GET TAX HELP (800) 536-0734

How to Avoid Tax Scams and SMishing

The IRS recently announced that there has been an increase in tax-related scams where taxpayers personal financial information could be at risk of being exposed or stolen. CEO David King and Lead Tax Attorney Philip Hwang provide helpful insight on what tax scams to be on the lookout for and how to avoid them in the future.

Optima Newsletter – October 2022

How Inflation Will Affect Your Taxes in 2023

Every year, the IRS makes inflation adjustments. With consistently high inflation in 2022, some experts are predicting larger adjustments than normal that can affect tax brackets in 2023. 

Read More

How Will the Inflation Reduction Act Affect Your Taxes?

With the recent passing of The Inflation Reduction Act, individuals who have unfiled tax years or unpaid tax debt may now expect an increase in IRS collection enforcement. Optima CEO David King and Lead Tax Attorney Philip Hwang explain how the Inflation Reduction Act can directly affect taxpayers and how to get compliant with the IRS.

Watch Video

How to Manage Finances as a Single Individual

As the cost of living continues to rise, it is becoming increasingly difficult for single individuals to live comfortably. Without the safety net of a second income, the need to manage finances as a single individual is more important than ever. The process comes with unique benefits and challenges, both throughout the year and during tax time.

Read More

How to Avoid a Tax Audit 

While there is no guaranteed method of avoiding audits, there are things to steer clear of that could trigger an IRS audit. The Senate recently approved nearly $80 billion in IRS funding, with $45.6 billion for enforcement, which could lead to more audits.  Here are four things that the IRS has historically viewed as “red flags,” which could increase the chances of an audit for taxpayers. 

Read More

How Home Equity Loans Affect Taxes

how home equity loans affect taxes

Sometimes the idea of taking out a second mortgage can be a viable solution to eliminating debt, funding home renovations, or paying off unexpected medical bills. Before taking out a home equity loan, you should know the tax implications that come with it.  

What is a home equity loan? 

Also known as a second mortgage, a home equity loan is a type of consumer debt that allows homeowners to borrow against the equity in their residence. The equity that you have accumulated through mortgage payments is used as collateral. The loan is paid out to you in a lump sum and is repaid with interest at a fixed rate each month for a set number of years.  

How much can I borrow with a home equity loan? 

Typically, the max you may borrow is around 80% to 85% of your home’s appraised value less the remaining balance on your mortgage. For example, let’s say your home is valued at $500,000, your mortgage balance is $200,000, and your lender will allow you to borrow up to 80% of your home’s value. 

$500,000 x 80% = $400,000  

$400,000 – $200,000 = $200,000 maximum loan amount 

In this scenario, you may borrow up to $200,000. The principal would be repaid at a fixed rate each month for a set number of years in addition to your regular mortgage payment, hence the term “second mortgage.” 

How Do Home Equity Loans Affect My Taxes? 

Like many other loans, the interest on a home equity loan can be tax deductible, but there are some limitations. If you used funds from the loan to “buy, build, or substantially improve” the home that was used to secure the loan, the interest is tax deductible. Since the passage of the Tax Cuts and Jobs Act of 2017, you may no longer deduct the interest of the loan if it was used for any other purpose. The amount of interest that may be deducted will also depend on your filing status.  

Tax Relief for Homeowners 

Deducting home equity loan interest only makes sense if your itemized deductible expenses are more than the amount of the standard deduction. If you choose to itemize your deductions and would like to deduct home equity loan interest paid, you will need to supply your tax preparer with IRS Form 1098, Mortgage Interest Statement. Tax planning can be incredibly stressful and intimidating, especially when taking new actions such as deducting loan interest. It is always best to check with a trusted tax professional to ensure you remain compliant with the most updated tax laws. If you need tax help, give us a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals.

How Inflation Will Affect Your Taxes in 2023

how inflation will affect your taxes in 2023

Every year, the IRS makes inflation adjustments. With consistently high inflation in 2022, some experts are predicting larger adjustments than normal that can affect tax brackets in 2023.  

What is Inflation? 

Put simply, inflation is the overall increase in prices of goods and services over a given period of time. Inflation is the reason a gallon of milk costs about $4.33 today but only $2.72 in 2002. The increase can come from a rise in demand, like when a tech giant charges increasingly high prices for a new product because of growing popularity. The increase can also result from a decrease in supply, usually because of an increase in cost of production, materials or labor.  

Does Inflation Always Affect Taxes? 

