Tax Planning

What is the Difference Between Form 1099-Misc and 1099-K?

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.

1040 and W2 tax forms

Being self-employed comes with a lot of benefits like being your own boss and making your own hours. Although there are a lot of perks to being self-employed, there are also a lot of additional responsibilities you will have to take on that most W-2 employees don’t have to deal with. For instance, you are responsible for keeping track of all your expenses you incur throughout the tax year, tracking your mileage and maintenance associated with your work vehicle, and ensuring that you are making estimated tax payments throughout the year to avoid owing when filing your taxes.

If you are self-employed or have worked on a contract basis where no taxes were withheld from your pay, it is extremely important to understand the difference between a 1099-MISC versus a 1099-K when filing your taxes.

1099-MISC

This form is issued to independent contractors or those that are self-employed who have been paid $600 or more. If you were paid under $600, this may not trigger a 1099-MISC to be generated, however, you are still responsible for reporting all tax income that you have received throughout the tax year. It is also required to report all self-employment income if your net earnings are $400 or more. 

When a taxpayer receives their 1099-MISC form, they can also claim deductions against their income that should be listed on their schedule C. Adding any work expenses as deductions can help reduce a possible balance you may owe at the end of the tax year.

1099-K

A 1099-K, also known as a Payment Card or Third Party Network Transactions, is used by credit card companies and third-party processors like Paypal and Amazon to report payment transactions they process for retailers or other third parties. You’ll typically receive a 1099-K if you have accepted credit cards or third-party processors and also had more than $20,000 in sales as well as over 200 individual transactions through a third-party processor.

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

By |Tax Planning|Comments Off on What is the Difference Between Form 1099-Misc and 1099-K?

Four Reasons Why You Should File a Tax Extension

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.

Although all tax returns are traditionally filed on April 15, due to the coronavirus pandemic, the deadline was extended to July 15 this year. If you have yet to receive all your tax documents or are unable to make a tax appointment with your tax professional before the tax deadline, you can fill out Form 4868 and submit it to the IRS in order to be granted an extension to file your tax return. It is important to know that even if you file an extension, you must still pay your taxes owed in full by the tax deadline in order to avoid penalties. 

Here are a few additional reasons why you may need to file an extension:

  1. Unexpected life events. Even if your intention was to file your tax return before the deadline, sometimes life events will interfere with your ability to do so. If you have an unexpected death, illness, or natural disaster with you or your family, you may be unable to file. The IRS doesn’t expect taxpayers to list a reason as to why they are filing an extension but will allow you additional time to recover your tax documents and file at a later date.
  2. Incomplete tax documents. If you file an extension, it will allow you more time to review your taxes in order to ensure that your tax return is accurate. If you’ve lost any tax forms like your W-2 or 1099 that your employer sent you, you can request a copy be mailed again to you. It may also be beneficial to request an extension when waiting for additional tax information to be sent to ensure that all income has been properly reported on your tax return. It will also help you avoid having to make future corrections on your tax return.
  3. Tax laws are constantly changing. Should you choose to file a three-month extension, you might be eligible for brand new tax deductions or a change in taxpayer status. Tax laws are always changing so if you decide that you need a while longer to file your taxes it may be to your benefit.
  4. Avoid the tax filing chaos. As the tax deadline draws near, more taxpayers will be scrambling to make last minute appointments with a tax preparer to file their taxes. If you are unable to get an appointment before the tax deadline or you know that your tax return will be complex and will take time to file, consider filing for an extension and making a tax appointment after the initial tax deadline. This will help you avoid the crowds and get additional one-on-one time with a tax preparer.

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

By |Tax Planning|Comments Off on Four Reasons Why You Should File a Tax Extension

Is Your Hobby Considered a 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.

Having a hobby can sometimes make you money on the side. This extra money can be used to go shopping or put in savings. But, did you know that if the IRS deems your hobby as a business, you’ll have to report any income that you’ve earned?

Here’s how to distinguish whether you have a business or a hobby:

What’s the difference between a hobby and a business? For the most part, hobbies are considered a recreational pastime that people do. A business on the other hand is operated to earn either a profit or a loss. As a business you are also able to deduct certain expenses throughout the year that could help you receive a bigger refund or take away from a tax liability that you may owe

How can I distinguish my hobby from self-employed income? There are a few ways to understand if your hobby is more than just a hobby. One way is to ask yourself the following questions and if you say yes to any of them, your hobby could be considered a business:

  • Do I rely on this income to survive?
  • Do you intend to earn profit off your hobby and have you previously?
  • Do you expect to make a future profit off of it?
  • Are your losses a normal part of startup costs or are they due to circumstances you can’t control?

