Tax Planning

What is IRS Notice 1444 and will you need it for filing your 2021 taxes?

With the pandemic still ongoing and many Americans out of a job, the distribution of two stimulus checks has helped many individuals pay their bills. Now that it is tax filing time, tax filers should have received Notice 1444 in the mail from the IRS. This notice will be required when filing your taxes in order to notify the IRS you have received the stimulus check.

Understanding Notice 1444

If you were sent Notice 1444, you probably received an economic impact payment (EIP), also known as the stimulus payment. Notice 1444 was sent out to each stimulus recipient within 15 days of the IRS issuing out the payment. The notice should indicate the following:

  • The amount of the payment.
  • A phone number to call if a recipient has any questions.
  • Where a recipient can find information about their payment.
  • How the payment was made i.e. direct deposit, check, or debit card.
  • A reminder to keep the notice with your taxpayer records for your 2020 tax return.

Why Notice 1444 was mailed out

Notice 1444 was issued by the IRS to recipients of the economic impact payment. It should be kept with other important tax documents to be used for when it comes time to filing your 2020 taxes. For those who did not receive the full amount for the stimulus payment but qualified for the full amount, having Notice 1444 will come in handy. The notice will reflect the total amount you received and can be used when filing your taxes in order to get the rest of your payment.

Is there a deadline for IRS Notice 1444?
There is no deadline for Notice 1444. It is important that taxpayers hold on to their notice and file it away with their other tax documents for end of year tax preparation.

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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How to Renew Your ITIN

Taxpayers need to act quickly to renew their Individual Taxpayer Identification Number (ITIN). An ITIN is a tax ID number used by those who aren’t able to obtain a Social Security number. Individuals can get their ITIN renewed quickly in order to avoid any processing issues by submitting their application as soon as possible.

ITINs with the middle digits 88 expired at the end of 2020 including any ITIN that was not used on a tax return within the past three years. ITINS assigned in 2013 with the middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99 that have yet to be renewed will also expire at the end of the 2021 year.

Renewing your ITIN

Taxpayers can submit Form W-7 along with all required forms of ID and residency documents to the IRS. If you’re submitting a Form W-7 to renew your ITIN, you’re not required to attach a federal tax return. For spouses and dependents, they will only need to renew their ITIN if they are filing an individual tax return or if they qualify for an allowable tax benefit.

Families have the ability to renew their ITINS together

If you have other family members that need to renew their ITIN too, the IRS will accept W-7 forms from everyone in the family if a minimum of one family member listed on a tax return has an ITIN that is expiring.

Alternative ways to submit an ITIN Application Form

Some taxpayers may be eligible to use an IRS authorized Certifying Acceptance Agent to make an appointment at a designated IRS Taxpayer Assistance Center. This allows you to hand-deliver your documents to the IRS.

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

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3 Tax Mistakes to Avoid making this Year

Tax season is here again and that means it’s time to collect all tax filing documents and contact your CPA or use a tax software in order to prepare and file your taxes on time. Taxpayers also need to prepare to pay off any tax bill they may receive after filing their taxes if they want to stay in good standing with the IRS.

In order to get the most out of this tax season, here are some tax filing tips taxpayers should follow before filing in their tax return.

Avoid filing your taxes late

This year’s tax filing deadline is currently April 15th. Last year the IRS extended the deadline by three months in order to allow taxpayers additional time to cope with the ongoing pandemic. As we’re entering another year into the pandemic, the IRS seems to not be as lenient and expects taxpayers to go back to abiding by the previous tax filing deadlines.

Being late on filing your taxes could be costly in penalties. If you expect to receive a refund this tax year, it will be delayed until your taxes are filed.

Failing to include unemployment income on your return

Millions of Americans have lost their job due to the COVID-19 pandemic and if you were one of them, you may have received unemployment benefits. If you didn’t have any taxes withheld from the benefits you received, be prepared to pay up when you file your taxes. Also, failing to report any type of income you received could result in serious consequences with the IRS and cause you to deal with expensive penalties and a tax bill.

Selling investments too soon

If you have benefited from the stock market and have investments in your portfolio that you are able to sell at a gain, be careful! If you take capital gains before holding your investments for at least a year, you’ll be taxed at the short-term rate. This means that you will end up paying a lot more in 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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What are Tax Cuts and Can they Affect You?

A Tax cut is considered a very broad term but is typically defined as when the government reduces the amount of taxes that they are collecting. In most cases, tax cuts alter or completely change the preexisting tax laws that are in place. Here are several ways tax cuts can directly affect you.

Reducing income tax rates

The U.S. Congress and a variety of states offer a periodic reduction in the income tax rate as a way of reducing the total income taxes which allow taxpayers to benefit from it. As of 2020, the lowest rate of tax the U.S. government can charge a taxpayer is 10 percent. If the government decides to change it to 8 percent, then this would be considered a tax cut.

Temporary tax cut

Should it be deemed necessary, the government has the ability to cut taxes to a specific amount in order to stimulate the economy. The tax cut would be corrected once the government believes that it’s no longer necessary. One way a tax reduction can be done is through the social security tax rate or if Congress allows those who receive unemployment compensation to exclude a certain amount

Increasing deduction limits

Most deductions that are claimed have limitations in the amount that can be deducted or the maximum income earned that is eligible to be claimed.

