Tax

Commonly Asked Tax Questions

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.

Even though the initial tax deadline has already passed, there are still plenty of taxpayers that need to file and those that are preparing for next tax season.

To help make the filing process a little easier, here are some commonly asked tax questions answered for you.

Does health care reform still impact my taxes?

Under the health care tax reform which was made effective the tax year 2019, the tax penalty for not having health insurance was eliminated. For tax years before 2019, individuals that had income over the federal poverty threshold were still required to have health coverage or they could be subject to tax penalties.

Are there tax implications for withdrawing money early from a retirement account?

If a taxpayer chooses to withdraw funds from their retirement account early, they will automatically receive a 10 percent tax penalty when funds are taken out before the age of 59-½. Taxpayers need to be careful when withdrawing funds from their retirement because it could bump them into a higher tax bracket which could cause a taxpayer to be taxed at a higher rate.

For those impacted by Coronavirus and need to take money out of their retirement account, the IRS may waive the 10 percent early withdrawal penalty on up to $100k of retirement funds that are withdrawn. 

What tax breaks are available to those impacted by a natural disaster?

If you have suffered a casualty or theft loss due to a natural disaster such as a flood, fire or unforeseen event, the IRS will allow you to deduct the loss if the casualty is federally declared a disaster area. 

The IRS may provide tax provisions to assist taxpayers financially recover from the impact of the disaster. Depending on the disaster, there may be additional time to file tax returns and pay any taxes that are due. 

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

By |Tax|Comments Off on Commonly Asked Tax Questions

What it Really Means to Get a Tax Refund

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.

One of the main reasons why you don’t want to receive a refund is because it means you’ve essentially loaned the government money that you will never receive interest on. This money could have potentially been applied to other debt that you’ve been carrying around such as student loan or credit card debt instead of loaning it out to the government to use. Rather than overpaying in taxes, here is where you could put your money instead:

  1. Open a retirement account. The average taxpayer will receive a tax refund upwards of $3,000. Instead of overpaying in taxes which could cause you to miss out on huge savings opportunities, you could invest it in a retirement fund or increase the amount you are contributing to your current plan. By the time you are able to retire, you could have a large lump sum of cash waiting for you.
  1. Start an emergency fund. If something unexpected ever happens that may impact your financial wellbeing, you may want to consider placing your money in an emergency account. The money that you place into this account doesn’t just accrue overnight, it requires that you set funds aside little by little. The refund that you receive after filing your taxes could be preventing you from placing more money into a back-up account and you may need to consider adjusting your withholding or estimated tax payments you are making to the IRS.
  1. Look into paying down your debt. If you receive a tax refund of about $3,000, that means that you are missing out on pocketing an extra $250 a month. This money could be used to pay down any loans or negative balances you have to ensure that you remain in good standing on all your debts. 

If you’re still unsure about how much you should be withholding from your paycheck, consider using the IRS’s withholding calculator. It will require information such as how much you pay in taxes and how much you have already withheld. This will help you make a determination on how much you should be withholding in order to get the most out of each paycheck. 

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

By |Tax|Comments Off on What it Really Means to Get a Tax Refund

Can I File My Taxes Separately from My Spouse?

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.

Filing a joint tax return with your spouse has many advantages, like receiving one of the largest standard deductions every year and providing several tax breaks for those who choose to file jointly. When deciding whether or not you want to file jointly, it is important to consider both the positive and negative aspects and how you can be directly affected. 

Married Filed Joint

The advantages of filing jointly with your spouse can allow you to deduct a significant amount of your income. Couples who file together will typically qualify for the following tax credits:

  • Earned Income Tax Credit
  • American Opportunity and Lifetime Learning Education Tax Credits
  • Exclusion or credit for adoption expenses 
  • Child and Dependent Care Tax Credit

Those who file jointly receive higher income thresholds for certain taxes and deductions. If you and your spouse earn a higher amount of income, you could potentially qualify for tax breaks.

Married Filed Separate

If a couple chooses to file separately they will receive fewer tax benefits compared to those who file jointly. Those who file separately from their spouse will only receive a standard deduction of $12,200 compared to those who file jointly and receive a deduction of $24,400.

  • Filing a separate return will automatically disqualify from several tax credits and deductions.
  • Separate filers are limited to smaller IRA contribution deductions.
  • You cannot take a deduction for student loan interest.
  • The capital loss deduction limit is $1,500 each when filing separately, instead of $3,000 on a joint return.