If you’re still confused even after answering the above questions, then you can refer to the IRS guidelines. If you have made a profit in three of the last five years, the IRS will consider that profit towards a business. 

Can I make tax deductions for my hobby? The answer to this is no. Under the Tax Cuts and Jobs Act, miscellaneous itemized deductions can no longer be deducted for tax years after 2017. To put it simply, it means that your hobby-related expenses do not qualify as an actual deduction.

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

By |Tax Planning|Comments Off on Is Your Hobby Considered a Business?

Tax Tips for People Who Are Self-Employed

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.

As a 1099 earner, it can sometimes seem like there are more rules to follow when filing taxes and more responsibilities to manage compared to someone that is a W-2 earner. It can even seem confusing at times when filling out certain paperwork or figuring out how to report all your income to the IRS. 

Here are a few simple tips to help you get prepared for next tax season:

Estimate your business income. This may seem difficult to do if you have no idea where to start, but the best way to figure out how much you will be making for the tax year and how much you should be paying in estimated tax payments is by referring to your tax return from the year before. This will give you an idea on what to expect when filing your tax return and what to pay in taxes.

Organize your expenses. Don’t just leave all your receipts lying around the floor or tossed in the backseat of your car. Consider automating your expenses by using a finance software where you can digitally upload copies of receipts and that synchronizes with your bank accounts so it can view any payments that were made towards your business. This not only saves you time but prevents you from making a mistake when filing your taxes.

Track your mileage. If you’ve been using your vehicle for anything work-related, make sure to track the mileage that you are using. It’s also important to keep a record of any gas, oil, and maintenance expenses that you accrue throughout the tax years.

Take a home office deduction. The IRS created the Simplified Home Office Deduction for taxpayers that own a small business from their home. If you have a qualified home office, you can deduct some of your otherwise nondeductible expenses. Here are some expenses that you can deduct:

  1. Home insurance
  2. Utilities
  3. Rent

Forecast any future expenses in advance. Being self-employed means that it is your responsibility to purchase your own goods and equipment ahead of time in order to avoid any delays that could harm the amount of profit you receive. Forecasting your expenses ahead of time will allow you to understand how much money will need to be allocated to purchase these goods and still have enough left over to not only pay yourself but also your taxes.

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

By |Tax Planning|Comments Off on Tax Tips for People Who Are Self-Employed

Am I Required to Make Estimated Tax Payments?

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.

For most employees, their employer withholds taxes from their paychecks before sending the money directly to the IRS and state government. These employees don’t have to worry about having to calculate their taxes every paycheck, because it automatically comes out, which could lead to them receiving a nice refund come next tax season.

If you’re self-employed, then you know that your taxes are not automatically withheld from your paychecks. You need to calculate how much taxes need to be withheld by making estimated tax payments either monthly or quarterly. Here are a few tax tips the self-employed should follow in order to stay up to date with the IRS.

  1. Determine your business income. If you expect to be in a higher tax bracket this year, you’ll want to review what deductions you qualify for in order to reduce your income since you will most likely be subject to the highest tax rate. 
  2. Decide when you want to receive your income. Being self-employed usually means you can determine when you receive your payment for the service that you rendered. This can help you estimate how much income you will have and when you need to make your estimated tax payments in order to stay compliant. 
  3. Review what medical deductions you qualify for. Make the most out of your medical insurance deduction by deducting yourself, spouse, or any dependents you have. This will adjust your total income for the year which could help you owe less at the end of the year or even possibly receive a refund. 
  4. Understand itemized deductions vs. business deductions. It’s important to understand the difference because taking business deductions instead of itemized deductions will help you reduce your total adjusted gross income and self-employment tax for the year. 
  5. Track your business mileage. Make sure to keep all business expenses that you incur throughout the tax year such as gas, oil, vehicle maintenance as well as other expenses that may apply. Once you have kept a record of these business expenses, you can deduct it from your tax return. 

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

By |Tax Planning|Comments Off on Am I Required to Make Estimated Tax Payments?

Should I File an Amended Tax 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.

If you’ve already filed your tax return only to realize that there’s an error or you omitted pertinent information, you may need to consider amending your tax return. Here are the dos and don’ts you should follow when it comes to determining whether or not you should amend your return.

