Over 2.9 billion records of personal data, including Social Security numbers, were leaked on the dark web, putting taxpayers at risk of tax identity theft. Optima CEO David King and Lead Tax Attorney Philip Hwang explain what tax identity theft is, how it can affect you, and how to resolve it!
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If you’re facing significant tax debt and struggling to make ends meet, the Offer in Compromise (OIC) process may offer a lifeline. This tax negotiation program, offered by the IRS, allows qualifying taxpayers to settle their tax debts for less than the full amount owed. While this can be a valuable option, it’s important to understand that the process is not quick or straightforward. The timeline for an OIC can vary depending on several factors, but in most cases, it takes several months to a year or more to reach a resolution. In this article, we’ll walk you through the Offer in Compromise process, factors affecting its duration, and other essential details about this tax settlement program.
An Offer in Compromise is a form of tax settlement that allows taxpayers to negotiate a reduced amount with the IRS. It is typically offered to those who cannot pay their full tax liability without causing significant financial hardship. The IRS considers a range of factors before accepting an OIC, including income, expenses, assets, and overall ability to pay.
The OIC is one of the more popular options for tax relief, but not everyone qualifies. The IRS approves OICs on a case-by-case basis, and approval rates can be relatively low. This makes understanding the process and requirements crucial if you’re considering applying for an OIC.
The Offer in Compromise process involves several stages, each with its own timeline. Here’s a breakdown of the steps involved.
Before diving into the formal application, it’s important to ensure that you meet the IRS’s basic eligibility criteria. You can use the IRS Offer in Compromise Pre-Qualifier tool to check if you’re eligible based on your financial circumstances. Factors considered include whether you’ve filed all required tax returns, made any necessary estimated tax payments, and are not in the middle of bankruptcy proceedings.
This initial step can take a few days to complete, but it’s crucial to prevent unnecessary delays later in the process.
Once you’re confident you meet the eligibility criteria, you’ll need to file IRS Form 656, Offer in Compromise, along with Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses. These forms require detailed information about your financial situation, including income, assets, and liabilities. You will also need to include a non-refundable application fee and an initial payment (if opting for a lump-sum offer).
Completing the forms can take a few weeks, depending on how quickly you can gather all the necessary documents. Working with a tax professional can speed up this process, but it still requires thorough preparation.
Once your application is submitted, the IRS will begin reviewing your case. The timeline for this stage is highly variable. In some cases, the IRS may provide a decision within 6 to 9 months. However, complex cases can take a year or longer for the IRS to fully evaluate. Factors such as the amount of tax debt, the complexity of your financial situation, and the current workload at the IRS can all affect the timeline.
During this time, the IRS may request additional documentation or clarification on certain aspects of your application. Responding promptly to any IRS inquiries can help move the process along faster. If you fail to respond to IRS requests for information, your offer will be returned, and you’ll lose your right to appeal. On average, this stage takes 6 to 12 months, although it can be longer depending on the specifics of the case.
After reviewing your application, the IRS will either approve, reject, or make a counteroffer. If approved, you’ll need to follow through with the agreed payment plan. If the IRS rejects your offer, you have the option to appeal the decision through the IRS Appeals Office, which can further prolong the process.
A counteroffer occurs when the IRS agrees to settle for less than your full tax debt but believes your original offer is too low. You can accept the counteroffer or negotiate further, but keep in mind that this could add more time to the process. The approval or rejection phase typically takes several weeks to a few months, depending on whether additional negotiations or appeals are necessary.
If your OIC is approved, you’ll either make a lump-sum payment or begin monthly payments under the terms agreed upon. The IRS typically expects you to complete all payments within 24 months, depending on the payment terms. The payment phase itself can take up to two years, depending on your financial arrangement with the IRS.
Several variables can influence the duration of the Offer in Compromise process.
While you can’t control every aspect of the timeline, there are a few things you can do to help speed up the process.
For those who do not qualify for an OIC or are looking for faster relief, other tax relief options may be available.