If you are unsure of how you want to file this tax season, consider filing both separately and jointly to see which way will be beneficial for both you and your spouse. Always be sure to double check your calculations as well as the amount of income you are placing on your return and review if you have a net refund or a tax liability. This should help you decide how you should file moving forward in order to receive the most out of filing your taxes. 

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

By |Tax|Comments Off on Can I File My Taxes Separately from My Spouse?

How long should I keep my 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 been holding on to a stack of old tax returns because you’re afraid to throw them out just in case the IRS starts asking you questions about a return that you filed nearly ten years ago, it may be time to start reevaluating that old tax paperwork.  

Here are a few tips that will help you determine what tax paperwork you should keep and what you can throw out. 

How long should I keep my tax return for? Typically you should plan on keeping your past tax returns or any tax related documentation for at least three years following the date that you’ve filed your tax return.

Is it important to keep at least three years of tax returns? It is important to keep your tax return for three years because it is tied to the statute of limitations. This means that a taxpayer has up to 3 years to collect a refund on any unclaimed tax years up to three years from their original tax filing date. In addition, the IRS generally has only three years from the filing date or due date of a tax return to assess an additional tax. 

Are there exceptions for how long you need to keep tax documents? In some instances, it may be necessary like retirement accounts such as IRAs. These tax documents should be kept for up to seven years after filing as this is the period of time the IRS can go back and reassess tax years with this specific information.  

What type of tax records should I keep? In order to properly file your taxes, you will need supporting forms. This includes W-2s, 1099s, expense tracking, mileage logs, records supporting any itemized deductions and any other documentation that may be applicable to your business.

How should I discard my old tax return? Once the period of time to keep older tax returns is up, it is important to dispose of them carefully as you don’t want any of your sensitive information exposed to possible thieves that can use your information against you. Taxpayers should shred any important tax documents to avoid any future fraud issues.

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

By |Tax|Comments Off on How long should I keep my Tax Return?

These Errors can Cause Your Tax Return to be Rejected

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.

It only takes one minor mistake on your tax return like leaving out vital information such as your name, social security number, or even claiming a credit or deduction that you don’t qualify for to completely disrupt your tax return from getting processed. 

Here’s what you can do to avoid common mistakes on your taxes:

  1. Including credits and deductions you don’t qualify for. It can become overwhelming for a taxpayer when they start reviewing the number of credits and deductions they might qualify for. When you do find credits that you feel could be placed on your tax return, make sure to read the fine print. Some credits could have phased out for you if your income exceeds the required threshold you would need in order to qualify for the credit. Or, if you have already included your tuition and fees deduction for the same expenses that you are attempting to apply for, that could also cause a rejection. Sometimes even your filing status could hinder you from qualifying for a credit or deduction.
  2. Health Care Reporting Error. There are many reporting requirements that a taxpayer must review before placing any health care information on their tax return. One of the most common errors that the IRS sees when reviewing a tax return is when a taxpayer fails to claim coverage exemption and not reconciling advance payments for the premium tax credit. 
  3. You forgot to sign your tax return. If you’re in a rush to mail in your tax return, you may just forget the most important part, signing your return. The IRS even cites this as another common mistake that a taxpayer will make when sending in their return. It’s also important to note that any unsigned tax return will not be processed by the IRS and will be considered invalid. 

Always be sure to take your time and review all the information that is placed on your tax return. Taxpayers should always review any potential credits or deductions they could potentially qualify for and if you are unsure of what those are, speak with a tax professional for assistance.

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

By |Tax|Comments Off on These Errors can Cause Your Tax Return to be Rejected

Do I Need to File My 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.

Tax time is one of the most important times of the year for many Americans, but not everyone needs to file their taxes each year. If your income does not exceed a certain threshold, you may not be required to file a tax return. Here are a few things to consider if you’re wondering whether or not you qualify to avoid filing taxes with the IRS. 

Review your total income for the year. Consider the standard deductions that you qualify for on your tax return. The standard deduction as well as other available deductions can reduce your total taxable income causing you to have a low enough income that doesn’t require you to file. If you earn less than $12,200 you are not required to file a tax return. If your income increases in the future, you may need to file. 

Income thresholds for taxpayers 65 and older.  If you are at least 65 years old, you may qualify for an increase in your standard deduction, here are factors that could get you to qualify:

  • You are blind
  • Your spouse is also 65 or older
  • Your spouse is blind

Qualifying for a larger standard deduction allows you to have more income placed on your tax return and still not have to file a tax return.