Expanding tax brackets

A progressive system of taxation usually involves expanding tax brackets, which is a practice typically used by most governments. A variety of income tax rates are applied to specific ranges or brackets of income. Rather than creating a tax cut with a reduction in tax rates, it would be based off the range of income that is earned in a household to determine the amount an individual will be taxed.

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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Tax Tips for Taxpayers Filing Federal Tax Returns Amid the Pandemic

The IRS is encouraging all tax filers to prepare in advance when it comes time to file their 2020 tax returns. Taking necessary action ahead of time can help a taxpayer file a much more accurate return and avoid making simple mistakes.

Taxpayers should start gathering Forms W-2, Wage and Tax Statement, Forms 1099-Misc, Miscellaneous Income, and other income documents in order to help determine what credits and deductions you could be eligible for. If you received Notice 1444, Your Economic Impact Payment, you’ll want to calculate any Recovery Rebate Credit that you may be eligible for on your 2020 federal income tax return.

It is important to know that most income will be considered taxable and that this will also include unemployment compensations, refund interest, and income and virtual currencies.

For those who have an Individual Tax Identification Number, you will need to double check that it has not expired before filing your taxes in order to avoid any processing delays. If your ITIN has expired, the IRS recommends submitting a Form W-7, Application for IRS Individual Taxpayer Identification Number. Those who fail to renew their ITIN could face a delayed refund or may even be ineligible for certain tax credits.

The IRS recommends that tax filers use the Tax Withholding Estimator on the IRS’s website. This will help determine if you are withholding the correct amount for federal on your paycheck in order to avoid having a balance when file their taxes. If you need to adjust your withholding for the rest of the year, you should submit a new Form W-4, Employee’s Withholding Certificate, to your employer.

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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How to Claim a Domestic Partner as a Dependent

Every tax year, a large number of people are claimed as dependents on tax returns. Under certain circumstances, a dependent can be claimed if they are not related to you. Once someone is identified as a dependent and placed on your tax return, you’re essentially informing the IRS that you’re financially responsible for that person.

For 2020, the dependent credit for other than qualifying children is $500. A credit is different from a deduction because the credit reduces any taxes that are owed while a deduction will reduce the amount of income that is subject to tax.

A partner can be claimed as a dependent if they meet the following criteria:

  • No one else is able to claim your partner as a dependent child on their tax return.
  • The person that is being claimed must be a U.S. citizen, a U.S. national, a U.S. resident alien, or a resident of Canada or Mexico also might qualify.
  • Your partner must live with you year-round.
  • Your partner’s gross income for the year cannot exceed $4,300 for 2020.
  • You will need to require half of your partner’s financial support during the year.
  • Your partner cannot be married to someone else or file a joint return with that other person.

You and your partner must live together for the entirety of the year in order to qualify as a dependent. If you have moved in the middle of the year, you will be required to wait until the next year before claiming your partner as a dependent.

If you’ve taken a vacation, or were deployed with the military, you will be considered living together. Based off IRS guidelines, the following types of absences will not count against you:

  • Illness, such as time spent in a hospital or rehabilitation facility
  • Vacations
  • Business travel or assignments
  • Education-related absences
  • Absences for military service

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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Are Short-Term Disability Claim Payments Considered Additional Income?

If you’re temporarily disabled with an injury, serious medical conditions, or a pregnancy, it is possible you could be covered by short-term disability payments that can be obtained through private insurers and also as part of your employer’s compensation for employees. Payments that you receive could potentially be taxable, it all depends on how and when they are paid. Here’s what you need to know.

Income exemptions

Typically, all income that is received is considered taxable unless it is expressly exempted. These types of exemptions will include worker’s compensation payments and certain compensation that was awarded for damages through litigation.

Short-term disability payments that are received under an insurance policy are not considered exempt and could lead you to be liable for additional taxes if you have already taken on the cost of taxation through the structure of the plan.

Employer disability benefits

If both you and your employer share the cost of a disability plan then you will only be liable for taxes on the amount received due to payments made by your employer. If a taxpayer pays the entire cost of a sickness or injury plan with after-tax money, they will not need to report any payments received under the plan as income.

If an employer only pays half the cost of premiums and does not deduct these payments from a taxpayer’s pay, then a taxpayer will most likely report half the payments received as income. Medical costs that have been paid for after the plan was established and have yet to be reimbursed are generally not taxable.

Cafeteria plans

This is an insurance program that allows employees to pick the coverage they would like to receive from a menu of options. This coverage is typically paid for by directing pre-tax dollars to the plan.

If the amount of the premiums is paid for by an employer or by you with before-tax dollars, then a taxpayer will most likely need to report any payments received as income. However, if the income used for the plan was paid for by a taxpayer with after-tax dollars, they are considered to have paid the premium and no payments under the plan will need to be reported.