  1. You received a CP2000 notice. If you received this notice, the IRS is notifying you that they determined there is underreported income on your tax return. Don’t immediately file an amended return when you receive this notice. Instead, review the information that the IRS has provided you and see if there is something in fact missing on your return.
  2. You received an audit notice. In the event you receive this type of notice, the IRS will request you provide further information that they feel you did not prove on your tax return(s). Keep in mind that you are unable to file an amended return when you are being audited by the IRS. 
  3. The IRS rejected your e-filed return. Don’t immediately jump to the conclusion that you need to amend your return if the IRS rejects it. Instead, review all the information to ensure it is accurate (name, birthdates, social security numbers) and attempt to e-file again. The IRS typically rejects returns if they believe identity theft is occurring or if two people have claimed the same dependent. 
  4. You forgot to include additional information on your tax return. If you already filed your return with the IRS and realized that you forgot to include additional income you earned throughout that tax year, you do have the option to amend your tax return to include this additional income. This ensures that the IRS won’t send you a notice later on inquiring about the additional income that you received.  
  5. You forgot to claim a credit of deduction. The IRS offers many credits and deductions for eligible taxpayers to place on their tax return that could potentially lead to them reducing a tax balance they may have or receiving a bigger refund. If you qualify for either a credit or deduction but failed to include it on your return, you can amend your tax return to include this in order to receive the most out of your tax filing.
  6. Your employer made a mistake on your W-2. If there were errors on your W-2 form that lead to your employer having to send you a corrected W-2 form after you filed your taxes, the IRS will allow you to amend your return to include the new information.

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

By |Tax Planning|Comments Off on Should I File an Amended Tax Return?

How to Make a Payment 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.

  • The IRS offers payment options for those seeking to pay down their tax liability or make estimated tax payments.
  • Taxpayers paying off their tax balance can choose to have a monthly payment directly debited from their account or make payments manually.
  • For those making estimated tax payments, the IRS offers the option to mail in your payments or pay online. 

If you’re looking to avoid paying your back taxes at the end of the tax year or you want to start paying down your tax liability but have no idea where to make payments, it may be beneficial to look into what options the IRS can provide to you in order to stay compliant and out of collections.

If you owe a tax balance to the IRS and don’t have the ability to pay it back in full right away, the IRS does provide payment plan options for you to pay on a month to month basis. 

The IRS also offers the following options to help you make your monthly payments:

Direct Debit– For those who don’t want to deal with making manual payments to the IRS every month, you can request that your monthly payment is taken out from your bank account. Once you have established an agreement with the IRS, they will request that you fill out a direct debit form, also known as a 433-D form. The form requires that you input your accounting and routing information, the name of your bank, the tax balance amount, what tax years you owed for, and a signature to confirm you are requesting the tax payment be debited out of your account. 

Manual Payments – If you’re eligible, you can request to manually make your installment agreement payments. The IRS does require that you either mail in a check, money order or cashier’s check and to make it payable to the U.S. Treasury. In addition, the IRS also requires the following when you send in your payment:

  • Your name and address
  • Social security number 
  • Employee Identification number (if applicable)
  • Daytime phone number
  • Tax year
  • IRS notice or form related to the payment (if applicable)

Depending on the state you live in, the IRS will require that you mail your payment off to a specific processing center. You can click here to see where to send your payment.

Estimated Tax Payments

If you know that you’re going to owe a tax balance at the end of the tax year or are a 1099 earner looking to avoid owing money after filing your taxes, the IRS recommends that you make estimated tax payments either monthly or quarterly. 

The IRS provides several options for those looking to make their payments:

Pay online– Taxpayers can make their estimated tax payments online if they want to avoid the hassle of having to send in their payment. You can choose to: 1)  pay in full with a debit card or a credit or 2) make monthly installment agreement payments (subject to additional fees for each payment).

Manual payments– For those that choose to submit their payments by mail, the IRS requires the same information as mentioned above for the manual installment agreement payments. Taxpayers should also keep track of every payment they have made to the IRS throughout the tax year to ensure there are no discrepancies when they file their taxes. 

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


By |Tax Planning|Comments Off on How to Make a Payment to the IRS

Avoid any Tax-Time Surprises by Following these Simple Rules

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 could potentially qualify for credits on their tax return that could either lower their tax balance or produce a larger tax refund. 
  • The IRS recommends that taxpayers check their withholdings throughout the year to ensure they are on the right track.
  • If you’re a 1099 earner or you’re not withholding enough from your paychecks, you will most likely need to make estimated tax payments throughout the year.

Tax filing season is upon us which means there may be some surprises you encounter along the way that may or may not be unpleasant. So what can you do to avoid being caught off guard when filing your taxes? 

Below are a few ways to prepare to get the most out of filing your tax return:

Understand what you qualify for. There are a vast amount of tax credits that you could potentially qualify for. The IRS isn’t going to tell you what you’re allowed to place on your tax return, so it is up to you as a taxpayer to do your own research or inquire with a tax professional to see if the type of expenses you have incurred can possibly go on your return. A few types of credits that you may qualify could be the following:

  1. Lifetime learning credit– this is to help offset the costs of post-secondary education; eligible students could earn up to $2,000. The credit is available to those who make $58,000 or less, or for married couples earning $116,000 or less. 
  2. Child and dependent care credit – this is to help offset the cost of babysitting and daycare. This is available to taxpayers who have children under the age of 13.
  3. Savers tax credit – Those who qualify have made eligible contributions to retirement plans such as a 401K. Taxpayers with the least income will qualify for a larger credit – up to $1,000 for those filing as single, or $2,000 for those filing jointly.

