Tax News

Quarterly Tax Deadline Reminder

tax deadline

For business owners and self-employed taxpayers that are required to pay quarterly taxes, the deadline is approaching. The tax season is upon us and it’s important to pay as promptly as you can to avoid penalties. The deadline for the last 2021 quarter is January 18, 2022. If possible, the IRS recommends making an estimated tax payment to ensure a hassle-free process without delays.

How to avoid penalties

Income taxes should be paid throughout the year as income is earned. This helps taxpayers make smaller payments, rather than owing a large sum in the last quarter. This is done by either withholding from paychecks or other compensation, or by making quarterly estimated tax payments. These options help taxpayers avoid surprise tax bills, which are often accompanied by a penalty.

If you did not make payments throughout the year, you can still make a payment to cover the missed quarters. By making a payment before the April filing deadline, a penalty will usually lessen and may even be eliminated altogether. This is because the penalty calculation considers the date on which your payment was made.

Who should make a payment?

  • Most people who owed taxes after filing their 2020 return may owe again when they file for 2021. This is due to a lack of withholding, or not withholding enough throughout the year.
  • You may also be in this situation if you itemized in the past, but now take the standard deduction, have a complicated tax situation, have a two-wage household, or you’re an employee with non-wage sources of income.
  • If you did not withhold taxes from unemployment, you should also consider an estimated tax payment.
  • Families who received advance payments of the Child Tax Credit during 2021 but don’t expect to qualify when filing their 2021 return, may also need to make an estimated tax payment.

Keep in mind that most income is taxable. Wages, interest, investment income (including virtual currencies), refund interest and gig economy income are all taxable.

Making an estimated tax payment

The IRS provides a Tax Withholding Estimator to help you determine if you need to make a payment. You can fulfill your payment electronically using IRS Direct Pay, or through your IRS Online Account.

Do you owe for previous tax years?

Owing back taxes that accrued penalties is a stressful time and can be very confusing if you don’t understand the tax code. To ensure that you get caught up on missed years and are in compliance with the IRS, we recommend the assistance of our tax professionals at Optima. Give us a call at 800-536-0734 for a free consultation.

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What To Do in Case of Tax Identity Theft

tax identity theft

As taxpayers recoup from the holidays, another important season rises – tax season. Unfortunately, it’s during this time that taxpayers discover alarming issues regarding their account. Issues such as tax identity theft leave many Americans with unexpected penalties and fees. While filing this year, be sure to look out for signs of tax identity theft to prevent worst case scenarios and to handle the matter sooner rather than later.

What are the signs of tax identity theft?

On average, most people don’t know they’re victims of tax identity theft until they receive a notice from the IRS. The notice will outline an issue with your tax return, but it’s important to recognize whether it’s a mistake, or possible identity theft. Some signs of identity theft are:

  • Receiving a letter from the IRS regarding a suspicious return that you didn’t file.
  • A duplicate Social Security number won’t allow you to file.
  • You received a transcript that wasn’t requested by you.
  • You receive notice that an online account was created in your name; or your existing account has been accessed or disabled without your knowledge.
  • You receive an IRS notice of owing additional tax or refund offset, or collection actions are being taken against you for a year you didn’t file.
  • IRS records indicate you were paid by an employer you didn’t work for.
  • You have been assigned an Employer Identification Number, but you didn’t request one.

What to do if you’re a victim of tax identity theft?

Should you find that any of the signs apply to you, there is immediate action that you can take:

  • Respond as soon as possible to IRS notices by calling the provided number.
  • If your e-filed return is rejected due to duplicate filing under your SS number, complete IRS Form 14039, which is the Identity Theft Affidavit. Attach this form to your return and mail it in.
  • IdentityTheft.gov provides immediate steps for protecting yourself and your financial accounts.

The IRS has a line you can call for specialized assistance if you did not receive a resolution for your case. That number is  800-908-4490.

The IRS provides Instructions for Requesting a Copy of Fraudulent Returns if you believe someone filed in your name.

Tax Debt Penalties and Relief

If you’re still unsure about why you have tax penalties and you’re seeking relief, Optima may be able to assist you. We conduct a thorough investigation of your tax history to find any anomalies that could be the catalyst for your liability. Give us a call at 800-536-0734 for a free consultation today!

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Rules for Claiming a Dependent

dependent

Dependents are usually children or relatives in your household that require your care. These characteristics allow you to be eligible for some tax deductions and credits. Child tax credit, earned income tax credit and child and dependent care credit are just a few that you may be eligible for. Knowing when to claim a dependent and how will be vital to preparing your tax return this season.

What are dependent qualifications?

Your dependent will be one of the following: a qualifying child or a qualifying relative.

Qualifying Child

To claim a qualifying child, the child must be part of your family. Some qualifying relationships include:

  • Your biological child
  • Your stepchild
  • Your foster child
  • Your sibling or half sibling
  • Step sibling
  • A descendent of either of the above (which includes grandchildren, nieces, and nephews)

The child must also be of a certain age. The IRS states that one of the following must be true of the child’s age:

  • They’re 18 or younger at the end of the year and younger than you or your spouse.
  • They’re 23 or younger at the end of the year, was a student and younger than you or your spouse. To qualify as a student, the child must be full-time for at least five months of the year in question.
  • The child can be over the age limit if they are diagnosed by a doctor as permanently disabled.

Another important key factor to claiming a dependent is that the child must live with you for more than half of the tax year. The IRS provides particular exceptions for temporary absences (such as extended hospital stay, college, or juvenile detention). Other exceptions include children of divorced or separated parents and children that were kidnapped.

Should the child in question get a job and provide at least half of their own financial support, you cannot claim them as a dependent.

