Tax Planning

What to expect when dealing with the IRS

Individuals who do not pay their tax bill after filing their tax return will receive a bill for the amount they owe. Once the IRS sends a bill to a taxpayer, the collection process will begin and will continue until the account has been paid in full or the IRS is no longer able to legally collect on the tax debt; for example, the time or period for collections expires.

Taxpayers will receive a letter from the IRS that will explain the balance due and details on how to pay their balance in full to remain compliant with the IRS. The letter will also include the amount of tax, plus any penalties and interest accrued on an unpaid balance from the date the tax was due.

Any unpaid balance is subject to interest that compounds daily in addition to a monthly late payment penalty. The IRS recommends taxpayers pay their tax liability in full as soon as they can in order to minimize both the penalties and interest. Taxpayers also have the option to consider other financial avenues with the IRS such as obtaining a cash advance on their credit card or getting a bank loan. The rate and any applicable fees your credit card company or bank charges may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. If you cannot pay in full, you should send in as much as you can with the notice and explore other payment arrangements.

Individuals who are unable to pay their tax balance in full right away, may qualify for a payment plan with the IRS. One option is a short-term payment plan of up to 180 days, available to individuals who owe up to $100,000. Taxpayers who cannot pay their tax liability in full within the 180 days, may qualify to pay monthly through an installment agreement.

When setting up an installment agreement, taxpayers should be aware that there is a user fee that they will need to pay before the agreement is actually set up. For low-income taxpayers, the user fee could potentially be reduced or waived altogether if certain conditions apply. Taxpayers should be aware that interest and late payment penalties will continue to accrue while they make installment payments.

Taxpayers who cannot afford to make monthly installment agreement payments can apply for an Offer in Compromise (OIC). An OIC is an agreement between a taxpayer and the IRS that resolves a taxpayer’s tax liability by payment of an agreed upon reduced amount. Before an offer can be considered, you must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.

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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Should you Electronically File your Taxes?

Taxpayers have two options when it comes to submitting their tax return to the IRS: electronically or by mail. Before filing your taxes, a taxpayer should review the pros and cons of both methods. For example, e-filing is known to be safer, faster, and much more convenient than filing a paper tax return. Choosing to mail a paper return to the IRS is cheaper but takes much longer to process and for you to receive your tax refund.

E-filing a tax return

As of 2020, approximately 90% of taxpayers chose to e-file their tax returns. One of the biggest benefits of going with electronic filing is that taxpayers received an immediate confirmation from the IRS that their tax return has been received.

If the IRS finds any errors on an individual’s tax return, the IRS will mail out a rejection notice, typically within 24 hours of attempting to process and file the return. The IRS notice sent to taxpayers will indicate what triggered it to be sent out and how they can fix their error.

E-filing your tax return means your tax return will be processed much quicker and that you will receive your tax refund faster.

Although there are many pros to e-filing your tax return, taxpayers should be aware that there are also some disadvantages. Tax filers should be aware that outages or glitches may occur when using the internet to file your tax return.

E-filing supports most tax situations, however, there are certain scenarios it does not support. For example, you cannot:

  • File a return for someone who has passed away.
  • Attach images or PDFs to your return.
  • File before the IRS opens e-filing for the year.

Paper filing your tax return

There are some benefits when it comes to filing a paper tax return. For example, if an individual needs to file a tax return for someone who passed away, the IRS will require you to file a paper return. Paper filing also allows you to print and submit images or PDFs to supplement your tax return.

Taxpayers should be aware of the disadvantages that comes with mailing a tax return to the IRS. Data transcribers at the IRS are required to manually input taxpayer information for every paper return they receive. This could result in errors that may require you to file an amended return.

Paper filers may not realize that they have to manually sign the paper return or the IRS will not accept it. Novice paper filers often forget this fact, leading to even longer delays than what is normal with a paper return.

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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Common Errors Taxpayers should Avoid when Filing their Taxes

Filing a tax return electronically can help reduce mistakes since tax software notifies a taxpayer if there are any math issues, flags common errors, and prompts taxpayers for missing information. Using a tax software can also help a taxpayer claim valuable credits and deductions.

