Generally speaking, most income sources are taxable. However, there are some income types that are exempt from taxes. CEO David King and Lead Tax Attorney Philip Hwang discuss different kinds of income that may or may not get taxed and provide insight on how you can find out if your income is taxable or not. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
Filing taxes after a divorce can be complicated, especially when sorting out the tax liability that the parties are legally responsible for. CEO David King and Lead Tax Attorney Philip Hwang discuss how married couples should file their taxes, as well as how they can end up with a tax balance after a divorce – and what they can do about it. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
Whether you’re a frequent or seasonal giver, you should know how giving affects taxes. Giving can affect taxes in several ways, primarily through deductions and credits. Here are some frequently asked questions on how to maximize tax benefits of gifts.
What is a tax-deductible donation?
The IRS considers a tax-deductible donation to be any contribution of money or goods to a qualified tax-exempt organization. In order to deduct these contributions during tax season, you must itemize your deductions by filing Schedule A.
How much can I deduct?
Typically, you can deduct up to 60% of your adjusted gross income (AGI) if you are donating to a charitable organization. If you are donating to another type of organization like a private foundation or fraternal society, the limit is much smaller. These can range from 20% to 50%. If you exceed the limit for the year, you can carry over the excess contributions over the next five tax years.
Some contributions may lead to only a partial credit. For particular donations, a taxpayer will only receive a portion of a credit. For example, if you purchase a shirt that is a part of a charitable cause, the entire price of the shirt is not deductible. The fair market value must be determined and subtracted from the cost of your purchase in order to determine the amount of your donation.
What are qualified organizations?
A qualified organization is one that you make a charitable donation to that can be deducted during tax time. Some of these organizations include religious organizations, governments, nonprofit schools and hospitals, war veterans’ organizations, and others. Some that do not qualify for tax-deductible donations are social or sports clubs, most foreign organizations, lobbyist groups, homeowners’ associations, individuals, political groups and more. More common forms of donations like blood, time and services, and raffle tickets may not be deducted. However, you may deduct out-of-pocket expenses that related to volunteering if they were not reimbursed. These can include mileage, gas, and supplies.
Tax Relief for Gift Givers
Before you give, it’s important to learn how to maximize tax benefits of gifts. Whenever you donate, it’s important to keep records, no matter how big or small the contribution amount. Bank statements or charity receipts will suffice for monetary donations. If you make donations automatically through paycheck deductions, the contribution amounts will show on your W-2 or pay stubs. If you donate goods, you are allowed to deduct the fair market value of the items. In other words, you may deduct the price a willing buyer would pay for them. The rules surrounding tax-deductible donations can be tricky. However, Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
Certain business owners, including sole proprietors, businesses and rental property owners, can deduct expenses related to maintenance and repairs. The deductions must apply to their property and equipment or vehicles. However, once the repair becomes classified as a betterment, restoration, or adaptation to the property or asset, other rules will apply. Here’s a quick overview of how to expense business repairs.
Routine Repairs & Maintenance
According to the IRS, routine maintenance to a property or business helps increase the value and prolongs its usefulness. Because routine maintenance keeps the property or asset in normal working order, these expenses can be deducted in full during tax time. For example, repairing a leak in the roof of your rental property would be considered a fully deductible repair, while renovating the kitchen would be considered a capital improvement, which has other tax implications.
Capitalization
Capitalization, on the other hand, is considered to be a betterment, restoration, or adaptation to the property. In this case, you must capitalize and depreciate the expense over several years. Betterments are repairs that improve a property or business asset. This can include expanding a property or fixing a defect that existed before you purchased the property. Restorations are repairs that restore an asset to its normal condition, like replacing a roof. Adaptations are repairs that change how the property or asset is used. For example, converting a garage into additional office space would be considered an adaptation and would need to be capitalized. Generally, when depreciating these expenses, it is done over a 27.5-year period.
Home Offices
For smaller business owners or remote workers, there are home office deductions you can take advantage of during tax time. The IRS divides home office expenses into a couple categories: direct and indirect expenses. Direct expenses benefit your home office only while indirect expenses benefit both your office and your home as a whole. The rules of repairs and improvements also apply to home office expenses. Repairs are entirely deductible while improvements must be depreciated. You can determine if the expense needs to be depreciated if it fits the standards of being a betterment, restoration, or adaptation.
Tax Relief for Business Owners
The rules for expensing business repairs and improvements can become tricky. The most basic rule to remember is to deduct the expense when it is a repair that doesn’t qualify as an improvement to your property or business asset. You must capitalize and depreciate expenses that are considered a betterment, restoration or adaptation to your property or business asset. There are some exceptions to these guidelines, referred to as “safe harbors.” You should always check with a knowledgeable tax professional to ensure you remain compliant when capitalizing and depreciating expenses. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
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.
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.
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.
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.