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Optima Newsletter – June 2022

News letter

Can the IRS Automatically Complete Tax Returns?

A new study shows that the IRS may be able to complete nearly half of the nation’s tax returns automatically. The study proves that over 60 million pre-populated tax returns can be correctly auto filled with information that the IRS previously collected.

What if I Can’t Pay My Installment Agreement?

In this episode of The Tax Show for People Who Owe, the hosts discuss solutions to unaffordable payment plans. What should you do if you can’t make a payment? Tune in for suggestions.

Student Loans and Taxes: What Current Students & Graduates Need to Know

Not all students are required to file taxes. However, there are instances where it may benefit you to report student loans.

What are Non-Taxable Earnings?

There are instances where income will not be taxed, whether or not you report it during tax season. Understanding which earnings are taxable versus non-taxable could save you a lot of time and trouble when you file your tax returns.

Tips for Choosing a Tax Professional

tax professional

There is no shame in needing professional help during tax season. In fact, if you’re able to afford tax assistance or find community resources, you’ll have a better likelihood of accurate returns. Getting your return completed correctly the first time means fewer delays and getting your refund faster. Choosing the wrong tax professional, however, could hurt you in the long run. The IRS has shared several tips for choosing a tax professional.

Tax Professional Qualifications

You should make sure the tax pro that you choose meets all of the necessary requirements. The IRS has a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. Enrolled Agents should be licensed by the IRS and must pass a three-part Special Enrollment Examination.

Certified public accountants are licensed by state boards of accountancy in the District of Columbia and U.S. territories. They must pass the Uniform CPA Examination and have completed a study in accounting at a college level. To maintain an active CPA license, it is required that a CPA completes specified levels of continued education.

Tax attorneys are licensed by state courts, the District of Columbia, or designees such as the state bar. If you’re considering hiring an attorney specializing in tax prep, they should still have a degree in law and passed a bar exam.

Tax Professional History

Conducting your own research is crucial to choosing a tax professional. Sources such as the Better Business Bureau can give you some history on the professional that you’re considering. Notable things in their background would be disciplinary actions and the status of their license. The State Board of Accountancy is used for CPAs, the State Bar Association for attorneys, and the IRS verifies enrolled agent status here.

Service Fees for Tax Professionals

The goal of the tax preparer should not be larger refunds than their competitors. Tax preparers that charge by taking a percentage of your refund may not have your best interest in mind. More money sounds great at first, but compliance with the IRS is the ultimate goal. You want to be sure that the tax pro is not using deductions you don’t qualify for, or other means to increase your refund and make more money.

There is never a reason to show your personal documents or Social Security number to a tax preparer when you’re asking about a quote.

Book a Tax Professional Early

You don’t want to wait until the last minute to find a tax professional. As soon as the tax season ends, it’s a good idea to contact a tax preparer for next year. Fly-by-night preparers are high risk investments.

Providing Documentation

Keep records and receipts handy for filing season. This will make the tax preparer’s job a lot easier, and increase the likelihood of accuracy for your return. A good tax preparer should ask questions to figure out your total income and tax deductions, or credits.

Blank Tax Returns, Signing, and Filing

You should never sign a blank tax form, even if the preparer sent it to you. Always review your return thoroughly and ask questions if you’re confused. This is important, you want to make sure the refund is going directly to you, and not through the preparer. They should also provide you with a copy of the completed return.

You also want to make sure that your tax professional e-files your return. Filing electronically and choosing direct deposit is the quickest way for you to get your refund.

Preparer Tax Identification Number

All paid tax preparers must sign returns and include their PTIN, or Preparer Tax Identification Number by law. If your preparer does not have a PTIN, do not move forward with their paid services.

Optima’s Tax Services

Now that you know these tips for choosing a tax professional, you can get help. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

The Consequences of Owing Taxes

the consequences of owing back taxes

Owing the IRS can be a scary and confusing time, especially if you don’t know what to expect. The IRS has protocols to collect past due balances. This article will review the consequences of owing taxes.