Dependents may need to file a tax return. For taxpayers that are claimed as a dependent on someone’s tax return, it is important to be aware that they are subject to different IRS requirements. A tax return may be necessary if their earned income is more than their standard deduction. 

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

By |Tax|Comments Off on Do I Need to File My Tax Return?

Avoid Scammers Getting Their Hands on Your Stimulus Check

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.

With millions of Americans currently losing their jobs and income during these difficult times, receiving a stimulus check is necessary for many Americans to stay afloat. The IRS has already begun to distribute stimulus checks for up to $1,200 to individuals. Although the thought of receiving money can seem like a good thing, it can also mean that there are thieves looking to take your check before you can even receive it.

Here are a few ways to avoid becoming a victim of fraud:

  1. The IRS will never contact you. Scammers may try to contact you claiming that they are an IRS agent and they need further personal information in order to process your check. This tactic is called “spoofing” and taxpayers can expect an increase in receiving these types of fraudulent phone calls as stimulus checks are being distributed. 
  2. Avoid clicking on emails claiming to be from the IRS.  Another tactic that you may come across are emails that appear to be from the IRS requesting that you provide your social security number or banking information. Be wary of these emails and avoid clicking on any associated link that is attached to the email as it could lead to a virus on your computer and whatever personal information stored on your computer could be stolen.
  3. If you don’t have direct deposit, you’ll never need someone to assist you with setting it up. The IRS will be sending money to households via direct deposit, using the banking information that you placed on your tax return. 

If you don’t have direct deposit, the IRS provides you with two options. You can submit your banking information to the IRS portal or you can choose to receive a paper check. If someone attempts to contact you claiming that they’re going to assist you with receiving your stimulus check much quicker, avoid providing any personal information to this person. The IRS will never attempt to contact you about your stimulus check and provides tools on their website for taxpayers to fill out themselves.

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

By |Tax|Comments Off on Avoid Scammers Getting Their Hands on Your Stimulus Check

Where’s my Tax Refund?

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.

  • Most taxpayers will expect to receive their refunds in 21 days once their tax returns have been received by the IRS. 
  • If a tax return is amended it could take up to 16 weeks before a tax refund is received. 
  • If a refund check has not been received, a taxpayer can file a claim online to receive a replacement check. 

For most taxpayers, filing their taxes is not something they get excited about doing every year, but there is something that most look forward to receiving after filing their tax return. Receiving a tax refund means you have extra money in your pocket that you can either throw into your savings or perhaps put it towards that vacation you’ve been dreaming about all year. Whichever way you choose to spend your money, there are important details to know about your refund and how long it may take for you to receive it.

Here are a few questions taxpayers have when it comes to receiving their refund:

How quickly will I receive my refund?

Once your tax return has been filed and received by the IRS for processing, it typically takes less than 21
days.

It’s been over 21 days and I still haven’t received my refund. Is this normal?

It sometimes takes the IRS more than 21 days to process your tax return but, it could also mean that there was an issue with your return. Here are a few that may delay you receiving a
refund:

  • Errors on your tax return.
  • Your tax return was incomplete.
  • It was flagged for identity theft or fraud.
  • Your return included the Injured Spouse Allocation form – this could take up to 14 weeks to process.

When can I start tracking my refund status?

24 hours after you’ve e-filed your tax return, you can start checking your refund status. If you mailed in your return, it could take up to four weeks before you’re able to check your status. 

Will amending my tax return prolong me from receiving a refund?

If you’ve amended your return, you can expect to receive your refund in about 16 weeks. 

What if my refund was lost, stolen, or destroyed?

You can file a claim on the IRS website. A replacement check will be mailed out if it has been more than 28 days from that date your refund was mailed off. 

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

By |Tax|Comments Off on Where’s my Tax Refund?

How IRS Debt Can Ruin Your Travel Plans (and Jeopardize Your Passport)

The stress of owing the IRS can be overwhelming. The ever-present threat of having a lien placed on your assets, the fear every time you check your bank account to discover it has been levied dry, the strain of having the IRS garnish your monthly wages; these are just a few of the things that millions of Americans go through every day. Now, the IRS has made further changes to crack down on Americans who have not paid their taxes.

