As the year comes to an end, it’s an opportune time to take stock of your financial situation and implement strategies to optimize your tax position. End-of-year tax planning is a crucial aspect of managing your finances. It allows you to make informed decisions that can positively impact your tax liability. In this article, we’ll explore various tips to help you navigate the complexities of the tax code and make the most of available opportunities.
Review Your IRS Account
Every taxpayer should have an online account with the IRS. In your account you can view any tax balances, payment history or payment plans. You can access tax records, manage communication preferences from the IRS, and view your Power of Attorney authorizations. You can also make payments or request a payment plan with the IRS.
If you do not have an IRS online account, you can create one on their website. Alternatively, if you want to access your tax information without using your online account, you can request an Account Transcript by mail. Knowing where you stand with the IRS is always crucial. Doing this before tax season is key as it can help prepare you for a tax bill or refund.
Organize Your Records
Getting organized can help facilitate a smooth filing season. It’s important to make sure you have all relevant tax forms before filing. This can help avoid errors that can lead to rejections or even IRS audits. You should have a W-2 form from each of your employers. You may also receive 1099 forms if you earn income from other sources. For example, Form 1099-INT will be sent to all taxpayers who were paid interest on financial accounts. Form 1099-G will be sent to anyone who received unemployment benefits. Form 1099-DIV will be sent to all taxpayers who received at least $10 in dividends and distributions.
You’ll also want to collect any IRS notices you receive throughout the year. Having these documents on hand when filing your tax return will allow a much smoother filing process. Don’t be tempted to file before receiving all of these key documents. Doing so can lead to underreported income, which is a big red flag for the IRS.
Check Your Individual Tax ID Number (ITIN)
An ITIN is a tax processing number that the IRS issues to individuals who are required to have a U.S. taxpayer ID number but don’t qualify for a Social Security number. Typically, an ITIN is valid unless you did not use it at least once during the previous three-year period. After this, the ITIN would expire. In other words, if your ITIN wasn’t used on a federal tax return at least once for tax years 2020, 2021, and 2022, it will expire on December 31, 2023. While the IRS will still accept a tax return with an expiring or expired ITIN, it could result in delays.
Update Your Withholding
Having the wrong amount withheld from your paychecks can result in a tax bill or a larger refund. If you had a tax bill last year, it could be that you did not withhold enough from your paychecks. While a larger refund sounds positive, it could mean that you withheld too much during the year. This means you could’ve had more money in each paycheck during the year. Some people even like to compare this to an interest-free loan to the government.
If you had a major life change, it may be a good time to adjust your withholding. This includes a marriage, divorce, the birth of a child, or getting a second job. The IRS website has a free Tax Withholding Estimator tool that can help you calculate the correct amount of tax to withhold from each paycheck. Adjusting your withholding is as simple as submitting a new Form W-4 with your employer.
In some cases, you may not have an employer to withhold tax for you. This is common for self-employed individuals or those who have investment income, pensions, Social Security benefits and other sources of income. If this applies to you, it’s important to make estimated tax payments to avoid a tax bill and penalties. The last quarterly tax payment for 2023 is due on January 16, 2024.
Leverage Tax-Advantaged Accounts
Leveraging tax-advantaged accounts at the end of the year is a financial strategy that can help optimize your tax situation. For example, you can contribute the maximum allowable amount to your employer-sponsored retirement plans, such as a 401(k) or 403(b). These contributions are generally tax-deductible, reducing your taxable income. In 2023, you can contribute up to $22,500 to your 401(k), 403(b), most 457 plans, and federal government’s Thrift Savings Plans. If you are age 50 and over, you can contribute an additional $7,500 in 2023.
If you have a heath savings account (HSA), you can also make more contributions to this account up until the April tax deadline. HSA contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are tax-free as well. You can also make additional contributions to your flexible spending account (FSA) if you haven’t reached the maximum limit of $3,050 in 2023. These contributions are made with pre-tax dollars, reducing your taxable income. Keep in mind, however, that contributions made to your FSA do not carry over to the next year. On other words, they have a “use it or lose it” policy.
Tax Relief for Taxpayers in 2023
Following these steps can help you prepare for the 2024 filing season.
By strategically implementing these tax planning strategies, you can optimize your financial position and start the upcoming year on a sound financial footing. Consult with a tax professional or financial advisor to tailor these end of year tax planning strategies to your specific situation. More importantly, this will ensure compliance with the latest tax regulations. Taking the time to plan now can mean reduced taxes and improved overall financial well-being. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Social Security benefits are a crucial financial lifeline for many retirees, providing a steady stream of income to help maintain a comfortable lifestyle during their golden years. Many taxpayers are often shocked to learn that their Social Security benefits can be taxed by the federal government. Taxes on Social Security benefits are dependent on a variety of factors, making it essential for retirees to understand the rules and implications of Social Security taxation. Here’s a brief overview of how Social Security income is taxed, both at the federal and state level.
Will My Social Security Income Be Taxed?