The Offer in Compromise process is a lengthy but worthwhile endeavor for those who qualify. On average, it takes 6 to 12 months, but complex cases can extend beyond a year. Understanding the steps involved, preparing a complete and accurate application, and promptly responding to IRS requests can help expedite the process. If you’re struggling with tax debt, an OIC could be the solution to achieving long-term financial relief, but patience and preparation are key. Working with a tax professional experienced in OICs can also greatly improve your chances of approval and help ensure you navigate the process as efficiently as possible. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
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Today, Optima Tax Relief Lead Tax Attorney, Phil, discusses 3 things the IRS will never do. These items are crucial to avoid growing tax scams.
The IRS does not use scare tactics like threatening taxpayers with arrest, deportation, or police involvement to collect taxes. Legitimate communications from the IRS involve letters sent by mail, and they give taxpayers due process to address any outstanding tax issues. If someone claims to be from the IRS and makes threats of legal action, it’s likely a scam.
The IRS won’t cold call you asking for sensitive information, such as your Social Security number, bank account details, or passwords. Not only do they already have access to this information, but they will always communicate first through official letters sent via mail. If you receive an unexpected call asking for personal details, it’s a red flag that the caller could be a scammer.
The IRS only accepts payments via traditional methods like checks, debit or credit cards, or direct bank transfers. Any request to pay taxes using gift cards, PayPal, or cryptocurrency is a clear indication of a scam. The IRS does not use these payment methods, and you should avoid engaging with anyone who demands them.
If you believe you’ve been scammed by someone posing as the IRS, take immediate action. Report the incident to the Treasury Inspector General for Tax Administration (TIGTA) through their website or by phone. You should also report the scam to the Federal Trade Commission (FTC) via their website at reportfraud.ftc.gov. If you provided personal or financial information, consider contacting your bank and credit bureaus to protect your accounts. Additionally, you can report IRS or U.S. Treasury-related communications to phishing@irs.gov for investigation.
Tune in next Friday when Phil answers your question, Will hiring Optima Tax Relief affect your credit score?”
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Crowdfunding is the act of funding a project by collecting small donations from a large number of individuals, often via the internet. GoFundMe has become a powerful platform for individuals and organizations to raise funds for various causes. These range from medical expenses and emergency relief to community projects and personal aspirations. However, many users of the platform often wonder about the tax implications of crowdfunding. Do you have to pay taxes on GoFundMe donations? Are GoFundMe donations tax-deductible? This article explores these questions, offering a comprehensive guide on the relationship between GoFundMe and taxes.
Crowdfunding sites, like GoFundMe, provide a way for people to solicit donations from friends, family members, and even strangers who want to support their cause. First, you’ll need to set up a campaign page with a title and description of your cause. You’ll also set a fundraising goal. Once your page is set up, you can share it with others through social media, email, and other channels. People who visit your campaign page can make donations directly through the GoFundMe platform. They do this by using their credit or debit cards, and sometimes third-party payment apps, like PayPal. Once you start receiving donations, you can withdraw the funds from your campaign, less any fees that the site charges.
The big question everyone wants to know is “Are donations received through GoFundMe taxed?” Typically, donations are considered nontaxable gifts in the IRS’s eyes. However, there are a couple of exceptions that can cause the IRS to consider your crowdfunded money taxable income.
If you offer something of value in exchange for a donation, this transaction could instead be viewed as a sale. Since profits from sales are taxed as income, the IRS would view the “donation” as taxable.
In this scenario, because the fund was set up by an employer, it is considered additional income. This basically means it is taxed accordingly.
In this scenario, the fund would be considered taxable income and would be added to the organizer’s gross income.
If you‘re crowdfunding for a business venture, instead of a personal cause, taxability can become very complicated. In general, when a GoFundMe campaign is created to fund a business or profit-generating activity, the money received may be considered taxable income by the IRS. If, for example, a person sets up a GoFundMe campaign to raise money for a business startup, the funds may be subject to income tax as they can be seen as an investment or capital contribution. Consulting a tax professional is your best option if you are attempting to crowdfund for a business venture.