The child can’t file a joint tax return with someone and be claimed as a dependent. The exception to this rule is if the child and their spouse file a joint return only to claim an income tax or estimated tax refund.

Last, but not least, the child must be a U.S. citizen, resident alien, U.S. national or a resident of Canada or Mexico.

Qualifying relative

Qualifying relatives do not have an age limit, however other conditions must be met.

  • They can’t be someone else’s qualifying child
  • They must be related to you or live with you
  • Their gross income for the year can’t be more than $4,300 in the 2021 tax year
  • You have to provide more than half of the person’s total financial support for the year

Additional assistance and tax prep services

Claiming a dependent and remaining compliant with the tax code can be very confusing. If you realize you may have made a mistake that triggered penalties and now owe a liability, you may be eligible for tax relief services. Give us a call at 800-536-0734 for a free consultation today.

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What are Gift Taxes?

What are 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.

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7 Year-End Tax Tips

As we approach 2022, Optima wants to wish you a happy holiday season and remind you to take advantage of this special time of year. The end of the year is the perfect time to organize your tax records and prepare to file! Optima CEO David King prompts thought-provoking topics as Lead Tax Attorney Philip Hwang provides comprehensive tips for year-end tax filing. Ensure your tax return is as accurate as possible and cement a successful tax season with this video guide from Optima Tax Relief!
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Claiming Charitable Donations on Your Tax Return

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.

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IRS Changes Offer in Compromise Policy

Tax debt relief may have gotten a little easier. The IRS has just announced a major adjustment to the offer in compromise policy that will remove some obstacles for potentially eligible taxpayers. 

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7 Year-End Tax Tips

As we approach 2022, Optima wants to wish you a happy holiday season and remind you to take advantage of this special time of year. The end of the year is the perfect time to organize your tax records and prepare to file! Optima CEO David King prompts thought-provoking topics as Lead Tax Attorney Philip Hwang provides comprehensive tips for year-end tax filing. Ensure your tax return is as accurate as possible and cement a successful tax season with this video guide from Optima Tax Relief!

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

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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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IRS Changes Offer in Compromise Policy

offer in compromise

Tax debt relief may have gotten a little easier. The IRS has just announced a major adjustment to the offer in compromise policy that will remove some obstacles for potentially eligible taxpayers. If you have a large tax liability, now is a great time to seek a resolution!

What is the current OIC policy?

An offer in compromise (OIC) is the most sought-after form of tax relief. In short, this resolution allows taxpayers to settle their debt for less than what they owe with proof of hardship. When an OIC is accepted by the IRS, any refunds for that you receive after an offer is accepted are kept by, or must be returned to, the IRS and goes toward the outstanding balance.

What is the new OIC policy?

Returns

The Taxpayer Advocate Service and the IRS united in a joint effort to make an OIC more attainable. One major change keeps future refunds in the pocket of the taxpayer. Under the new guidance, the IRS will no longer keep, or request the return, of a tax refund. This amendment to the OIC policy is effective as of November 1, 2021. If you would like to apply for an OIC in December of 2021 or later, your next return is yours to keep. This is monumental for taxpayers facing hardship, as we’re expecting more OIC applicants than ever before.

This change isn’t cut and dry, however, as the IRS will not allow you to keep amended returns. Should you receive a refund prior to your offer acceptance or based on an amended return for the tax periods in question of your liability, your refund must be returned to the IRS within 30 days of receiving it.

OBR Remedy

In the original OIC policy, the OBR (offset bypass refund) remedy was unavailable. Now, if you’re experiencing financial hardship, you can qualify for an OBR while your OIC is pending. An offset bypass refund aids taxpayers facing hardship. An overpayment in a return (offset refund) can be given to you by the IRS to help with your tax debt.

Applying for an OIC

Now is truly a great time to seek assistance with tax debt. The IRS is making collaborative effort to create an easy path to a resolution. The process can be long and grueling, but it’s worth the time and energy once you reach the finish line. Give Optima a call for a free consultation at 800-536-0734 and start your journey to financial freedom today!

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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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Employee Retention Credit: What You Need to Know

Employee Retention Credit (ERC) could help a lot of businesses thrive if used properly. This is a refundable tax credit that appears to be difficult to attain but is far from impossible. ERC was created to encourage employers to keep employees on their payroll under the CARES Act. Eligible employers have immediate access to ERC by reducing employment tax deposits. Employers may even get an advance payment if the tax deposits are insufficient to cover the credit.

Eligible Employers

The qualifications for the Employee Retention Credit are two main attributes:

  1. Fully or partially suspend operation due to orders from government authority. This would limit commerce, travel and/or group meetings due to the pandemic.
  2. Experience a detrimental decline in gross receipts (income).

The IRS considers a significant decline in gross receipts to be less than 80% of the gross receipts from the previous year. For example: Amazon’s gross receipts for 2020 was 152,757, so if the company earned less than 80% in 2021, then that would qualify Jeff Bezos for the Employee Retention Credit.

How much ERC are you qualified for?

As an employer, you can receive 50% of qualified wages that you typically pay in a year. These wages also include qualified health plan expenses. The maximum amount of qualified wages considered is $10,000, and the maximum credit for wages paid to an employee is $5,000.

Qualified wages

Qualified wages are compensation and health plans paid for by the employer to some or all employees. Paychecks, for instance, are compensated wages.

Qualified health plan

Qualified health plans are group plans covered by the employer that are not reflected in the employee’s gross income.

Additional information

Employee Retention Credit is not compatible with Payment Protection Program (PPP) loans. An eligible employer may only utilize one of these programs under the CARES Act.

Employers are still required to withhold federal taxes on qualified wages. ERC does not make an employer exempt from paying taxes.

Should you find yourself in need of tax relief services, contact Optima Tax Relief at 800-536-0734 for a free consultation.

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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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