Using a reputable tax preparer, certified public accountants, enrolled agents, or other knowledgeable tax professionals can help an individual prevent making avoidable errors.

The IRS recommends that taxpayers file electronically and opt for the direct deposit to get their refund much faster and avoid any pandemic-related paper delays.

Here are some common errors taxpayers should avoid when preparing their tax return:

  • Missing or inaccurate Social Security numbers (SSN). Each SSN on a tax return should appear exactly as printed on the Social Security card.
  • Misspelled names. A name listed on a tax return should match the name on that person’s Social Security card.
  • Math errors. Math errors are one of the most common errors taxpayers make on their return. Taxpayers should always take the time to double-check the math on their return before submitting it over to the IRS.
  • Credits or deductions. Taxpayers should look into credits to see if they are eligible to place them on their tax return. Some of the most common credits are the earned income tax credit, child and dependent care credit, and recovery rebate credit. Individuals eligible for the recovery rebate credit and did not receive their payment, can claim the recovery rebate credit when they file their taxes.
  • Incorrect bank account. Taxpayers who are due a refund should choose direct deposit. This is the fastest way for a taxpayer to get their money. However, taxpayers need to make sure they use the correct routing and account numbers on their tax return.
  • Unsigned forms. An unsigned tax return is considered invalid and will not be accepted by the IRS. In most cases, both spouses must sign a joint return. Exceptions may apply for members of the armed forces or other taxpayers who have a valid power of attorney. Taxpayers can avoid this error by filing their return electronically and digitally signing it before sending it 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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How Taxpayers can end up in the 0% Tax Bracket

A majority of individuals have a portion of their income go to taxes when they file. Those who are looking for a way to legally decrease or eliminate their tax bill altogether, should take advantage of certain tax perks when filing their tax return.

Look into deductions

Tax deductions are a great way for taxpayers to have more money in their pocket and reduce their total tax bill. Individuals who qualify for tax deductions, should take advantage by including them on their tax return. Utilizing tax deductions will reduce the total amount of income that was earned throughout the year which could reduce your tax bill or even get you a refund.

Hold onto winning investments

If you invest in stocks, it is important to understand how it can affect you when you file your taxes. If you are looking to reduce the total amount of taxes you may have to pay when filing your taxes, you my want to consider holding your stocks even if the price shoots up. If you hold your investments for over a year, you will be eligible for the long-term capital gains tax rates of 0%, 15%, or 20%.

Earn more qualified dividends

For those who are not ready to sell their stocks, there is another way to get the same rates you would get for long-term capital gains.

Qualified dividends allow individuals to bypass the higher tax rates that are associated with ordinary dividends. Qualified dividends also give individuals exclusive access to the 0%, 15%, and 20% tax brackets if they qualify for the following:

  1. The dividend must have been paid by a U.S. corporation or a qualifying foreign company.
  2. The dividends must be deemed as qualified in the eyes of the IRS and cannot be listed as a non-qualified dividend.
  3. You have held the stock paying the dividend for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.

Look into credits

Taxpayers who know they will owe a tax liability should look into tax credits they may qualify for. The Earned Income Tax Credit could help individuals receive a tax refund after filing their return. For those who contribute to a qualified retirement savings account, you may also be eligible for a tax credit that could potentially wipe out your entire tax bill.

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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Unemployment Fraud could affect Individuals this Tax Season

With millions of Americans out of a job due to the ongoing pandemic throughout 2020, many received unemployment benefits issued out by state agencies.

 As taxpayers begin to file their taxes, they need to be aware of scammers who are seeking to exploit people out their money by filing for fraudulent unemployment benefits by using stolen identities.

Taxpayers should also be aware that the benefits they do receive from their state agency will be viewed as taxable income and will also be issued a 1099-G that should be kept with other important tax documents and used when filing your taxes.