What if you’re on the other side of the screen and you are the one making the donations? One key thing to remember is the IRS does not allow you to deduct crowdfunded contributions during tax time. If you’re donating to a friend, family member, or a cause that supports an individual’s personal needs, you cannot claim a tax deduction for your contribution. That said, most GoFundMe pages do not qualify. Some GoFundMe campaigns are set up to benefit nonprofit organizations or charities. In these cases, donations may be tax-deductible if the organization is a registered 501(c)(3) organization. Before making a donation, it’s crucial to verify whether the recipient organization has tax-exempt status under the IRS rules. GoFundMe offers an option to donate directly to verified charities. However, donors should always ensure they keep records of their contributions to claim any potential tax deduction.
There are other tax obligations to keep in mind if you donate large sums of money. That is the federal gift tax. The gift tax is a federal levy on gifts over a certain value. Gifts can include money, property, art, vehicles, and more. In 2024, the federal gift tax exclusion cap is $18,000. This means you can give a single person up to $18,000 without having to report it to the IRS.
If you exceed the annual limit, you’ll need to file a federal gift tax return via IRS Form 709. However, just because you file this return doesn’t necessarily mean you’ll owe taxes on the gift. You technically won’t owe taxes until you’ve exhausted the lifetime exemption amount, which is $13.61 million in 2024. If you finally exhaust the lifetime limit, you’ll be subject to a gift tax rate from 18% to 40%, depending on how much you gifted.
Both GoFundMe donors and recipients should keep detailed records of their contributions and receipts. Donors will need documentation to claim a tax deduction if they’re donating to a qualified charity. Likewise, recipients should maintain accurate records of the funds they receive. This is particularly true if they’re unsure about the tax treatment of their campaign. The IRS may ask for documentation if it needs to verify whether the funds raised are gifts or taxable income. GoFundMe provides receipts to donors for their contributions. However, it’s still wise to consult with a tax advisor to ensure that any claims are handled properly.
The important thing to keep in mind here is that there are responsibilities on both sides of the aisle, whether you are the organizer of a crowdfunding campaign or a donor. If you are the organizer, always make sure to use the platform responsibly and transparently. Provide accurate information to donors about how their contributions will be used. If you are a donor, stay below the annual gift tax limit as often as possible. When you can’t, or when you finally exhaust the lifetime limit, make all the necessary tax filings and payments. Keeping accurate records, verifying the tax-exempt status of charitable organizations, and consulting with a tax professional are key steps in ensuring that both donors and recipients stay compliant with IRS regulations. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
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As tax season approaches, individuals and businesses alike are often searching for ways to minimize their tax burden. One way some achieve this is by living in a state that does not impose personal income taxes. Currently, nine U.S. states fall into this category, each with its unique approach to taxation. Understanding how these states offset their lack of income tax can provide valuable insights for those considering relocation or financial planning. Here is a summary of which states have no income tax.
Alaska has no state income tax and relies heavily on revenue from its vast oil resources. The state has vast oil reserves, particularly on the North Slope, which it leverages for substantial tax revenue. Alaska imposes severance taxes on oil production, which provides a significant portion of the state’s budget. To share oil wealth with residents, Alaska offers the Permanent Fund Dividend (PFD), an annual payment to eligible residents funded by the state’s oil revenues. Alaska has no statewide sales tax, though some localities impose a sales tax. Property taxes are also relatively low compared to other states, and local governments have some autonomy in setting rates.
Known for its favorable tax climate, Florida does not impose personal income taxes. The state relies on tourism, sales taxes, and other business-related taxes to generate revenue. The state has a 6% statewide sales tax, which is boosted by high tourism activity. Florida’s local governments rely on property taxes for funding. While the state does not have unusually high property taxes, it leans on property tax revenues, especially in areas with high property values. Florida also levies a corporate income tax, which helps balance the revenue lost by not taxing individuals. All of these factors make Florida a popular destination for retirees and business owners alike.
