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Taking a CARES Act Retirement Withdrawal could Lead to a Tax Liability

If you’re out of work due to the coronavirus and in need of money fast, you might want to consider withdrawing from your retirement savings. Taxpayers who have had a negative impact on their finances due to the pandemic should know that temporary changes to the rules under the CARES Act allows taxpayers to make early withdrawals from their traditional individual accounts. Here is everything you need to know about making an early distribution and what the possible tax implication could be for you.

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Is My Social Security Number Required in Order to File My Taxes?

For those that are filing for the first time on their own, it can seem overwhelming trying to figure out what information you need to provide to the IRS in order for your return to be accepted. One question that many people ask is if a social security number is necessary to have when filing their taxes. Here’s everything you know about if your social security number is required and what you should do if you don’t have one.

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The IRS to Contact Taxpayers Who are Eligible for a Stimulus Check

Due to the ongoing coronavirus pandemic, many Americans have been struggling to stay financially afloat. To help offset the many expenses that households across America are facing, the government issued out $1,200 stimulus checks to qualifying taxpayers. If you have yet to claim your check or didn’t realize that you were eligible for relief money, you can expect the IRS to contact you to notify you about your check.

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If a Second Stimulus Check is Approved, When will it Arrive?

Ongoing negotiations are underway to pass another relief package to assist Americans that were affected by COVID-19. It is assumed that another economic relief rescue package will be passed and taxpayers will be paid out for a second time this year however, it will depend on how quickly the IRS can distribute the money to qualifying Americans. Here are important stimulus check facts taxpayers should know.

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Going Green can get You a Bigger 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.

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Going green has tax benefits that could potentially reduce your total tax bill when filing your taxes. More taxpayers are taking advantage of these tax incentives by buying alternative vehicles, using Energy Star products or installing energy equipment in their home. Here are the top green tax credits you should be claiming.

  1. Clean energy vehicle savings

Although tax credits for most hybrid vehicles have expired, there are still ways that taxpayers can take advantage of having an alternative vehicle. 

There are certain vehicles that could qualify under the Alternative Motor Vehicle Tax Credit. The amount of the credits vary based on the make, model and year of the vehicle that a taxpayer is attempting to claim. Additional requirements to be aware of before claiming the tax credit are:

  • The car was purchased before 2017.
  • You are the original owner of the vehicle.
  • You drive your car primarily in the U.S.

For those who purchased a plug-in electric vehicle, you could be eligible for the Qualified Plug-In Electric Drive Motor Vehicle Credit. The credit applies to new electric vehicles bought after December 31, 2009. In order to qualify for the credit you will need the following:

  • The vehicle must have been purchased new.
  • The vehicle must have been made by an eligible manufacturer under the Clean Air Act.
  • Have at least four wheels.
  • Have the ability to be driven on highways and public streets.
  • Have a weight rating of less than 14,000 pounds.
  • Purchased an electric motor that uses a rechargeable battery to generate at least 5 kilowatt hours of capacity.

Tax credits for both of these can range from $2,500 to $7,500 based on the vehicle’s battery capacity and the overall size of the vehicle.

  • Make a donation for a smaller tax bill

Taxpayers who make charitable contributions such as cellphones, game consoles, computers or any other qualifying electronic donation, can write it off based on the fair market value. In order to be eligible for the tax credit, you must have the following:

  • A donation that is valued at less than $500, no forms will be required to be filled out.
  • Charitable deductions exceeding $500 must be submitted with Form 8283, which lists the name of the organizations and types of donations made with your tax return. 
  • Keep a receipt for your files.
  • Use Energy Star products

The Energy Star program of the U.S. Environment Protection Agency and the U.S. Department of Energy helps taxpayers save money when they go green. Taxpayers should be advised that not all Energy Star products qualify for the incentive and some tax breaks for energy expired in 2011. There are still a few credits available through 2021 for certain energy programs that have been mentioned above.

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

How Renting Out Your Home Affects Your Taxes

How Renting Out Your Home Affects Your Taxes

Tax Tips For Landlords

If you have decided to dive into the sharing economy by renting your home or part of it out — whether it’s through a service like AirBnB or independently — you need to be aware of how the rental income will affect your taxes.

Renting any part of your home requires some work up-front and ongoing management. You have several tasks ahead of you. You’ll most likely want to spruce up the place with comfy furnishings and linens, and maybe a fresh coat of paint. You’ll also need to check the legal regulations for renting in your local area. You may discover there are limitations on the type of rentals you can offer, be they short-term or long-term.

And then, there’s landlord tax. Running afoul of the IRS can potentially wipe out any financial gains you may reap from renting your home – be sure to abide by the laws of landlord tax. Fortunately, you can reduce your potential tax bite with diligent record-keeping. Here’s everything you need to know about renting out a room and applicable taxes.