Interest and Penalties

The IRS adds interest to your tax liability daily until you pay it in full. The maximum penalty is 25% of your unpaid tax. The current interest rates are:

  • 8% for overpayments for individuals
  • 7% for overpayments for corporations
  • 5.5% for the portion of a corporate overpayment exceeding $10,000
  • 8% for underpayments for individuals
  • 10% for overpayments for corporations

Penalties include:

  • Failure to file – If you don’t file your return or an extension, and owe, the IRS will penalize you. The penalty is currently 5% of the unpaid taxes for each month or partial month that a tax return is late, up to 25% of your total unpaid tax bill.
  • Failure to pay – If you don’t pay your taxes, the IRS will penalize you at 0.5% for each month or partial month your tax balance goes unpaid, up to 25% of your total tax bill. 
  • Accuracy-related – You may be given the IRS negligence penalty for errors. This can up to 20% of the portion of the underpayment of tax resulting from negligence..

IRS Wage Garnishment

The IRS has the ability to garnish your wages when you have an unpaid balance. This means that the IRS can seize your income and apply it to your tax liability. They can also garnish your paychecks, commissions, and bonuses. By paying the balance in full, or setting up a payment plan, you can stop garnishments.

IRS Levy

You would receive a notice prior to the IRS levying the balance. This consequence is for delinquent taxpayers and involves the IRS legally seizing your bank accounts, wages, or property to settle the tax debt. To stop a levy, contact the IRS directly. If you can prove that you’re in hardship, they may release the levy. You can also pay the balance in full to release a levy sooner.

IRS Lien

Liens are placed on physical assets, such as homes or vehicles, to satisfy tax debt. This means that the IRS takes possession of your assets, or collects a portion of what you make for selling them. You can avoid a lien by paying your balance in full, on time, or by contacting the IRS for a payment plan.

IRS Passport Denial

Major tax debt can result in the denial of acquiring a passport. State Departments can also revoke an existing passport if you’re delinquent. The IRS is allowed to deny citizens the right to travel internationally. If you receive a notice while overseas, you may receive a temporary passport to return to the US.

You can reverse passport denial by changing your status (no longer seriously delinquent), if the debt becomes legally unenforceable, or by satisfying the tax debt.

Unaffordable Tax Debt

Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.  

If You Need Tax Help, Contact Us Today for a Free Consultation 

Tax Reduction Strategies

Tax Reduction Strategies

While taxes are inevitable, you want to make sure that you’re not paying more than you have to. You can legally reduce your taxes by using strategies that you may not be aware of. Here are some tax reduction strategies from Optima Tax Relief.

Retirement Contribution

A simple way to reduce your taxes is by making retirement account contributions. You can make these contributions to any traditional IRA until the filing deadline in April. The amount you owe in federal taxes will be reduced as a result of 401(k) and IRA accounts being deducted from your taxable income.

If you have a Roth IRA, it’s funded with after-tax dollars. This doesn’t equate to a tax deduction, but the money in the account is tax-free even in retirement.

Deferring Income

By deferring your income, such as year-end bonuses, you can reduce your tax burden for the year. The amount of taxes reduced depends on the amount contributed over the year.

While you are able to defer wage and salary, it’s often more difficult for taxpayers to do so. It’s in your best interest to defer income if you will remain in the same tax bracket or lower the following year. This is to prevent a larger tax bill in the future. If you believe you will be in a higher tax bracket next year, you can accelerate income so that you can pay it on a lower bracket now, than a higher bracket later.

Deductions for Military Members

Being a member of the military reserves and traveling more than 100 miles from home qualifies you for a deduction for unreimbursed travel expenses. Eligible military expenses include transportation, meals, and lodging.

As an active-duty service member, moving costs for permanent station changes can be deducted.

Flex Plans

Flexible spending accounts are fringe benefits offered by employers to steer part of your pay into a special account. This account can be used to pay bills for childcare and medical expenses.

The money in flex accounts is free of income and Social Security taxes. However, there is a use-it-or-lose-it rule that can forfeit the excess money that isn’t used by the end of the year.

Is there a way to reduce tax debt?

Now that you know some tax reduction strategies, you may be able to put these into practice. Tax relief is available, and can come in different forms for eligible cases. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.  

If You Need Tax Help, Contact Us Today for a Free Consultation