With no state income tax, Nevada benefits from a strong tourism industry, particularly from Las Vegas, Reno, and other gambling centers. These generate billions in revenue through taxes on gaming, entertainment, and tourism-related businesses. Nevada has a high sales tax rate, with a statewide base of 6.85%, and local jurisdictions can add additional rates, making the effective sales tax around 8.38% in some areas. Nevada also imposes the Modified Business Tax on wages paid by employers. This is essentially a 1.17% payroll tax that contributes to the state’s general fund.
While New Hampshire does not tax wages, it imposes a 5% tax on interest and dividends (for incomes exceeding a threshold), although this tax is being phased out and will be fully eliminated by 2027. New Hampshire has the fourth-highest property tax rates in the country. Without a state income tax, local governments fund schools and public services through substantial property taxes. Finally, the state imposes a business profits tax and a business enterprise tax, which taxes businesses based on their profits and compensation paid.
South Dakota has no income tax and maintains low taxes across the board. The state relies on its 4.2% statewide sales tax, along with additional local sales taxes, to generate revenue. Many cities and counties impose their own local sales taxes, boosting overall rates to as high as 6.5% in some areas. Tourism is another major revenue generator for South Dakota, particularly around attractions like Mount Rushmore, Badlands National Park, and the Black Hills. With a small population, South Dakota maintains a lower cost structure for providing public services, which also contributes to the state’s ability to function without income taxes.
As of 2021, Tennessee fully eliminated its tax on interest and dividends, making it a no-income-tax state. The state relies on sales tax and business taxes for revenue generation. To help offset this, Tennessee has one of the highest combined state and local sales tax rates in the country, with a statewide rate of 7%, and local jurisdictions can add up to 2.75%. In some areas, the total sales tax rate can be as high as 9.75%. The state also imposes a franchise tax on a business’s net worth or property, as well as an excise tax on corporate income. These taxes generate revenue from businesses operating in the state. Finally, Tennessee also imposes high sin taxes on alcohol, tobacco, and other goods to further supplement its budget.
Texas is well-known for its lack of state income taxes. It offsets this by having some of the highest property taxes in the country and significant sales tax collections. Texas has a 6.25% base sales tax, and local jurisdictions can add up to 2%, bringing the total rate to 8.25% in many areas. This sales tax applies to most goods and services. Texas also benefits from severance taxes on oil and natural gas production, given the state’s dominance in the energy sector. These taxes provide a significant revenue stream. The state’s large economy, bolstered by industries such as energy, technology, and agriculture, helps to support public services.
Like other states without income tax, Washington relies on other forms of taxation, such as a high sales tax rate of 6.5%, and local governments can add to that, making the combined sales tax rate over 10% in some areas. Washington also levies a unique business and occupation (B&O) tax. This tax is levied on gross receipts from business activities, rather than profits. Property taxes in Washington contribute to state and local budgets, although they are not as high as those in states like Texas and New Hampshire.
With no personal or corporate income tax, Wyoming relies heavily on taxes from natural resource extraction, particularly coal, oil, and natural gas. Severance taxes on these industries provide significant revenue. Wyoming has a 4% state sales tax, with local governments allowed to add an additional amount. The overall sales tax rate in most places remains relatively low compared to other states. Finally, Wyoming’s small population allows the state to maintain lower overall public spending, which in turn helps it operate without a personal income tax.
While these states may not impose income taxes, they often make up for lost revenue with higher property taxes or sales taxes. For example, Texas has one of the highest property tax rates in the country, and Florida, though it lacks an income tax, relies on its high tourism-driven sales tax revenue. States without income taxes tend to attract both individuals and businesses. They offer a compelling environment for entrepreneurs, retirees, and those with significant investment income. While no-income-tax states often appeal to high earners and business owners, other factors like cost of living, property values, and public services should also be considered when evaluating a move. In some cases, higher property taxes or other living expenses might negate some of the savings from not paying state income tax.
For those looking to reduce their tax burden, moving to one of the nine states without an income tax can be an attractive option. However, it’s essential to weigh the overall tax structure—including property, sales, and other taxes—when making financial decisions. These states often make up for the lack of income tax in other ways. Understanding how those taxes apply to your situation is key to successful planning. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
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