Inflation does always affect taxes. In fact, the IRS automatically adjusts income tax brackets and the standard deduction each year according to inflation rates. Since the 1980s, the U.S. inflation rate has staggered around 2%, which is considered a healthy rate by the Federal Reserve’s standards. In some years when inflation has been relatively higher or lower, the rate has fluctuated between 0% and 4%.  

How is Inflation Affecting Income Tax Brackets in 2023? 

The consistently high inflation in 2022 has resulted in higher-than-expected inflation adjustments for income tax brackets, with most sitting between 6.5% and 8%. This essentially means that taxes will apply to less of your earnings beginning on January 1, 2023, to reflect the newest value of money based on inflation. The most notable changes are as follows: 

  • 12% Tax Bracket: Taxable earnings up to $11,001 for single filers and $22,001 for joint filers 
  • 22% Tax Bracket: Taxable earnings up to $44,726 for single filers and $89,451 for joint filers 
  • 24% Tax Bracket: Taxable earnings up to $95,376 for single filers and $190,751 for joint filers 
  • 32% Tax Bracket: Taxable earnings up to $182,101 for single filers and $364,201 for joint filers 
  • 35% Tax Bracket: Taxable earnings up to $231,251 for single filers and $462,501 for joint filers 
  • 37% Tax Bracket: Taxable earnings up to $578,126 for single filers and $693,751 for joint filers 

How is Inflation Affecting the Standard Deduction in 2023? 

The standard deduction will also increase.  

  • Single Filers: $13,850 
  • Married Individuals Filing Separately: $13,850 
  • Married Couples Filing Jointly: $27,700 
  • Heads of Households: $20,800 

Tips for Taxpayers 

Tax planning can be very complicated and sometimes it’s best to seek help from professionals in the industry. Give us a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals. 

How to Manage Finances as a Single Individual 

how to manage finances as a single individual

 

As the cost of living continues to rise, it is becoming increasingly difficult for single individuals to live comfortably. Without the safety net of a second income, the need to manage finances as a single individual is more important than ever. The process comes with unique benefits and challenges, both throughout the year and during tax time.  

Budget Tips for Single Individuals 

There are countless budget strategies you can use as a single individual. Some of the most popular ones are the 50/30/20 budget and the zero-based budget. 

50/30/20 Budget 

One of the most popular methods is the 50/30/20 budget, in which you spend about half of your after-tax income on necessities. This includes bills, groceries, housing, and all the other items that are necessary to live. Thirty percent of your income should then go to your “wants”, like dinners, entertainment, and travel. The final 20% should be designated for savings and debt repayment. These percentages can be altered to fit your own specific needs. 

Zero-Based Budget 

In the zero-based budget strategy, every dollar you earn is allocated to a specific expense. A certain dollar amount goes to housing, another goes to utilities, another goes to debt, and so on until every dollar in your paycheck is assigned to one expense. At the end of the pay period, whatever is left over is sent to your savings. This strategy is especially helpful in preventing impulse spending. 

Retirement Tips for Single Individuals 

The key to retirement savings is understanding that the earlier you start, the better. Let’s say two people begin saving $100 per month. One begins at age 25 and the other begins at age 35. The one who begins saving earlier will have nearly twice as much savings by age 65. Prioritizing any portion of your income for retirement can really maximize your savings, especially if you take advantage of employer contributions.  

Automate and Maximize Your Saving 

Having an emergency fund that can cover three to six months of expenses is crucial if you don’t have a second income to rely on if you lose your job or cannot work. Automating your savings can help you reach your goals faster. You can create automatic bank account transfers or even use mobile apps that schedule money transfers from your checking account to your savings account or online account. While you’re at it, you can maximize your savings by opening a high-yield savings account that will accrue interest at a higher rate than a typical savings account. 

Tax Relief for Single Individuals 

During tax season, it’s important to know which tax bracket you’ll fall into as a single filer. The federal income tax bracket for 2022 is as follows: 

  • 10%: $0 – $10,275 
  • 12%: $10,276 – $41,775 
  • 22%: 41,776 – $89,075 
  • 24%: 89,076 – $170,050 
  • 32%: $170,051 – $215,950 
  • 35%: $215,951 – $539,900 
  • 37%: $539,901+ 

Single filers do not qualify for deductions that many families take advantage of, so it’s also important to learn which ones you are eligible for in order to reduce your taxable income, and even your tax bracket. Remember, the tax bracket ranges above are based on taxable income, and not the actual amount of earned income you receive. In other words, the tax bracket is based on your income after deductions and credits are taken. Doing taxes on your own can be intimidating and stressful. Give us a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals.