How IRS Installment Agreements Work

how irs installment agreements work

When most people first examine tax relief options, they might have their hopes set on an offer in compromise – or their tax debt settled for less than what they owe. Unfortunately, OICs are more often denied by the IRS than they are accepted. When tax debt becomes too much to manage, an IRS installment agreement might be your best option. Here’s an overview of how IRS installment agreements work. 

What Is an IRS Installment Agreement? 

An installment agreement is a payment plan set up with the IRS to pay your tax bill over a set period of time. The installment agreement will bundle all taxes owed if you owe tax for more than a year. That said, you cannot have two installment agreements with the IRS. During this time, the IRS will generally stop levying. Collections are typically ceased or prolonged while the installment agreement is pending until it can be approved or rejected. However, the IRS will typically keep any tax refunds you receive and apply them to your tax bill. If the installment agreement request is rejected, collections will be suspended for 30 days. Every taxpayer has the right to appeal a rejection, in which case collections will be suspended until a decision is made on the appeal.  

What IRS Installment Agreements Are Available? 

The IRS offers both short-term and long-term installment agreements. Let’s review the eligibility criteria, terms, and costs for both. 

Short-Term Installment Agreement 

With a short-term installment agreement, you will need to pay your full tax bill within 180 days or less. This option is available to taxpayers who owe less than $100,000 in combined tax, penalties and interest. To qualify, you must be current on all tax returns. Individual taxpayers, including sole proprietors and independent contractors, can apply online, over the phone, via mail or in person for free. It’s important to note that interest will continue to accrue while you’re making payments. The current interest rate is 7% per year, compounded daily. Some penalties will also still apply. 

In general, the IRS will ask how much you can afford to pay each month. Once a monthly payment is finalized, payments can be made through automatic bank account withdrawals, also known as a Direct Debit installment agreement. You can also make non-automated payments online or by phone, or via check, money order, or a debit or credit card. Payments made with debit or credit cards will also be charged with a processing fee. Debit card processing fees are about $2-4 per payment while credit card processing fees can be up to 2% of the payment. You can review your installment agreement details through your online IRS account. You can also make some changes to your agreement online including your monthly payment, monthly due date, bank information, and more.  

Long-Term Installment Agreement 

With a long-term installment agreement, you can pay your full tax bill in over 180 days. This option is available to taxpayers who owe less than $50,000 in combined tax, penalties and interest. To qualify, you must be current on all tax returns. Individual taxpayers, including sole proprietors and independent contractors, can apply online, over the phone, via mail or in person for free. It’s important to note that interest will continue to accrue while you’re making payments. The current interest rate is 7% per year, compounded daily. Some penalties will also still apply. 

The fees for a long-term installment agreement are more substantial. If you want to pay monthly through automatic withdrawals, there is a $31 online setup fee, or a $107 setup fee to apply by phone, mail or in person. If you are considered low-income, you might be able to get this fee waived. If you want to make monthly non-automated payments, you will need to pay a $130 online set up ($43 for low-income taxpayers), or $225 to apply by phone, mail or in person. There is also a $10 fee to revise an existing installment plan or to reinstate after defaulting. This fee may be reimbursed for low-income taxpayers.  

Businesses are also eligible for long-term installment agreements if they are current on all tax returns and owe $25,000 or less in combined tax, interest and penalties. The same setup fees apply to businesses. 

For debt less than $50,000, you will typically have a maximum of 72 months to pay off your tax bill. Your minimum payment can be found by taking your tax balance and dividing it by 72 months. If you find that you won’t be able to pay this calculated amount each month, you’ll need to complete Form 433-F, Collection Information Statement, which obtains your current financial information to determine how to pay your tax bill. 

For debt greater than $50,000, you will usually need to submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, which obtains your current financial information to determine how to pay your tax bill. The IRS will also examine any meaningful assets you have that can be sold to pay down your balance and then set up an installment agreement. 

Tax Help for Those Seeking an Installment Agreement 

If you know you won’t qualify for tax debt settlement, an IRS installment agreement may be your best option to help manage your tax debt. An IRS installment agreement can truly be helpful to many taxpayers struggling with their tax debt. The most important thing to remember is to always make your installment agreement payment. If you default on your agreement, it may be terminated, and the IRS may begin enforcement actions. Be sure the installment agreement terms are viable for your own financial situation. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt. If you need tax help, contact us for a free, no-obligation tax consultation today. 

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How Tax Relief Works

how tax relief works

Owing the IRS can be one of the most stressful situations a taxpayer can face. Recent data shows that American taxpayers owed over $114 billion in back taxes, penalties, and interest in 2020. Much of this debt can be attributed to late filing, mathematical errors, and underreported income. Whatever the reason for owing taxes, many taxpayers may find themselves considering tax relief when their tax bills get too large to pay. Here’s an overview of what tax relief is and how it works. 

What Is Tax Relief? 

The phrase “tax relief” can mean many things. When speaking of tax debt, tax relief is when your tax debt is managed, settled through negotiations, or paid down with payment plans. Tax relief programs were created for taxpayers who cannot afford to pay their tax bills, as well as those who have overwhelming and overdue tax bills. 

How Does Tax Relief Work? 

Tax relief is not a “one-size-fits-all” program. Every tax relief program works differently, and the process will also differ depending on the individual taxpayer’s situation. Here we will review the most common tax relief policies and programs. 

Offer in Compromise (OIC) 

An OIC is the most popular form of tax relief as well as the least likely option for taxpayers since most OICs are denied by the IRS. An OIC allows you to settle your tax debt for less than what you owe. When selecting OIC candidates, the IRS will examine your ability to pay your tax bill, your income and expenses, and the value of your assets. There are some basic requirements for an offer in compromise including: 

  • Must pay a $205 nonrefundable application fee 
  • Must make a nonrefundable initial payment 
  • Must be current on all tax returns 
  • Must not be in an open bankruptcy proceeding 

If the IRS deems that you cannot afford to pay your tax debt, or that paying your tax debt will result in financial hardship, then it may accept your offer in compromise. If this happens, they will cease collections. 

Currently-Not-Collectible (CNC) Status  

In some cases, you cannot afford both your tax bill and your expenses. If this happens, you can request a CNC status on your account, which delays collections. The IRS will request information regarding your income and expenses to determine your eligibility. If approved, the CNC status will temporarily cease collections on your account. However, they will continue to assess interest and penalties to your account. They will continue to review your income each year to determine if you are still eligible for CNC status. They can also still file a tax lien against you during this time and keep your tax refunds to apply them to your tax bill. 

IRS Installment Agreement 

An IRS installment agreement allows you to pay your tax bill, plus accrued interest and penalties, over a set period of time. A short-term payment plan must be paid in 180 days or less. To qualify for a short-term installment agreement, you cannot owe more than $100,000 in combined tax, penalties and interest. A long-term payment plan can be paid over 180+ days. To qualify for a long-term installment agreement, you must not owe more than $50,000 in combined tax, penalties and interest. While an installment agreement does not reduce your tax bill, or exclude you from penalties and interest, it might be your next best option to pay off your tax debt.  

Penalty Abatement 

Sometimes life gets in the way of responsibility. Maybe you didn’t file your taxes for one year, or you forgot to pay your tax bill. If you have an otherwise clean record with the IRS, you can request a first-time penalty abatement, which waives a tax penalty or refunds you for one already paid for. Typically, if you meet three requirements, you should qualify for this tax relief option. 

  1. You are current on your tax return filing. Tax extensions are fine.  
  1. You are current on your tax bill or have a payment plan in place. 
  1. You have a clean record with the IRS. This means no penalties during the three tax years before the year you received a penalty.  

If interest accrued from a failure-to-pay or a failure-to-file penalty, and you receive penalty abatement, then the interest associated with the penalty abatement will also be forgiven.  

How Do I Proceed with Tax Relief? 

If one of these tax relief options sounds like they can be of help to your tax situation, you should consider pursuing it. Most of these options require nothing to lose, financially speaking. Dealing with the IRS on your own can be intimidating, time-consuming, and stressful. 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 for a free, no-obligation tax consultation today. 

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Optima Continues its Winning Run of Customer Service Team of the Year in Financial Services

2023 stevie award winners optima tax reliefThe company’s exemplary customer service team was recognized for the fourth straight year. 

Optima Tax Relief, the leading nationwide tax resolution firm, is proud to announce that it has won four Stevie® Awards for excellence in customer service and technology. The Stevie Awards for Sales & Customer Service are one of the world’s top honors for sales, customer service, and call center professionals. This year’s awards include: 

  • Frontline Customer Service Team of the Year (Gold) 
  • Customer Service Department of the Year – 100+ employees (first-time finalist) (Gold) 
  • Innovation in Customer Service – Financial Services (Silver) 
  • Best Use of Technology – Customer Service (Silver) 

Optima Tax Relief’s Customer Service Team was recognized for its outstanding performance in handling customer inquiries, providing timely and accurate information, and resolving customer issues with the utmost professionalism and care. It is Optima’s fourth year in a row receiving the gold Frontline Customer Service Team of the Year award for the financial services industry, and their first time winning the gold award for Customer Service Department of the Year (100+ employees). The team’s commitment to excellence has helped to establish Optima Tax Relief as a trusted name in tax resolution among clients.  

David King, CEO of Optima Tax Relief, expressed his gratitude for the honors stating, “We are thrilled to continue our remarkable streak of success in the area that matters most to us, service. We recognize that most customers would prefer not to need Optima’s services, so we take great pride ensuring they are taken care of when they do.  It will be difficult to continue this unprecedented run amongst some of the best brands in the world, but we will have fun taking a run at it.” 

Chief Customer Officer, Christine Bui added, “These awards are a testament to not only the innovative ways our team delivers exceptional customer service but also the high level of care our team provides for each of our clients.  Regardless of what may be going on in their personal lives, our staff consistently shows up for our clients and helps them navigate through a very challenging time in their lives.  I am proud of our team and their dedication to providing our clients with the best possible experience.”   

Optima’s use of technology also helped them lead their industry in innovation. The Innovation in Customer Service – Financial Services silver award was given to Optima Tax Relief for its innovative approach to customer service, which includes the use of cutting-edge technology to provide clients with fast and efficient service. The company has developed a range of tools and platforms that enable its customer service representatives to deliver exceptional service to clients, including intelligent call routing, an enhanced client portal, and improved systems. 

More than 2,300 nominations from organizations of all sizes and in virtually every industry were evaluated in this year’s competition. Finalists were determined by the average scores of more than 170 professionals worldwide in seven specialized judging committees. Entries were considered in more than 60 categories for customer service and contact center achievements, including Contact Center of the Year, Award for Innovation in Customer Service, and Customer Service Department of the Year; 60 categories for sales and business development achievements, ranging from Senior Sales Executive of the Year to Sales Training or Business Development Executive of the Year to Sales Department of the Year; and categories to recognize new products and services and solution providers, among others. Winners were announced at the awards gala held on Friday, March 3 at Caesars Palace in Las Vegas. 

Details about the Stevie Awards for Sales & Customer Service and the list of Stevie winners in all categories are available at https://stevieawards.com/Sales.

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How to Avoid Tax Scams & Fraud

how to avoid tax scams and fraud

Tax scams have become one of the most popular ways criminals steal money and identities. The IRS flagged over $5.7 billion in tax fraud last year and 2023 is not looking any better with so many tax scams circulating. Luckily, there are ways to help avoid tax scams and fraud. Here are the most common tax scams in 2023 and how you can avoid them. 

What Are Tax Scams & Fraud? 

Tax scams are when criminals use stolen information, like your name, address, birthdate or Social Security Number (SSN), to file a phony tax return. The criminals then steal your refund and leave you with the burden of dealing with the IRS. Tax scams happen all year long but especially during tax season. 

Most Common Tax Scams in 2023 

According to the IRS, there are a handful of popular scams that you should be wary of in 2023.  

IRS Impersonation Scams: Criminals will ask for personal or financial information through unsolicited emails, phone calls, or text messages. Sometimes, scammers will send malicious links via email that entices you to click on it. This action prompts a download of identity-stealing malware onto your computer. 

Ghost Tax Preparer Scams: Scammers pose as tax preparers and file your tax returns but do not sign the return or include a preparer tax ID number (PTIN). During the process, they can steal your identity and/or your tax refund. 

Social Media Tax Scams: Criminals use your social media information to get other personal information. They might pose as a friend or relative to ask for money or donations. Alternatively, they can send messages that contain malware to steal your identity. 

Fraudulent Unemployment Claim Scams: Scammers attempt to steal personal information to claim unemployment benefits on your behalf. You may not realize you were scammed until you receive a Form 1099-G at the end of the year. 

Phony Charity Request Scams: Thieves set up phony charities to steal personal information or donations. These fake charities will not have an actual employer identification number (EIN), which is required to verify the existence of a charity. 

Economic Impact Payment Scams: COVID-19 stimulus checks have stopped being sent out, but scammers are still sending malicious text messages, phone calls, and emails to request bank account information. They lead you to believe you will receive a new stimulus check, when really they are stealing your personal and financial information. 

How to Avoid Tax Scams & Fraud 

Knowing how the IRS operates can be the best way to protect yourself against tax scams and fraud. For example, the IRS will reach out to you initially through regular mail through the U.S. Postal Service. If your IRS notice looks suspicious, you can go on the IRS website to search for the letter or notice and confirm its authenticity. The IRS does make phone calls to taxpayers but never threatens legal action or requests payment information over the phone. If you receive a suspicious email or text claiming to be from the IRS, do not reply, click on any links, or open any attachments. If in doubt, you can call the IRS yourself to communicate your concerns. 

Most importantly, you should report all tax scams. Just because you might recognize the scam immediately, it does not mean everyone else will. Reporting the scams can potentially help thousands of other taxpayers. Here’s a breakdown of what to do if you think you are being scammed. 

If you receive a suspicious email about your taxes, forward the email to phishing@irs.gov. 

If you receive a phony call, email a summary of the occurrence to phishing@irs.gov. 

If you clicked on a link within a suspicious email, or entered personal information, report the incident on the IRS Identity Theft Central webpage. 

If you receive a suspicious text message about your taxes, you can forward it to 202-552-1226. 

If you were scammed by your tax preparer, or believe your tax preparer is not following IRS rules, you can report them with Form 3949-A, Information Referral. 

If you receive a bogus form from a financial institution, you should report the incident to the financial institution directly.  

It’s better to be safe than sorry in these scenarios, so always report when in doubt. Not doing so can lead to several issues with the IRS that can take months to correct. Dealing with the IRS under any circumstances can be tough. If you need tax help, Optima and our team of experts are here. Contact us for a free consultation. 

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An Overview of Estate & Inheritance Taxes

an overview of estate and inheritance taxes

Sometimes after the death of a loved one, we are left to deal with grief, funeral planning, and an estate. In some cases, we inherit assets from a deceased loved one. Unfortunately, not much in this life comes for free, and even the things we inherit can cost us. In this article, we will take a closer look at estate and inheritance taxes, including who is affected by them and how they work. 

What Are Estate Taxes? 

Estate taxes are federal taxes levied on the entire taxable estate of a deceased individual. The tax is calculated based on the asset’s current market value. The IRS exempts estates worth less than $12.06 million in 2022 and $12.92 million in 2023. The amounts are per person. Estates worth more than these amounts are taxed according to the following rates: 

  • 18% tax rate: $0 to $10,000 
  • 20% tax rate: $10,001 to $20,000 
  • 22% tax rate: $20,001 to $40,000 
  • 24% tax rate: $40,001 to $60,000 
  • 26% tax rate: $60,001 to $80,000 
  • 28% tax rate: $80,001 to $100,000 
  • 30% tax rate: $100,001 to $150,000 
  • 32% tax rate: $150,001 to $250,000 
  • 34% tax rate: $250,001 to $500,000 
  • 37% tax rate: $500,001 to $7500,000 
  • 39% tax rate: $750,001 to $1,000,000 
  • 40% tax rate: $1,000,001 and up 

Some states impose their own estate taxes, but in general, your estate tax bill is subtracted from the value of your taxable estate before you calculate what you might owe the IRS. The states that impose an estate tax are Connecticut, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. 

Federal and state taxes are paid from the assets of the estate before they can be distributed to beneficiaries. Typically, the executor of the estate will ensure all taxes are paid from the estate, confirm there are no other liabilities needed to be paid, and then distribute the remaining assets.  

What Are Inheritance Taxes? 

Inheritance taxes are state taxes that are levied on the assets of a deceased individual. These taxes are typically paid by the heirs or beneficiaries of the estate, and the amount owed is calculated based on the total value of the estate.  The assets can be anything from money to stocks to property. Currently, six states impose an inheritance tax:  

  • Iowa: 0% – 15%  
  • Kentucky: 0% – 16% 
  • Maryland: 0% – 10% 
  • Nebraska: 0% – 18% 
  • New Jersey: 0% – 16% 
  • Pennsylvania: 0% – 15% 

Iowa is preparing to eliminate its inheritance tax for deaths on or after January 1, 2025. The tax rate you pay is typically determined by your relationship to the decedent. Surviving spouses are almost always exempt from this tax, and in some states, so are sons, daughters, and parents of the deceased. Usually, you will pay a higher rate if you had no familial relationship to the decedent. 

Inheritance taxes come into effect after the estate has been divided and distributed to the appropriate beneficiaries. Typically, each state will have their own exemption rules, meaning that the assets inherited are taxed after they reach a certain value. For example, if your state imposes a 5% tax on inheritances larger than $3 million, and you inherited $5 million in assets, you will pay tax on $2 million. 

How Can I Reduce Estate and Inheritance Taxes? 

We know taxes are the furthest thing from your mind when grieving the death of a loved one. Alternatively, preparing a will should not have to result in worry over your loved ones paying taxes once you’re gone. If you are planning to leave behind assets for your loved ones after death, you can reduce estate taxes using a few methods. You can pay for educational or medical expenses from your estate and the payments will be exempt from taxes as long as the funds go directly to the provider. Also, setting up an irrevocable trust or life insurance trust (ILIT) can help ensure that assets are not used to pay taxes. A team of expert tax professionals can help. Contact us for a free, no-obligation tax consultation today.  

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What is Supplemental Income?

what is supplemental income

These days it is very common for individuals to have regular income, as well as supplemental income. While regular income earned through an employer typically has taxes withheld, some supplemental income does not. If you earn supplemental income, it’s important to learn how it is taxed and when. Here is a brief overview of supplemental income tax.  

What Is Supplemental Income? 

Supplemental income is any money earned on top of your regular income. Even if you only work a regular 9 to 5 job, you may still earn supplemental income through any of the following sources: 

  • Bonuses 
  • Overtime pay 
  • Commissions 
  • Tips 
  • Prizes or awards 
  • Severance pay 
  • Back pay 
  • Payments for paid time off 
  • Taxable fringe benefits 

Some taxpayers do not have regular income through an employer. Some may earn supplemental income through contact work or through a business. Some examples of supplemental income for these groups are: 

  • Schedule E income  
  • Ridesharing service 
  • Sales made through an online shop 
  • Direct sales 

How Is Supplemental Income Taxed? 

How supplemental income is taxed depends on how the income is classified. Income reported on Schedule E will usually consist of estates, trust, real estate rental income, royalties, partnership and S corporation income, and residual interests in real estate mortgage investment conduits (REMICs). Many of these income sources are taxed differently. 

Estates and Trusts 

Beneficiaries pay tax on the income of the estate or trust they inherit at their regular income tax rates and at capital gains rates for any capital gains they receive. In addition, if the estate or trust does not distribute all the income to the beneficiaries it will pay tax on any undistributed income. 

Royalties 

If you are paid royalties for the use of any of your intangible assets, you will receive a Form 1099-MISC that tells you the amount of royalties to report on Schedule E. These royalties are taxed at your regular income tax rate. 

Business Income from Partnerships and S-Corps 

Taxes for S-Corps are passed through to shareholders, while taxes for partnerships are passed through to the partner’s personal income. The tax rate will depend on personal income rates.  

Real Estate Rental Income 

The tax rate for rental real estate varies from 10% to 37%, depending on your filing status and taxable income.  

Supplemental income for employees is based on personal income tax rates. However, the amount withheld will vary depending on whether your employer pays it out with your regular wages or separately. If it’s combined with your wages, the amount withheld will typically be like the way your wages are withheld. If they are paid out separately, employers can withhold at the IRS’s flat rate of 22%. If you are fortunate enough to earn $1 million in supplemental income, it will be taxed at 37%.  

Supplemental income earned through gig, contract, or freelance work should be reported on your individual tax return using Schedule C. If you receive any 1099 Forms, you should use these to calculate your total income through independent work.  

Tax Help for Supplemental Income Earners 

Tax policy can change every now and then. If you earn any type of supplemental income, you should stay up to date on all the most recent changes in taxation rules. For example, in 2024 the rules for reporting income earned through Form 1099 are changing drastically. Being unprepared for a change in policy could lead to all sorts of issues, from a large tax bill to an IRS audit. When in doubt, your best bet is to speak to a trusted tax professional to avoid a stressful tax issue. If you need tax help, Optima and our team of experts are here. Contact us for a free consultation. 

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What You Need to Know About Severance Packages & Taxes

what you need to know about severance packages and taxes

Losing your job is stressful enough as it is. If you are offered a severance package when let go, your first thought might not be on taxes. However, even severance pay is considered income which means it is taxable. Here we will discuss what you need to know about severance packages and how they affect your taxes. 

What Is a Severance Package? 

A severance package is a combination of pay and benefits offered to employees after being laid off from an employer. To receive the package, an employee will typically need to sign a severance agreement that details the amount of pay to be received, as well as any benefits that will be offered. The agreement may also list terms that the employee must abide by to receive the package. For example, accepting a severance package could mean that you are not eligible to file a wrongful termination lawsuit or collect unemployment benefits. Severance packages are offered at the employer’s discretion. In other words, employers are not legally obligated to offer a laid off employee any severance pay.  

Is Severance Pay Taxable? 

Severance pay is taxable, similar to any regular wages or salary income you earned prior to being laid off. Severance pay is taxed in the year of payment and most employers will include your severance pay on your W-2, along with any unused accrued vacation or sick time. Employers will typically withhold federal and state taxes for you, including: 

  • Social Security tax 
  • Medicare tax 
  • Federal income tax withholding 
  • State income tax withholding (if applicable) 
  • Federal unemployment tax (FUTA) 

Are There Any Tax Deductions for Job Hunting? 

As of the 2017 Tax Cuts and Jobs Act, taxpayers may no longer write off job hunting or moving expenses. 

How Does Severance Pay Affect My Taxes? 

In some cases, not enough taxes are withheld from severance pay. If this happens, you might owe during tax time. To avoid this, you can confirm your withholding is correct or make an estimated tax payment on the IRS website.  

Another scenario can involve a large severance package bumping you up into a higher tax bracket. This could happen because your income is taxed the year it is received. For example, if you receive six months of severance pay at the end of the year, you will essentially receive 18 months’ worth of pay, which could be a drastic increase in income compared to the previous year. This could cause a change in your tax rate and disqualify you from certain credits and deductions.  

If you find yourself in the above scenario, there are ways to minimize your tax bill. For example, you can contribute to a tax-deferred retirement account, add funds to a health savings account (HSA), or open a 529 plan for your child’s college fund. You can also ask your employer to have the severance payments spread out to avoid a large tax bill. 

Tax Help for Those Who Received Severance Pay 

If you were recently laid off and received a severance package, you should make sure enough taxes were withheld. If it’s clear that is not the case, you can still avoid a large tax bill. Your best bet is to speak to a trusted tax professional to avoid a stressful tax issue. If you need tax help, call Optima at 800-536-0734 for a free consultation. 

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I Amended My Tax Return – Now What?

i amended my tax return now what

If all goes well during tax season, you file your tax return, get a decent tax refund and wait to do it all again next year. But what happens if you file a return but then notice an error? Do you let it be or file an amended return? If there are simple math errors, the IRS should be able to correct those on their own. However, if you noticed you made an error in your filing status, income, dependents, or credits, you should amend your return through Form 1040-X. Here we will take a look at what happens after you amend your tax return.  

How Long Does It Take Amended Returns to Process? 

The IRS processes amended returns in the order they are received. Because of the backlog of unprocessed returns, this could mean waiting longer than usual processing times. According to the IRS website, your amended tax return can take up to 3 weeks after you mail it to show up in the IRS system. From there, it can take more than 20 weeks, instead of up to 16 weeks, to process amended returns. You should not attempt to file a second tax return or call the IRS during this wait period. 

You can use the Where’s My Amended Return? (WMAR) IRS online tool to check the status of your return and confirm the IRS has received it. You can also call the toll-free telephone number 866-464-2050. These tools should not be utilized until three weeks after filing the return since that is when status updates may become available.  

How to Use the Where’s My Amended Return? Tool 

To check the status of your amended tax return, you’ll need your social security number, date of birth, and zip code that is currently on file with the IRS. Once you proceed, you will see one of the following statuses of your return. 