The taxation of Social Security benefits is determined by the recipient’s total income, which includes not only the Social Security payments but also other sources of income. According to the IRS, the easiest way to determine if your Social Security benefits are taxable is to add half of your annual Social Security income and add it to your adjusted gross income (AGI), plus all tax-exempt interest, to find your total combined income. If your combined income is above the IRS base amount, you’ll be required to pay some tax. The 2024 combined income limit for single filers, heads of household, or qualifying widows with dependent children is $25,000. The limit for joint filers is $32,000. Married couples who file separately will likely need to pay taxes on Social Security income.
How Much Will I Be Taxed?
In 2024, 50% of a taxpayer’s benefits can be taxed if they meet any of the following criteria:
Filing single, head of household, or qualifying widow with combinedincome between $25,000 and $34,000
Married filing separately and lived separately from their spouse for the entire 2023 year, and earned between $25,000 and $34,000
Married filing jointly with income between $32,000 and $44,000
If the taxpayer fits any one of these criteria, then 50% of their benefits will be subject to tax. However, the actual amount will be the lesser of either:
Half of their annual Social Security benefits, or
Half the difference between their combined income and the IRS base amount
For example, let’s say a single filer had an annual Social Security income of $20,000 and a combined income of $27,000. Half of their annual Social Security income would be $10,000. Half the difference between their combined income and the IRS base amount of $25,000 would be $1,000.
($27,000 – $25,000) / 2 = $1,000
The taxes on Social Securitybenefits would be the lesser of the two amounts, which is $1,000.
If the taxpayer earns more than the IRS base amount, the tax rate is higher. In 2024, 85% of a taxpayer’s benefits can be taxable if they are:
Filing single, head of household, or qualifying widow and earn more than $34,000
Married filing jointly and earn more than $44,000
Married filing separately, and lived separately from their spouse for the entire 2023 year, and earned more than $34,000
Married filing separately and lived with their spouse at any time during 2023
Does My State Tax My Social Security Benefits?
In addition to federal taxes, residents of the following 11 states may also have to pay state taxes:
Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont: Tax according to federal rules but offer deductions or exemptions based on age or income
Missouri and Nebraska tax according to federal rules but will cease taxation in 2024
Tax Planning Strategies
To minimize the tax impact on Social Security benefits, retirees can employ various tax planning strategies:
Diversify Income Source: Consider diversifying your income sources, such as drawing from Roth IRAs, which provide tax-free withdrawals in retirement.
Manage Withdrawals: Strategically manage withdrawals from retirement accounts to control your total income and stay below the taxation thresholds.
Delay Social Security: Delaying the commencement of Social Security benefits can increase the overall amount received and potentially reduce the percentage subject to taxation.
Tax Relief for Social Security Recipients
Being taxed on Social Security benefits can be unexpected. Generally, the benefits won’t be taxed if it’s a taxpayer’s only source of income, but with limited income during retirement age, it’s important to be prepared. Taxes on these benefits can be paid through quarterly estimated tax payments. You can use IRS Publication 915 for more information on how to calculate your Social Security taxes. Federal tax can even be withheld from these benefits. In any case, all Social Security recipients should ensure that they remain compliant and report their Social Security earnings during tax time. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Changing your legal name is a significant life event that can have various implications, including those related to taxes. While the process of changing your name involves legal and administrative steps, it’s essential to understand how this transformation can affect your tax obligations. In this article, we’ll explore the key aspects of how a legal name change can impact your taxes.
Update Social Security Records
One of the first steps after changing your legal name is to update your Social Security records. This is crucial for ensuring accurate tax reporting. Your Social Security number (SSN) is a unique identifier linked to your tax filings. Any discrepancies can lead to complications with the IRS. Notify the Social Security Administration (SSA) promptly to avoid any issues with your tax returns. Since the IRS matches the name and SSN listed on your tax return with SSA records, you will not need to take any additional steps to notify the IRS of your name change. However, you should expect a minimum of 10 days for processing before your SSA records are updated.
Impact on Filing Status
A name change might also affect your filing status. For example, if you changed your last name due to marriage, it’s essential to update your name with the SSA. This ensures that your tax returns accurately reflect your marital status and any associated tax benefits or obligations. On the flip side, getting divorced may also require a name change with the SSA. This could also result in changing your tax filing status.
Review and Update Withholding Information
If you’re employed, don’t forget to update your name with your employer and review your withholding information. Your employer uses your name and SSN to report your income to the IRS. Ensure that your W-4 form, which determines the amount of federal income tax withheld from your paycheck, reflects your new name to avoid any discrepancies in tax reporting. This will also ensure that your W2 has the correct legal name.
Tax Deductions and Credits
A legal name change might impact your eligibility for certain tax deductions and credits. For instance, if you changed your name due to marriage, you may become eligible for new deductions or credits available to married couples. On the other hand, if you changed your name due to divorce or other reasons, it’s crucial to reassess your eligibility for any deductions or credits you previously claimed. Additionally, you’ll need to learn about the taxability of things like alimony or child support payments.
