Taxes & Your Savings

Tax Implications for Having a Nanny or Housekeeper

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 families that juggle working and family obligations, it can be overwhelming and sometimes even feel impossible to manage. As a result, some families may require hiring a nanny or housekeeper to help assist around the house.

Families that are thinking about hiring a nanny or housekeeper may enjoy the extra assistance but also need to think about what the typical pay for hiring the extra help. Will you have to pay additional taxes? Will the nanny or housekeeper be considered 1099 or W-2? 

Here are some answers to questions taxpayers may have when filing their taxes:

Will my nanny or housekeeper qualify as a household employee?

Taxpayers will need to review whether or not a housekeeper qualifies as a household employee and how to place it on their tax return.

If a housekeeper or nanny earns more than $2,100 in a calendar year, the IRS will consider this person to be a household employee. This means that you will be expected to pay employment taxes.

What forms are required in order to pay a nanny or housekeeper?

Taxpayers who choose to hire additional help around the house are not required to withhold federal income tax from their employee’s wages. However, if your employee asks you to withhold taxes from their income, you must agree to do so. You will need to have your employee fill out the W-4 Employee’s Withholding Certificate so the proper amount of taxes from your employee’s paycheck. 

When tax time comes around, you will be required to file a Form W-2 reporting household employee’s income that was earned as well as any withholdings. You will also need to file Form W-3 Transmittal of Wage and Tax Statements with the Social Security Administration. 

When filing your taxes, you will also need to file a Schedule H where total household employment taxes will be reported.

Are there any taxes that I will need to pay for my nanny or housekeeper?

As an employer, you will be expected to pay a portion of your employee’s social security and Medicare taxes, which is 7.65% of their gross wages.

When issuing your employee’s paycheck, you will be responsible for deduction of your employee’s share of their gross pay. In some cases, you may also be accountable to pay federal unemployment taxes.

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What is a Backup Withholding?

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 are a taxpayer that’s receiving multiple forms of income, specifically receiving income payments, the IRS will require that the payments be reported as taxable income. Typically, if you are a 1099 earner, the person or business that is paying you generally won’t be withholding taxes on the payment they give to you.

Here is everything you need to know about a backup withholding (BWH).

  1. What is a backup withholding? Certain situations will require that a taxpayer withholds at the current rate of 24 percent. This percentage will be taken from any future payments and applied as taxes to ensure that a taxpayer does not owe at the end of the tax year.
  2. Payments you receive can be subject to backup withholding. BWH can be applied to most kinds of payments including:
  • Interest payments (Form 1099-INT) 
  • Dividends (Form 1099-DIV) 
  • Payment Card and Third Party Network Transactions (Form 1099-K) 
  • Patronage dividends, but only if at least half the payment is in money (Form 1099-PATR) 
  • Rents, profits, or other gains (Form 1099-MISC) 
  • Commissions, fees, or other payments for work you do as an independent contractor (Form 1099-MISC) 
  • Payments by brokers/barter exchanges (Form 1099-B) 
  • Payments by fishing boat operators, but only the part that is in money and that represents a share of the proceeds of the catch (Form 1099-MISC) 
  • Royalty payments (Form 1099-MISC) 
  • Gambling winnings (Form W-2G) may also be subject to backup withholding. 
  • Original issue discount reportable on (Form 1099-OID), Original Issue Discount, if the payment is in cash 
  • Certain Government Payments, Form 1099-G

3. How to prevent or stop a backup withholding. In order to stop a backup withholding, a taxpayer will need to correct the reason as to why they became subject to a backup withholding. This could include providing the correct tax identification number belonging to the payer, resolving any underreported income and paying off any balance that is owed, and filing any unfiled past tax years. 

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

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U.S. Armed Forces Receive Special Tax Benefits when Filing 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.

If you have served in the U.S. Armed Forces, you could qualify for certain tax breaks and certain rules may also apply such as deductions or credits that can be claimed at a lower rate. If you have served in the U.S. Armed Forces, here is what you could qualify for when filing your taxes:

  1. Deadline Extensions. For members of the military and those who serve in combat zones, the government will allow you to postpone tax deadlines and, in some cases, you can receive an automatic extension so you have more time to file your taxes. 
  2. Combat Pay Exclusion. If you serve in a combat zone, your pay will either be partially or fully tax-free. If you serve in a support area for a combat zone, you may also qualify for this exclusion. 
  3. Signing Joint Returns. If you are married and choosing to file jointly, it is required that both you and your spouse sign your tax return. If you are unable to be present to sign your portion of the tax return, you may need a power of attorney to file a joint return.
  4. Uniform Deduction. You can deduct the cost of certain uniforms that you can’t wear while off duty. This also included the costs of purchase and upkeep. 
  5. ROTC Allowances. This applies to allowances for education and subsistence. Active ROTC pay is also considered taxable.
  6. Civilian Life. If you leave the armed forces, you may qualify for deductions on certain job search expenses. This could include, the cost of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.
  7. Tax Help. Most military bases offer free tax preparation and filing assistance during the tax filing season. Some may also provide free tax help after the tax deadline.

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

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Is there a Deduction Limit on Charitable Donations?

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’re debating whether or not to donate to charity, it’s important to understand the tax benefits and tax-saving opportunities that could be available to you. Here’s a breakdown of what you need to know when understanding what you could qualify for when it comes to charitable donations.

Some donations may not be eligible for deductions. In order to make a donation, it must be to a charity with a tax-exempt status determined by the IRS. This means that charitable donations cannot be made to friends, relatives, or groups that do not fall under the tax exempt status. The list of approved organizations are the following:

  1. A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals.
  2. A church, synagogue, or other religious organization.
  3. A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions.
  4. A nonprofit volunteer fire company.
  5. A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services).
  6. A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes.
  7. A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.

Some contributions may lead to only a partial credit. For particular donations, a taxpayer will only receive a portion of a credit. For example, if you purchase a shirt that is a part of a charitable cause, the entire price of the shirt is not deductible. The fair market value must be determined and subtracted from the cost of your purchase in order to determine the amount of your donation.

When determining how much of a charitable donation you would like to make, it is important to know there is a limit on all donations you make throughout the tax year. Total charitable contributions are generally limited to no more than 50% of your adjusted gross income. 

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

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Can I Claim an Education Credit?

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 who have been to or are currently in college may qualify for education expense credit.
  • The American Opportunity Tax Credit can be used towards required course materials as well as tuition and fees.
  • Up to $2,000 of the first $10,000 in qualifying educational expenses can be claimed with the Lifetime Learning Credit.

It is important for taxpayers who have been to or are currently in college to review what possible education expense credits or deductions they could qualify for.

The American Opportunity Tax Credit has replaced the Hope Credit and offers more perks to those looking to either reduce their tax balance or increase their refund. Here are some of the benefits you can receive from the American Opportunity credit:

  • Up to $2,500 can be claimed per student.
  • It can be used towards required course materials (books, supplies, equipment) as well as tuition and fees.
  • It can be applied against four years of higher education, compared to the Hope credit which only covered two years of higher education.

Taxpayers can qualify for this credit as long as their adjusted gross income does not exceed $80,000 for single taxpayers and $160,000 for married taxpayers filing jointly. As a taxpayer’s income increases, the credit will gradually be reduced. For those earning a lower income, they will also benefit because up to 40% of the credit is refundable. This means that taxpayers can expect a check from the IRS if they owe no taxes.

The Lifetime Learning Credit allows qualifying taxpayers to earn an annual credit up to $2,000 of the first $10,000 in qualifying educational expenses. Because there is no limit in place on the number of years of higher education that you can claim, this credit yields a higher credit amount. Taxpayers can receive up to $2,500 per student as long as their income does not exceed more than $58,000 for single filers and $116,000 for those that are married and filing jointly. 

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

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Tax Withholding: How to get it Right

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 W2 earner, you have the option to change your withholdings on your paycheck to either earn more or less. As a taxpayer, it is important to understand the repercussions you could potentially face for you adjusting your withholding and how it could affect you when it comes time to file your taxes. 

Here is everything you need to know about withholding and what you need to be aware of:

Your withholding is determined by several factors:

  1. The amount of income that you have earned.
  2. Your filing status – either the single or married rate.
  3. Number of withholding allowances claimed. With each claim you add on, it reduces your withholding amount.
  4. Additional withholding – an employee can request through their employer to withhold an additional amount from their paycheck. 

How your withholding could affect you:

  1. Withholding too little on your paycheck could lead to you owing a tax balance.
  2. You could be withholding too much. If this is the case, you will receive a refund once you file your tax return.
  3. Your income increased but your withholding stayed the same. You could potentially owe come tax time, make sure to see if your income bracket has changed and consult with a tax professional to see what you can do to avoid owing money or having your refund reduced when you file your taxes.

What you can do to avoid running into tax trouble:

  1. Use a tax withholding estimator to check if you are withholding the most accurate amount. The IRS provides a calculator for taxpayers to use.
  2. Consult with a tax professional to discuss what your withholding options are and what you can do moving forward to ensure you won’t run into any issues come tax time.

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

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Do You Qualify for the Child Care Credit?

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.

Raising children can lead to unexpected expenses that seem to come out of nowhere. As a parent, you may be wondering what tax benefits are available when you file your tax return. You may just find you qualify for the Child Tax Credit.  This tax credit was put into place not just to help taxpayers get the most out of their tax refund, but to also supply some relief for amongst all the expenses that pile up from having children. 

Since the passing of the Tax Cuts and Jobs Act of 2017 (TCJA), parents can now take advantage of the perks that come with the TCJA for child care expenses – this also includes adult kids that are still living under your household. 

If you’re not expecting a refund this year, the Child Tax Credit can help reduce a possible tax liability that you may owe, with a savings of up to $2,000 per child.  Even if you’re expecting a refund, you could still receive up to $1,400 back on your return. The Child Tax Credit is considered one of the most valuable credits to apply when filing your taxes. 

Some of the criteria you would need to meet in order to qualify for the Child Care Credit is:

  • Your child needs to be a U.S. citizen or legal resident
  • Children must be 16 years or younger 
  • The taxpayer’s child must be claimed on their tax return.
  • The child should have lived with you for more than half the year

Make sure that you take advantage of the Child Tax Credit this tax season in order to get the most out of your refund or help reduce your tax bill. Remember that there are a few qualifying factors to consider before utilizing the Child Tax Credit: age, relationship, support, dependent status, citizenship, length of residency as well as family income. 

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

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Should Taxpayers Consider Using Direct Deposit for Tax Refunds?

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’re looking to receive a tax refund this season and want it expedited, consider direct deposit.
  • It’s completely free to request direct deposit on your tax return
  • You’ll receive your refund through your bank instead of via check
  • It costs the IRS more to cut a check compared to transferring the money directly to your bank account. 

It’s tax time and everyone is scrambling to get their last-minute tax appointments scheduled before the deadline. If you’re expecting a refund this year, choosing the direct deposit option may be the more viable choice. Let’s explore the benefits:

It doesn’t cost you anything 

Whether you have a tax preparer file for you or you’re filing your tax return yourself, adding your bank information is free to include on your tax return. 

Get your refund faster

When you e-file with your direct debit information on your tax return, you’ll receive your refund much quicker compared to mailing off the return and having the IRS process it.

It’s secure

Using direct deposit information prevents the risk of having a paper check lost or stolen since the funds will be transferred directly to your bank.

You don’t have to e-file

If you prefer to mail out your tax return instead of e-filing, don’t worry, you’re still able to include your direct deposit information and receive your refund through your requested bank of choice.

It will save you money

It costs the IRS more than $1 for every paper refund check issued, but only a dime for each direct deposit made.

Tax season is a busy enough time to get through without having to worry about how you’re going to receive your refund or when it’s going to come. Having your refund deposited directly into your bank account is the ideal way to receive your money because it’s secure, quick, free, and saves taxpayers money. 

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

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10 Travel Hacks when You’re on a Budget

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.

  • There are ways to travel and go on vacation without having to go broke. 
  • If you’re looking to travel but don’t want to spend the high prices, consider planning around off-peak travel times. 
  • Find a hotel that has additional amenities, saving you more money in the long run.
  • Staying at a hostel is probably one of the most cost-effective ways to travel. 
  • Try doing some sightseeing and look for iconic landscapes that you can’t find back home. 

As the season gets warmer, and with summer looming just around the corner, it’s time to start planning on where you want to go on vacation – and, inevitably, spend more money than usual. Typically, flight costs go up as the temperature does and hotels start to upcharge a bit more than they usually do. So what do you do if you’re on a budget but still want to vacation? Believe it or not, there are ways to travel and go on vacation without having to go broke. 