If you feel you are a victim of fraud because you received a Form 1099-G for 2020 unemployment compensation that you did not get, you should take the following steps:

  • Contact issuing state agency to report fraud. The U.S. Department of Labor maintains a list of state contact information to report unemployment compensation fraud.
  • Ask state agency to issue a corrected 1099-G. The state will need time to investigate the fraud complaint and make any correction.
  • File an accurate federal tax return reporting only income received, even if a corrected 1099-G has not yet been received.
  • Follow Federal Trade Commission recommendations for identity theft:
    • Review free credit reports for signs of additional fraud from the credit bureaus.
    • Consider a credit freeze or credit fraud alert through the credit bureaus.
  • File an identity theft complaint with the U.S. Department of Justice’s National Center for Disaster Fraud (NCDF) by completing an NCDF Complaint Form online, or by calling 866-720-5721.

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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Filing your Taxes may be much harder this year

Taxpayers have received an additional month to file their federal tax returns due to COVID-19 along with new stimulus provisions that made the current filing season even more complicated. With so many changes that happened to individuals throughout the ongoing pandemic, taxpayers should be cautious how they file their taxes. Here is everything you need to know before submitting your tax return to the IRS.

Unemployment benefits

Millions of Americans received 2020 unemployment benefits meaning that their taxes will be much more complex compared to their prior returns. Unemployment benefits are subject to federal income taxes and in some cases, state income taxes. Individuals who did not have their taxes withheld from their jobless benefits may end up having a tax bill after filing their taxes.

Under the new $1.9 trillion stimulus deal, the first $10,200 in unemployment benefits are not taxed on the federal level for eligible filers. The newly added tax exemption applies to the 2020 tax year and for households earning up to $150,000.

Taxpayers who have filed their federal tax returns and did not take the $10,200 tax exemption on unemployment benefits do not need to amend their return. If the IRS owes you a refund, then they will send you a second refund for the difference.

Working from home

Individuals who made the transition from working in the office to working from home during 2020 may be wondering what they can deduct from their tax return.

For regular employees of companies, they are unable to deduct any expenses incurred from their work-from-home office. This is due to the Tax Cut and Jobs Act which eliminated the unreimbursed business expenses deduction. There are several states that do offer a deduction for unreimbursed employee business expenses on their state returns:

  • Alabama
  • Arkansas
  • California
  • Hawaii
  • Minnesota
  • New York
  • Pennsylvania

Self-employed workers have the option to deduct expenses that are related to their business from self-employment income on Schedule C or Schedule F. Self-employed workers have the ability to take a home office dedication for a space that is used exclusively for business.

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 the IRS Taxes Cryptocurrency

If you invest in cryptocurrencies like Bitcoin, be aware that there may be certain tax implications you may face when filing your tax return. Here is everything you need to be aware of before you invest in crypto and how to make sure you avoid any tax time surprises.

Crypto can be used to purchase practically anything. If you choose to convert your currency to cash rather than pay in the crypto form, you could potentially be liable for capital gains tax. Another determinant that could affect the outcome of your taxes is whether you earn money on the transaction. This will also determine whether you must pay capital gains or declare a loss. Declaring a loss could reduce your tax bill by offsetting other gains of up to $3,000 in your adjustable gross income.

How to track your crypto transactions

Individuals should track the following activity when investing in crypto:

  • The market value of your Bitcoin.
  • When it was earned, mined, or purchased.
  • When it was used, sold, or cashed out.

Cryptocurrency exchanges that are used to make payments of more than $20,000 or for more than 200 transactions may lead to a form 1099-K being generated. This form will reflect any exchanges made using a cryptocurrency. If you do not reach these minimums, you will need to keep track of transactions and report any gains or losses on your tax forms.

Using crypto as income

Investing in crypto means that you must declare it as a source of income if you received a profit. Crypto will be considered taxable income if an individual mined their crypto or earned it as a form of income from their employer or someone who hired them as an independent contractor.

If you received Bitcoin in exchange for services in January 2020, you would declare that income as the currency’s value in January 2020. For those who continue to hold Bitcoin, you do not have to pay taxes in its current value until you convert it to cash.

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 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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