Do a withholding checkup. The IRS recommends that taxpayers check their withholdings throughout the year to ensure they are on the right track to receive a refund and to avoid owing at the end of the year. If your income has increased during the year, it is advised that you do a checkup to ensure that you are withholding enough or if more needs to be taken out of your paycheck. 

Make estimated tax payments. If you’re a 1099 earner or you’re not withholding enough from your paychecks, you will most likely need to make estimated tax payments throughout the year to ensure you don’t owe a tax liability come next filing season. The IRS allows taxpayers to make their payments via ground mail or online. Taxpayers are required to make their payments quarterly or monthly to ensure they do not receive a penalty when they file their taxes. If you need assistance calculating your estimated tax payments, the IRS encourages you to use their withholding estimator to see how much you should be making in payments. 

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

By |Tax Planning|Comments Off on Avoid any Tax-Time Surprises by Following these Simple Rules

Why You Should Review Your Tax Return Before Signing Off

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.

  • When reviewing your tax return, double-check that all income you received has been properly reported.
  • Ensure your name, social security number, and your accounting and routing number are accurate.
  • If your tax return is missing or contains inaccurate information after you signed off on it and it has already been filed, you may need to get it amended.

If you are getting ready to file your taxes, it is important to understand that as a taxpayer, you are fully liable for the information placed on your tax return once you sign off on the dotted line. Although you may have gone to a tax preparer to file on your behalf, it is still your responsibility to ensure that everything adds up correctly and that the information entered is accurate. Should you fail to do so, you could potentially face consequences with the IRS down the road. 

Here are a few ways to make sure that your tax return is accurate before sending it off to the IRS:

Double-check that all your information is on your tax return. Do not just sign off on a completed tax return, take the time to actually review the information that has been placed on it. If there is any information that is missing, especially your income, you could run into some issues with the IRS and it may also cost you more money. When reviewing your tax return, double-check that all income you received has been properly reported. You can double-check the amounts by reviewing your W2 or 1099 forms provided to you by your current or past employers. 

Look for incorrect information. Something else that you should check before signing off on your tax return is if your name, social security number, and your accounting and routing number are accurate. Ensuring that all your information is correct on your tax return will help you avoid any delays in your tax return and allow you to get your tax refund as quickly as possible.

Avoid having to have your tax return amended. If you realize your tax return is missing or contains inaccurate information after you signed off on it and it has already been filed, you may need to get it amended. In order to avoid raising any red flags with the IRS, make sure that you’ve provided all tax relevant information to your preparer so they can include it on your return. In the event that you fail to provide certain information to your tax preparer, you will need to request that the tax preparer amend your tax return to include the missing information. This will not only cost you more money but also your time.    

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

By |Tax Planning|Comments Off on Why You Should Review Your Tax Return Before Signing Off

Why Taxpayers Should be Prepared for Natural Disasters

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.

  • Learn how to recover lost or stolen tax documents in order to file your taxes. 
  • Reach out to the tax preparer that filed your returns and request copies.
  • If you used a tax filing software to file your taxes, you can log back in and review past returns that you previously filed.
  • Request a copy of your transcripts from the IRS either electronically or by mail.
  • Upload digital copies of your past tax years onto a secure server.

Tax season is such a chaotic time of the year, especially when it comes to scheduling tax appointments, finding the right tax preparer, and getting all your documents in order. What most people can’t plan for is when a natural disaster hits that could potentially devastate their community, their home, and any important documentation that was stored in their home. 

So what can you do if a natural disaster has caused you to lose tax documents? Here are a few ways that will help you recover your important information and get back on track with filing your tax return:

  • Contact the IRS. If your area has been federally declared a disaster area, you can call 866-562-5227 and speak with an IRS agent who is specialized to assist taxpayers affected by natural disasters.
  • Get a copy of your tax return. If you are in need of past tax returns because they were damaged in a natural disaster, you can always reach out to the tax preparer that filed your returns and request copies. If you used a tax filing software to file your taxes, you can log back in and review past returns that you previously filed.
  • Request a transcript. If you are unable to access your previous tax years, you can always request a copy of your transcripts from the IRS either electronically or by mail. 
  • Create digital copies. Upload digital copies of your past tax years onto a secure server so if a natural disaster ever occurs you will have back-up copies on file to refer back to.

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

By |Tax Planning|Comments Off on Why Taxpayers Should be Prepared for Natural Disasters