Status: Received 

Your amended return was received and is being processed by the IRS. It currently takes more than 20 weeks to complete processing. 

Status: Adjusted 

An adjustment was made to your IRS account. The adjustment will result in a refund, balance owed or in no tax change. Payments can be made by mail, online, or through the IRS Direct Pay system. 

Status: Completed 

Your amended return has been processed by the IRS. You will receive all the information connected to its processing by mail.

Why Hasn’t My Amended Return Been Processed Yet? 

In some cases, the IRS still may not have processed your amended return, even after the 20-week timeline. This can happen for several reasons including:  

  • It has errors 
  • It is incomplete 
  • It is not signed 
  • It is returned to you requesting more information 
  • It includes a Form 8379, Injured Spouse Allocation 
  • It is affected by identity theft or fraud 
  • It is routing to a specialized area 
  • It requires clearance by the bankruptcy area within the IRS 
  • It needs to be reviewed and approved by a revenue officer 
  • It needs a review of an appeal or a requested reconsideration of an IRS decision 

In any case, the IRS will contact you if it needs more information to get your amended return processed. 

Tax Help for Those Who Amended a Return 

You should always ensure that you are filing a complete and accurate tax return so you can avoid filing an amended return. Sometimes amending a return could potentially trigger an audit or other examination by the IRS. If you find that you cannot avoid amending your tax return, make sure to follow the correct steps, provide all necessary information, and be patient while waiting for the IRS to process your return. When in doubt, you can also contact a qualified tax professional for assistance. If you need tax help, call Optima at 800-536-0734 for a free consultation. 

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Tax Planning for the Self-Employed

tax planning for the self-employed

Being your own boss can feel freeing and powerful, but with great power comes great responsibility, especially when it comes to taxes. Taking care of all business aspects on your own means you should be prepared to handle all the financial work that comes with the new adventure. Here’s a brief tax guide for the self-employed. 

Get Financially Organized 

There’s nothing worse than scrambling for income and expenses during tax time. Staying organized throughout the year can save you time and money. You’ll want to maintain accurate records including: 

  • Income statements with invoices, receipts, Forms 1099, etc. 
  • Purchase invoices 
  • Receipts for travel, transportation, entertainment, and gifts that are business-related 
  • A breakdown of your assets, including purchase price, cost of improvements, depreciation deductions, etc.  
  • Employment tax records 

Know Your Responsibilities 

We know you are already responsible for the success of your business, but you also need to know your financial responsibilities to maintain your business. This includes paying self-employment taxes and quarterly estimated tax payments. If you earned $400 or more in 2022, you need to pay self-employment taxes. The current rate for self-employment tax is 15.3% of your net earnings, which consists of social security and Medicare tax. The good news is that since in a typical job, the employer is responsible for paying half of this tax, you’ll be able to deduct 50% of your self-employment tax during tax time.  

Since you won’t have an employer to withhold tax from your self-employed income, you’ll need to make estimated tax payments by each quarterly deadline: 

  • April 18, 2023 
  • June 15, 2023 
  • September 15, 2023 
  • January 16, 2024 

A good rule of thumb is to make an estimated tax payment if you expect to owe more than $1,000 in federal taxes for the year. If you do not make these payments, you could face underpayment penalties. 

Take Advantage of Tax Deductions 

As a business owner, you have the benefit of writing off expenses that most employees cannot, as long as they are ordinary and necessary for business operations. You can write off advertising costs, supplies, legal fees, repairs, vehicle expenses, business travel and entertainment, and even more if you operate your business from home. If you aren’t eligible to participate in your spouse’s workplace health plan, you can typically pay for your own health insurance and deduct your premiums. If you have a business loan or business insurance, you can also deduct the loan interest and insurance premiums. If you only take advantage of one deduction as a business owner, you should consider the one for self-employed retirement plan contributions to an SEP-IRA, SIMPLE IRA, or 401(k). These accounts can reduce your tax bill at tax time and help you accrue tax-deferred investments gains in the future. Be sure to look into all tax deductions available so your taxable income is reduced.  