1. Plan Around Travel Time

Certain times of the year can cause flight and hotel prices to go up because of the surge in tourists that are visiting their location. If you’re looking to travel but don’t want to spend the high prices, consider planning around off-peak travel times. 

If you’re looking to get more bang for your buck, start looking at countries that fit into your budget based on the price of their merchandise and how affordable the country is overall.

2. Check to see if your hotel offers free breakfast

Traveling can become expensive very quickly.  If you’re looking to take a more economical route, consider looking for a hotel that serves their guests’ breakfast. Some hotels provide a few morning snacks while others have a full continental breakfast served to guests every morning. In the end, it might benefit you to find a hotel that has additional amenities, saving you more money in the long run.

3. Hostels may be the cheaper option

Staying at a hostel is probably one of the most cost-effective ways to travel. Not only are you getting the lowest price compared to hotels or rentals, but you’ll also be able to have the opportunity to connect with many other travelers from all around the world. No matter where you travel to, there is usually a hostel that can accommodate you.

4. Explore the town

Believe it or not, the best experiences are typically free. Try doing some sightseeing, like looking for iconic landscapes that you can’t find back home. You could also try looking for hiking trails that may lead to hidden treasures or views you never dreamed of. 

If you’re planning to travel, try to get the most out of your experience without having to hurt your wallet. Always make sure that you compare prices against other hotels and prepare an itinerary ahead of time to project what possible costs you may have to incur. Traveling doesn’t have to be expensive, and you can still have an enjoyable trip without breaking the bank.

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

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Don’t Break the Bank this Valentine’s Day

  • With Valentine’s Day around the corner, it can become expensive to plan out activities for the holiday.
  • If you’re looking to save money, consider making dinner at home using fresh and/or seasonal ingredients.
  • Making a homemade gift is another alternative to purchasing roses or jewelry. Writing a love letter or creating something unique for your loved one might just be the extra effort to show that you care.
  • Preparing in advance for Valentine’s Day will allow you to splurge more without having to put a dent in your wallet. Make plans ahead of time to know how much you will need to save.

If you haven’t planned anything for Valentine’s Day yet and you’re on a budget, don’t start to panic just yet, as there are alternative options to make this Valentine’s Day memorable without having to break the bank. Most people associate this romantic holiday with dining out or giving extravagant presents as a declaration of one’s love, but don’t worry: there are still ways to show your love for your significant other while still staying on a budget. 

Romantic Dinner at home

If it slipped your mind and you forgot to make a reservation, or if you’re on a tight budget and can’t afford to spend additional cash for a fancy restaurant, don’t worry!  You can still have a delicious and romantic dinner without having to be concerned about how much the bill is coming out to. Making a home-cooked meal can be just as extravagant as a dinner at a fancy restaurant without having to shell out the same amount of cash. You can also check your local grocery stores to see what type of promotions or deals they’re having on their produce; more often than not, there’s a sale on some fresh, fancy foods. You can also stick to purchasing in-season vegetables and fruit as they are typically much cheaper than foods that are out of season. 

Homemade gifts

The cost of buying a Valentine’s gift can add up very quickly, especially if you’re buying multiple gifts. The price only goes up if you’re considering buying chocolates or flowers to go with it!  Although everyone loves to receive pricey gifts every once in a while, it isn’t necessary to actually spend the money on something that is already overpriced. Sometimes, the best gifts are the ones that you put the most thought and care into. Writing a letter or creating something by hand shows that you’ve taken the time to create something special and unique, and often can mean more to your significant other than something much more expensive.

Saving ahead of time

If you’re looking to splurge this upcoming holiday, start planning in advance how much you want to spend and what fits into your budget. Once you have an idea, you can start saving ahead of time to ensure that you won’t be caught off guard with any additional expenses. Just make sure that you have enough time to plan ahead and save extra cash, as restaurants typically start getting booked up the week before Valentine’s Day.

Whether you’re looking to save money this upcoming holiday or have a budget, it’s always a good idea to see what you can do to make the most out of Valentine’s day for you and your special someone. Valentine’s Day is about showing someone how much you care about them, there are many ways that you can do this without having to splurge. 

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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