The 14-Day Rule & Paying Rental Income Taxes

The most convenient and potentially lucrative scenario would be to completely avoid reporting or paying rental income taxes on what you earn from renting out your home or a spare room. Well, you can, IF you meet two relatively easy requirements set by the IRS.

First, you must use the residence as a home at least 14 days out of each calendar year. Second, you must limit the time that you rent any part of the residence that you use as a home to 14 days or less each tax year. That’s it.

So if you have a primary residence plus a vacation home where you spend at least two weeks of the same year, you could rent out rooms in both and collect rental revenue for 28 days (14 days for each residence) completely tax-free. It gets better: the IRS places no upper limit on how much income you earn as long as you don’t exceed 14 total days of rental per property. (

If you live near the town where the All-Star game for a major sport is being played that year, you could rent out one room or the entire place for the week, rake in major cash, and never report a dime on your tax return. Pretty sweet. But, if a renter burns a hole in your floor, you’re stuck paying for the repairs.

 Rent Your Home for More Than 14 Days?

Should you exceed the 14-day threshold, things become a bit more complicated. First, you must determine whether you or family members will reside in the residence or use it for personal purposes for at least 10% of the time that you rent at a fair rental price. You don’t have to be there at the same time you’re renting, but your time in the residence must equal at least 10% of the total rental time. So if you rent out your vacation home for 300 days each year, you or another qualifying person will need to live there for at least 30 days during the same year for the IRS to qualify the residence as a home. For the purposes of this article, the assumption will be that the residence qualifies as a home for IRS purposes. (

The rules differ for rental properties that are used for what the IRS calls “personal purposes” rather than as residences. There are also different regulations that apply if you use the rental property as a residence, but don’t live there enough of the time for the residence to qualify as a home. To sort out those types of issues, consult with a professional such as a tax attorney from Optima Tax Relief.

Which IRS Form Do You Need to File Rental Income?

As a contractor with AirBnB living within the U.S., you would complete Form W-9, Request for Taxpayer Identification Number and Certification. You would also receive Form 1099, Miscellaneous Income before you file your federal income tax return for the following year. (International contractors need to complete different forms.) If you operate as an independent, you will need to maintain your own records for rental income and expenses, preferably separate from your personal household expenses.

If you provide sleeping space, but no frills, report income and losses on Schedule E, Supplemental Income and Loss, attached to Form 1040, Form 1040NR or Form 1041. If you splash out on fluffy towels, turn-down service, and catered breakfast in bed for your guests, report income and expenses through Schedule C, Profit or Loss from Business, also filed with Form 1040, Form 1040NR or Form 1041.

In either case, you are also allowed to deduct the costs of repairs, depreciation (by filing Form 4562, Depreciation and Amortization), uncollected rents and actual operating expenses. But if a renter trashes the place and you file Schedule E, you will also need to complete Form 6198, At-Risk Limitations or Form 8582, Passive Activity Loss Limitations. If you’re not sure which form you should complete, consulting a tax professional is your best strategy.

Fair Rental Prices and How They’re Calculated

If you live in the heart of Manhattan or in a condo overlooking Lake Michigan in Chicago, you might think that setting your rents at bargain basement levels will help you beat the competition. If you set your prices too low, you may well attract the unfavorable attention of the IRS.

That doesn’t mean that you must charge exactly what every other landlord or private renter in your area charges for rent. It does mean that you must set prices for your rental that are comparable to the going rent for similar properties in your area – what the IRS calls “fair rental price.”

If you fail to charge fair rental prices or if you never report a profit from your rental, the IRS may decide that you’re not serious about making money. You don’t have to show a profit every year, but the IRS assumes that you have a genuine profit-making motive if you show gains during at least three of the most recent five years, including the current year. (

The Hobby Loss Rule

If you fail to show profit, you could be hit by the so-called “hobby loss rule,” which prevents you from using losses related from your venture to offset other income on your federal tax return. Instead, you use most losses related to your rental activities as itemized deductions on Schedule A. Deductions would be limited to the following strict limitations.

  • Deductions such as mortgage interest and taxes are allowed in full
  • Deductions like advertising, insurance, and premiums are allowed only to the extent that gross income exceeds deductions from the first category
  • Deductions such as depreciation and amortization are allowed only to the extent that gross income exceeds the amount of deductions taken for both of the prior two categories.

How the Sharing Economy Works

Knowing the ins and outs of renting your home and taxes can be tricky. However, this article is not intended to discourage you from renting out your home, being a live-in landlord, or otherwise participating in the sharing economy. It’s a potentially exciting way to meet interesting people from all over the country or even other parts of the world.

But just as you want your house or apartment to look its best, you’ll also want your financial house to be in order, too. That way you can concentrate on being the best host you can be, without being hit with unpleasant surprises at tax time.

Need some help with landlord tax? Consult one of our tax professionals to learn more about renting out a room and taxes.