Tax Help for the Self-Employed 

Running a business, whether small or large, has immense opportunities for financial success. However, all of that hard work and prosperity can be taken away if you do not file your taxes correctly. In the worst-case scenario, owing the IRS taxes and not being able to pay can result in a tax lien, which can shut down your business. If this is your first year as a business owner, start off right by knowing your tax responsibilities. If you’ve had your business a while but need tax help now, Optima Tax Relief can help. Contact us for a free consultation with one of our knowledgeable tax professionals. 

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Tax Guide for New Investors

tax guide for new investors

When considering investing, you may first daydream of the potential rewards of the risky endeavor. But as a new investor, it can be overwhelming to navigate the world of taxes. However, understanding the basics of taxation can help you make informed decisions and avoid costly mistakes during tax time. In this brief tax guide for new investors, we will cover some of the essential things you need to know. 

Capital Gains vs. Ordinary Income 

When you invest, you have the potential to earn income through two methods: capital gains and ordinary income. Capital gains are the profits you make when you sell an asset for more than you paid for it. Ordinary income is income earned through wages, salaries, interest, dividends, and other sources. 

The tax rate for capital gains is generally lower than the tax rate for ordinary income. The tax rate you pay on capital gains depends on how long you hold the asset before selling it. If you hold it for more than a year, it’s considered a long-term capital gain. In this case, the tax rate will be lower than if you hold it for less than a year, otherwise known as a short-term capital gain. Short-term capital gains are taxed as ordinary income. In 2022, the tax rates for long-term capital gains are as follows: 

Filing Status  0%  15%  20% 
Single  Up to $41,675  $41,675 to $459,750  Over $459,750 
Head of Household  Up to $55,800  $55,800 to $488,500  Over $488,500 
Married Filing Jointly or

Qualified Widow(er) 

 Up to $83,350  $83,350 to $517,200  Over $517,200 
Married Filing Separately  Up to $41,675  $41,675 to $258,600  Over $258,600 

 

Tax Implications of Different Types of Investments 

Different types of investments are taxed differently. For example, stocks are taxed on capital gains and dividends, while bonds are taxed on interest income. Real estate is also subject to specific tax rules, including depreciation deductions and the potential for tax-deferred exchanges. 

It’s important to understand the tax implications of your investments before you invest. For example, if you’re investing in a high-yield bond, you may be subject to higher taxes on the interest income than if you were investing in a low-yield bond. By understanding the tax implications, you can make informed decisions about where to invest your money. Consulting with a financial advisor before making these financial moves can help you make the most informed decision now and prepare for any tax bill later. 

Investment Expenses 

Investment expenses can be deducted from your taxes, which reduces your taxable income. These expenses can include brokerage fees, investment advisory fees, and other costs related to your investments. It’s important to keep track of these expenses throughout the year, so you can deduct them on your tax return. Be sure to have proper documentation just in case the IRS requests substantiation later. 

Selling Investments 

Knowing when to sell your investments can have a significant impact on your taxes. If you sell an asset for a loss, you can use that loss to offset capital gains from other investments. This is called tax-loss harvesting and can help reduce your tax bill. Tax-loss harvesting could also help reduce your ordinary income tax liability, even if you don’t have any capital gains to offset. To do this, you would sell a stock at a loss and then purchase a similar stock with the proceeds.  

Tax-Advantaged Accounts 

Tax-advantaged accounts are investment accounts that offer tax benefits. These accounts include 401(k)s, IRAs, and 529 college savings plans. Contributions to these accounts are tax-deductible, and the investment interest grows tax-free. When you withdraw the money during retirement or for qualified education expenses, you’ll pay taxes on the withdrawals, but typically at a lower tax rate than during your working years. Investing in tax-advantaged accounts can be an effective way to reduce your tax bill and grow your investments over time. 

In conclusion, understanding taxes is an essential part of investing. By knowing the tax implications of your investments, keeping track of your investment expenses, and taking advantage of tax-advantaged accounts, you can reduce your tax bill and maximize your investment returns. Remember to consult with a tax professional for personalized advice on your specific situation. 

Tax Help for New Investors 

Remember, the most important thing you can do during tax time is ensure that you are reporting all income, whether it is ordinary income, interest earned on a bond, or dividends paid out to you that year. Failing to report income during tax time can put you on a fast path to being audited by the IRS. If you need help with a large tax liability because you were unprepared for the tax implications of investments, a knowledgeable and experienced tax professional can assist. Contact Optima Tax Relief at 800-536-0734 for a free consultation. 

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