owing a balance in addition to interest and penalties.

You can count on the IRS to continue adding interest to any tax balance that you owe. It is the taxpayer’s responsibility to ensure they don’t owe at the end of the year in order to avoid accruing any interest; this means making regular checks that your withholdings are accurate, making estimated tax payments if you know you will owe a balance when you file, and ensuring that you are reporting all income to the IRS to avoid having both penalties and interest. 

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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Has the Tax Cuts and Jobs Act Benefited You?

On December 15, 2017, the Tax Cuts and Jobs Act (TCJA) was filed. The act promised to reduce taxes on average for all income groups in 2018 and 2025, specifically the middle class. According to the Tax Policy Center, those who lived in higher-income households would receive a higher average tax cut, with the biggest portion of tax cuts going to taxpayers in the 95th and 99th percentile of the income distribution. In comparison to our current law, taxes would fall for all income groups in 2018, which would increase the overall average after-tax income by 2.2 percent. Just recently, President Trump has announced that he will further assist taxpayers by cutting taxes for the middle class as a bid for his reelection. With TCJA in place and a promise of further tax cuts, it brings up the question of whether or not the TCJA is effective, and if the passing of a new tax law that allows even more tax cuts would be effective for a higher percentage of American taxpayers.

The TCJA was meant to reduce taxes on average for all income groups in both 2018 and 2025. For most, the tax cuts are hardly even noticeable. It is estimated that the federal tax savings for the extremely wealthy are seeing savings of around $51,000 versus the rest of taxpayers that are seeing less than $1,000. 

One of the reasons why most taxpayers are not seeing as big of a refund is because they did not change their withholdings. If you did change your withholdings when the TCJA was implemented, you would see that the tax changes increased your standard deduction; specifically, the limit on the deductibility of state and local taxes. If you chose not to withhold the proper amount, your tax refund would appear to be smaller than what you probably expected.

Another reason why most taxpayers did not feel the effects of the TCJA is because it benefitted those in a higher income bracket. The decrease in corporate taxes increased corporations’ profits which caused a higher earned income for wealthy households. Those who benefitted from the TCJA have been corporations and taxpayer’s income that is a result of corporate profits. With Trump’s tax cuts largely benefitting the wealthiest class in America, it has not caused an imbalance between average households and those earning a corporate profit.

For most, it can be difficult to understand this 200-page act as it does extensively change the previous tax code. There are some important key takeaways that taxpayers should know before filing again:

  • The TCJA will impact tax filing up to 2025.
  • It changes the tax code for institutions and taxpayers. The new act focuses on cutting individual, corporate and estate tax rates.
  • Nearly everyone has been affected by the TCJA.

If you are a taxpayer that has not felt the benefits of the TCJA, it is important to understand the new tax laws and how it may affect your personal circumstances and help mitigate uncertainty in future tax planning and filing. If you are having difficulty understanding the current tax changes, you can always consult with a tax professional to assist you with your tax filings.

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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New Consumer Warning Issued by the IRS Talks of Recent Surge in e-mail Schemes for 2016 Tax Season

Tax season is once again in full swing, and while that thought alone can be frightening to some, the renewed threat of scammers that are popping up recently is even more alarming. While tax schemes and phishing attempts have long been an unfortunate risk to citizens trying to do the right thing and stay on the “good side” of the IRS, this tax year has already seen a dramatic increase in their nefarious existence.

IRSPhishingThe Internal Revenue Service just released a warning to citizens to beware of suspicious emails after already seeing an approximate 400% increase in these phishing and malware incidents so far this tax season alone. These emails are designed to fool taxpayers into thinking that they are official written communication coming directly from the IRS or other tax authority representatives, including tax software companies.

“This dramatic jump in these scams comes at the busiest time of tax season,” said IRS Commissioner John Koskinen. “Watch out for fraudsters slipping these official-looking emails into inboxes, trying to confuse people at the very time they work on their taxes. We urge people not to click on these emails.”

This year’s steep increase in this fraudulent activity has officials very concerned. They are not only using the traditional phone and email methods of communicating with would-be victims, but are also now reaching people via text messaging. The messages appear to be legitimate and ask taxpayers to provide a wide variety of information. Some requests inquire about filing status, requests to verify PIN information, or verification of refund information, while others seek to confirm personal information or even order official transcripts.

So what do fraudsters do with this information?

They can actually use the stolen information to be able to file false tax returns, amongst other things. When an unknowing victim clicks on one of these emails, they are redirected to websites that look very legitimate and often imitate official web pages like one might find at IRS.gov or on other real websites. These fraudulent sites then ask for social security numbers and other personal information that thieves can use to file false income tax returns.

Many of these sites also contain malware, which can infect your computer and allow criminals to access your files or obtain additional information, such as passwords and logins, by tracking your keystrokes.

According to the official news release, the IRS has seen an increase in reported phishing and malware schemes, including:scam-alert

  • There were 1,026 incidents reported in January, up from 254 a year earlier.
  • The trend continued in February, nearly doubling the reported number of incidents compared to a year ago. In all, 363 incidents were reported from Feb. 1-16, compared to the 201 incidents reported for the entire month of February 2015.
  • This year’s 1,389 incidents have already topped the 2014 yearly total of 1,361, and they are halfway to matching the 2015 total of 2,748.

As the email scams increase, the IRS is working with other leaders in the tax industry to find a resolution for this issue.

“While more attention has focused on the continuing IRS phone scams, we are deeply worried this increase in email schemes threatens more taxpayers,” Koskinen said. “We continue to work cooperatively with our partners on this issue, and we have taken steps to strengthen our processing systems and fraud filters to watch for scam artists trying to use stolen information to file bogus tax returns.”Phishing_magnifying_glass_fi

One way the IRS, state revenue departments and other tax organizations are trying to protect taxpayers, is by providing them with as much knowledge of the situation as possible. Combining forces to form the “Taxes. Security. Together” campaign, they hope to educate consumers and help keep them away from these potential scammers that could cause financial devastation to many tax payers.

What should you do if you think you have received a phony or questionable email or text message from the IRS?

If a taxpayer receives an unsolicited email that appears to be from either the IRS e-services portal or an organization closely linked to the IRS, they are urged to report it by sending it to phishing@irs.gov.

Recent email examples the IRS has seen include subject lines and underlying text referencing:

  • Numerous variations about people’s tax refund.
  • Update your filing details, which can include references to W-2.
  • Confirm your personal information.
  • Get my IP Pin.
  • Get my E-file Pin.
  • Order a transcript.
  • Complete your tax return information.

Also, it is important to keep in mind that the IRS generally does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

To learn more about this latest warning, you can visit their website or call the IRS if you feel you have been a victim of these very crafty and cunning criminals.