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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5 Reasons why You should File your Tax Return

Many Americans are required to file their taxes yearly to either receive their refund or pay off their tax balance in order to stay compliant with the IRS. Taxpayers who earn low income may not be required to file their tax returns.

Here are five tips taxpayers should know about when deciding whether or not to file their tax return.

1. How to determine if you should file.

One way to determine whether or not your taxes needs to be filed is typically based off your income, filing status and age. Additional rules that may play a part as to whether or not you will need to file your tax return is if you are self-employed or you can be claimed as a dependent of someone else. For those who are unsure if they need to file this tax year, the IRS offers an Interactive Tax Assistant that can help determine if you need to file.

2. Check your taxes that are being withheld or paid.

Questions that you should ask yourself when deciding whether or not you will receive a refund when you file your tax return:

  • Did your employer withhold federal income tax from their pay?
  • Did you make estimated tax payments?
  • Did you overpay last year and have it applied to this year’s tax?

3. See if you can claim an earned income tax credit.

If you have earned less than $55,592 last year, you could possibly receive an Earned Income Tax Credit (EITC) as a tax refund. A taxpayer must qualify for this credit before placing it on their return. You can check your eligibility by using the EITC Assistant on IRS.gov. In addition, a taxpayer will most likely need to file a tax return in order to claim the EITC.

4. Child tax credit or credit for other dependents.

You can claim a child tax credit if you have a qualifying child under the age of 17 as well as meet additional qualifications. In addition, taxpayers may also be eligible for the credit for other dependents. This includes people who have:

  • Dependent children who are age 17 or older.
  • Parents or other qualifying individuals they support.

5. Education credits.

There are two higher education credits that can reduce the amount of tax that is owed on your tax return. There are two types of education credits that you can qualify for, one is the American opportunity tax credit and the other is the lifetime learning credit. In order to qualify, a taxpayer, their spouse or their dependent must have been an enrolled student for at least half the time for one academic period to qualify.

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

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What to do if You’re Projected to Owe Taxes

Tax season will be upon us shortly, which means it’s time to start preparing all your tax documents in order to ensure that you receive the maximum amount in your refund. Here’s a list of ways you can get the most from your taxes.

Contribute More Towards Your Retirement

Taxpayers who contribute towards their company’s 401(k) or their traditional IRA will automatically lower their taxable income. Currently, the contribution limit for a 401(k) is $19,000 ($25,000 for 50 or older) and $6,000 ($7,000 for 50 or older) for an IRA.

Taxpayers may also be eligible for the Savers Credit which is worth up to $1,000 ($2,000 if married filing jointly). Lower to middle-income taxpayers can qualify for this credit if they are contributing to their retirement. The credit also assists qualifying taxpayers reduce their taxes should they owe a tax liability.

Donate to a Charity

The holiday season is a great way to give back and also give back to those in need, all while also reaping the tax benefits. Tax deductions for non-cash and monetary donations donated to qualifying charitable organizations can get you the most out of your tax refund when itemizing your tax deductions. Those volunteering at a charitable organization can deduct their mileage (14 cents of every mile).

Review Your Tax Withholdings

With the end of the year approaching, it’s important to know where you stand with both your taxes and your finance. One way to know if you’re on the right track is to review how much federal and state taxes are being withheld from your paycheck every month. 

The IRS provides a tax withholding calculator for taxpayers to use to ensure that they’re withholding the accurate amount and to avoid owing the IRS. If a taxpayer does end up owing a balance, they will need to either pay it in full after filing their taxes or make estimated tax payments to the IRS prior to filing their tax return to avoid any 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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Are Political Donations Tax Deductible?

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.

Many Americans show their support for their political candidate by voting or donating to the political party of their choice. If you’re wondering if your financial contribution to a political campaign affects your taxes in any way, you’re not alone. Here’s everything you need to know about campaign donations and your tax return.

Can Political Contributions be Tax Deductible for Businesses?

Businesses are cautioned to not deduct political contributions, donations or payments on their tax returns.

Can I Deduct my Expenses if I Volunteer for a Political Campaign?

For those who volunteer for a political candidate, campaign, or political action committee, the time you volunteer will not be considered tax deductible when filing your taxes.

Is it Considered a Tax Deduction when Supporting a Presidential Campaign?

 When filing your taxes, you have the option to set aside $3 of your taxes to go towards the Presidential Election Campaign Fund when you complete your 1040 federal income tax return form. You can check the box to donate the funds and it will not affect your taxes or deductions.

Are there Political Contribution Limits?

Taxpayers wanting to support a political candidate or party can donate the following amounts:

  • Up to $2,800 per candidate and election.
  • Up to $10,000 to state, district, and local parties combined each year.
  • Up to $106,500 to a national political party, per account, and per year.

Are there any Donations that are Tax Deductible?

In order to qualify, you must be a registered non-profit organization that operates as true charity in order to take a tax deduction for the donation.

If you volunteer, give cash or non-cash items to a 501(c)(3) organization, your donation may be a qualified tax-deductible charitable contribution. To confirm if the organization you gave a donation to is a 501(c)(3) organization, you can use the Tax-Exempt Organization Search Tool from the IRS.

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

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