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Optima Newsletter – June: Can the IRS Automatically Complete Tax Returns?

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.

Trading Stocks and What it Means for Your Taxes

stocks taxes

While stocks may seem like an effortless path toward financial stability, they do affect your taxes. Understanding what’s expected when you file can keep you out of trouble with the IRS.

Brokerage Accounts and Taxes

When you sell the stock shares in a brokerage account, you may be responsible for capital gains taxes. Capital gains tax can affect you in two ways, depending on your circumstance:

Short-term Capital Gains Tax

This tax applies to profits from sold assets that were held for a year or less. The rates for short-term capital gains tax match your income tax bracket.

Long-term Capital Gains Tax

The long-term variant of this tax applies to sold assets held for longer than a year. The rates are 0%, 15%, or 20% depending on your filing status and taxable income. It’s important to note that long-term capital gains tax rates are usually lower, so it may work in your best interest to hold that stock for a little longer.

How Dividends Affect Taxes

There are two types of dividends and they’re usually considered taxable income, qualified and nonqualified. Qualified dividend rates range from 0%, 15%, or 20% (the same rule for long-term capital gains tax). Nonqualified dividends are ordinary dividends that have the same tax rate as your income bracket.

Taxpayers in higher brackets typically pay more taxes on dividends. Overall, dividend investments can drastically alter your tax bill.

How to Reduce Taxes on Stocks

Holding onto shares long enough for them to become qualified dividends can result in reducing taxes.

If possible, you should hold onto your assets for a little longer than a year. Long-term capital gains tax rates are often lower when you sell your stocks. Making a profit from stocks is all about strategy and figuring out what falls in line with your financial goals.

Tax Debt Assistance

If you find yourself in debt with the IRS due to stock investments, you may qualify for relief. Give us a call for a free consultation at (800) 536-0734.

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 that could save you a lot of trouble while searching for 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

Optima specializes in tax debt relief, and provides tax prep and filing services to our clients. If you are in need of assistance with IRS compliance, give us a call for a free consultation at (800) 536-0734.

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 and collection activity that it’s known for to collect past due balances. Being aware of such consequences may inspire you to take care of your tax debt sooner than later.

Interest and Penalties

Interest is added to your tax liability daily until paid; with a 25% maximum penalty. In April 2022, the IRS raised its interest rates for the quarter for quarterly taxpayers, such as businesses and self-employed filers.

Penalties include:

  • Failure to file – same due date as your return or extended return.
  • Failure to pay – due on the date you receive a notice, or the IRS assess the penalty.
  • Accuracy-related – same due date as your return or extended return.

IRS Wage Garnishment

The IRS has the ability to garnish your wages when you have an unpaid balance. This means that your income can be seized and applied to your tax liability. Garnishments can be taken out of 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

If your tax debt has gotten out of hand, give us a call for a free consultation at (800) 536-0734. One of our associates can help you understand your options for tax debt relief.