As of February 2018, Americans who owe the IRS more than $50,000 are at risk of having their passports revoked. If you have unpaid taxes owed to the IRS, it is important to either pay your balance in full or go on a monthly installment agreement in order to avoid having these travel restrictions placed on you. The State Department is now working alongside the IRS to not only revoke existing passports but to also deny any passport application for those with seriously delinquent tax debt.  (If you are overseas and your passport is denied, the State may issue a temporary passport that has limited validity to return to the United States.)  Essentially, until the tax debt is settled with the IRS, people will be placed on this new “No Passport” list.

There are a few exceptions to be aware of.  You won’t be at risk of being placed on the “No Passport” list if you are currently going through bankruptcy, if the IRS acknowledges you have been the victim of identity theft, or if there is a natural disaster declared on a federal level.  You may also be able to keep or renew your passport if you have a request pending for an installment agreement, have a pending offer in compromise with the IRS or if the IRS has accepted an adjustment that will satisfy your debt. And if you are placed on the “No Passport” list, the IRS will hold your application for 90 days to allow you to resolve your tax liability, pay your balance in full or enter into an installment agreement before revoking your passport.

This is yet another sign that the IRS is escalating their collection efforts against Americans who have unpaid taxes and another reasovn for you, as a taxpayer,  to stay current and compliant with their IRS filings.  If you are in the unfortunate situation of having delinquent IRS debt, it is wise to speak to a qualified tax professional who can help you evaluate your options sooner rather than later. Because when it comes to owing money to the IRS, delaying is almost always a losing strategy. For more information regarding on the IRS passport revocation and denial policy, click here!

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.

Tax Tips for Uber Drivers and those Working in the Gig Economy

So you just joined Uber. Now you have a little extra cash, and you’re the one picking up the tab at dinner when you go out with friends and family. There couldn’t possibly be a downside to earning this additional income, right? Well, while there isn’t necessarily a drawback to having more money in your pocket, there are a few factors to being an Uber driver that you should consider from a tax standpoint. Here are some common questions and tax tips that first time Uber drivers should think about before getting started.

What is the difference between a 1099 earner versus a W2 earner?
If you have taxes being deducted out of every paycheck, you are most likely a W2 earner. At the end of the year, a W2 earner will receive a form that will state their annual wages along with a breakdown of the taxes that were withheld throughout the year.

A 1099 earner, however, does not have any taxes withheld from their income. The total amount of pay you received from Uber (or any other person or entity for whom you were a 1099 earner) during the year will be reported on a 1099 form. It is the responsibility of the 1099 earner to either make estimated tax payments (more on this below) or pay any balance in full at the end of the tax year.

What are estimated tax payments and can they help me avoid owing at the end of the year?
Estimated tax payments, or ETPs, are based on the amount of income that you expect to have earned in the current tax year. ETPs are usually made if a taxpayer believes that they will have a tax balance at the end of the year. A taxpayer may also wish to make ETPs if they are not withholding enough taxes from their paycheck, or if taxes are not being deducted from their income at all. A 1099 earner (or even a W2 earner who does not have enough withholdings listed) has the choice to pay their estimated tax payments bi-weekly, monthly or even quarterly. ETPs must be made in order to avoid owing at the end of the year, and it is even possible to receive a penalty if ETPs are not being made. The IRS allows you to make your estimated tax payments by either mailing a payment in, paying over the phone, or even paying online.

What are tax write-offs and how do I keep track of all my business expenses?
Being that you are a 1099 earner for Uber, it’s a little like running your own business. And just like if you were running your own business, you must document and report any income you have received and expenses you have made. Many of these expenses are tax write-offs. Some expenses that you may experience as an Uber driver include car maintenance, gas, and mileage. You will need to keep proof of your expenses throughout the tax year in order to write them off with the IRS. In order to do this accurately, you will need to keep track of how much of your mileage is used for business and how much is used for your personal life. There are multiple downloadable apps on the market designed to keep track of this for you. If you forgot to do this, don’t worry – you can request this information directly from Uber. Once you know what percentage of your mileage is used for business, you can calculate what percentage of your gas and maintenance can be listed as a tax write-off. Don’t forget to save those receipts; you will need them in case you are ever audited by the IRS!

Whether you’re using Uber to pay the bills or to give you a little extra income on the side, paying your taxes doesn’t have to be scary. Following the steps above and stashing away a little bit of your income can help ensure you don’t get blindsided come tax season. Now get out there and have some fun with your extra cash and remember, drive safe!

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.