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 new agencies. Here’s what you need to know:

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What Is An IRS Revenue Officer?

Revenue Officers deal with the most advanced tax collection cases that the IRS has on file. If you owe a large sum of money to the IRS, you could potentially have a Revenue Officer assigned to you. Optima CEO David King and in-house Revenue Officer expert and Enrolled Agent, Rosie Steele, provide helpful tips on what individuals can do if they have been assigned a Revenue Officer.

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Payment Service App Taxes

Since 2009, apps such as Venmo have been evolving into common payment methods for businesses and individuals. Now, peer-to-peer payment apps are gaining the government’s attention regarding unreported income. To remain compliant with the IRS, there are some things to consider if you utilize these apps for business.

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What is the Vehicle Mileage Tax Program?

The Senate recently passed President Joe Biden’s infrastructure bill, which includes a pilot program for vehicle mileage tax. This tax would charge drivers based on how many miles they drive in a year. The vehicle mileage fee will likely bring in revenue for transportation and future infrastructure projects.

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IRS issues guidance on Taxability of Dependent Care Assistance Programs

The IRS has issued guidance on the taxability of dependent care tax assistance programs for 2021 and 2022. In the guidance, it was clarified that any amounts that were attributable to carryovers or an extended period for incurring claims would typically be non-taxable events. In addition, under the American Rescue Plan Act, the new guidance has mandated a one-year increase in the exclusion for employer-provided dependent care benefits from $5,000 to $10,500 for the 2021 tax year.

Due to the ongoing pandemic in 2020 and 2021, individuals were unable to use the money that they had previously set aside in their dependent care assistance programs. Under these plans, an employer typically allows employees to set aside a certain amount of pre-tax wages in order to pay for any dependent care expenses they may have.

In most cases, carryovers of unused dependent care assistance program amounts are not allowed. However, because of legislation related to coronavirus such as the Taxpayer Certainty and the Disaster Tax Relief Act of 2020, employers are allowed to change their plans and can now permit the carryover of unused dependent care assistance program amounts to plan years ending in 2021 and 2022.

Notice 2021-26 states that dependent care benefits would have been excluded from income if used during taxable year 2020 (or 2021, if applicable). These benefits will remain excludible from gross income and are not considered wages of the employee for 2021 and 2022.

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 Tax Plan could raise Taxes by $213,000 next year on wealthy Americans

As a result of President Joe Biden’s tax plan, the top 1% could see their taxes increased by more than $213,000. This could mean that households that earn $800,000 or more could see their after-tax income decline by about 11% according to the Urban-Brookings Tax Policy Center’s analysis.

The proposed plan would increase taxes on the ultra-wealthy Americans and corporations in order to pay for an expansive infrastructure plan and add more features to the social safety net that would largely benefit low- and middle-income families.

Americans that earn at least $3.6 million would be required to pay an additional $1.6 million which would make their income fall about 17%, according to the Tax Policy Center.

Biden’s plan would increase the top marginal income-tax rate to 39.6% from the current 37%. The plan would also tax the appreciation of unsold stock and other assets at death. Previously these assets were able to pass to many heirs tax-free.

The plan would additionally extend the recent temporary increases to the child tax credit, the child and dependent care credit, and the earned income tax credit. These benefits are largely to assist the low and middle-income households.

The plan would give households earning $26,000 or less an average tax cut of $600 next year which would increase their after-tax income by about 4%. Middle earners that make between $52,000 to $93,000 would receive a $300 tax cut, or 0.5% of after-tax income.

This new initiative is an attempt to help low to middle-income earners that have kids and need the additional tax breaks to stay financially afloat.

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 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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