Retirement Accounts and Investments
If you have retirement accounts or investments, make sure to update your name with the respective financial institutions. This ensures seamless reporting of income, contributions, and withdrawals, preventing any tax-related complications. Review beneficiary designations on retirement accounts to ensure they align with your new legal name.
Legal Name Changes of Dependents
These rules do not only apply to name changes for yourself. They should also apply to scenarios in which your dependent changes their name legally. If the dependent is a minor, you can notify the SSA of their name change on their behalf. If the dependent is an adopted minor, you can apply for a temporary Adoption Taxpayer Identification Number (ATIN) with the IRS. You can do this by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S Adoptions. If the adopted minor is not a U.S. citizen, you should use Form W-7, Application for IRS Individual Taxpayer Identification Number.
Tax Help for Those with Legal Name Changes
A legal name change is more than just a personal choice. It has implications for various aspects of your life, including your taxes. To navigate these changes smoothly, it’s crucial to proactively update your information with the Social Security Administration and other relevant institutions. By staying organized and informed, you can ensure that your tax filings accurately reflect your new legal identity, avoiding potential issues with the IRS and ensuring a smooth tax season. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
The tax firm was recognized for its embodiment of trust and ethics in the marketplace.
Optima Tax Relief proudly announces its distinguished recognition as the sole Category 4 recipient of the Better Business Bureau (BBB) International Torch Awards for Ethics, underscoring the company’s unwavering commitment to ethical business practices. This accolade is a testament to the company’s dedication to excellence, integrity, and transparency in the tax resolution industry.
The BBB International Torch Awards for Ethics is a prestigious honor bestowed upon businesses that exemplify the highest standards of ethics and integrity. The award is divided into four categories with a single recipient for each: Category 1 (1-10 employees), Category 2 (11-99 employees), Category 3 (100-499 employees), and Category 4 (500+ employees). Optima was awarded the International Torch Award amongst 1,000 BBB regional winners from Canada, Mexico, and the U.S. that were automatically entered into the competition.
Conferred each year since 1996, the International Torch Awards for Ethics recognize companies whose leadership centers on four C’s: evaluating the Character of the organization’s leadership, fostering an authentic Culture, maintaining a transparent relationship with Customers, and assessing the impact the organization is making in the local Community. Optima Tax Relief’s commitment to maintaining these principles has set the company apart and positioned it as a leader in the industry.
This international honor comes after Optima Tax Relief’s BBB Torch Award for Ethics in 2021 and 2017. David King, CEO of Optima Tax Relief, expressed his gratitude for the award, stating, “Receiving the BBB International Torch Awards for Ethics is a significant achievement and a reflection of the values that guide Optima. Our hope has always been to set the example of what a tax “relief” company should be, and this award assures us we are on the right track.”
Christine Bui, Chief Customer Officer of Optima Tax Relief, echoed King’s sentiments, stating, “Ethics and compliance are at the core of our company culture. We believe in doing what is right for our clients and maintaining the trust they place in us. Receiving the BBB International Torch Awards for Ethics is a tremendous honor and reinforces our commitment to ethical business practices.”
The virtual award ceremony took place on November 16, 2023, at the BBB’s inaugural Trust Summit, where Optima Tax Relief was celebrated for their commitment to ethical excellence.
As technology continues to reshape the financial landscape, investment apps have become increasingly popular tools for individuals seeking to grow their wealth. These apps provide a user-friendly interface for managing investments, offering convenience and accessibility. However, as with any financial endeavor, it’s crucial to understand the tax implications associated with using investment apps. In this article, we will explore how these apps can affect your taxes and what considerations you should keep in mind.
What Are Investment Apps?
Investment apps are mobile applications that facilitate and streamline the process of investing. These apps offer user-friendly interfaces and access to a range of investment options. They allow you to manage portfolios, buy and sell securities, and monitor market trends from the convenience of your smartphones or tablets. Some common types of investment apps are:
Robo-Advisors: These automated investment platforms use algorithms to provide financial advice and manage investment portfolios of ETFs (Exchange-Traded Funds). Examples of robo-advisor apps include Betterment and Wealthfront.
Stock Trading Apps: These apps enable users to buy and sell individual stocks, often with low or zero commission fees. Examples of stock trading apps are Robinhood, E*TRADE, and TD Ameritrade.
Cryptocurrency Apps: These apps help buy, sell, and manage cryptocurrencies. Examples include Coinbase, Binance, and Kraken.
Micro-Investing Apps: These apps allow users to invest small amounts of money, often by rounding up purchases or contributing spare change to investments. Examples of these apps include Acorns, Stash, and Qapital.
Retirement Savings Apps: These apps help users save for retirement by offering Individual Retirement Accounts (IRAs) or similar retirement investment options. Examples include Wealthsimple, SoFi Invest, and Fidelity.
Capital Gains and Losses
One of the primary ways investment apps influence your tax liability is through capital gains and losses. When you sell an investment for a profit, it results in a capital gain, and conversely, if you sell at a loss, you incur a capital loss. Investment apps provide a platform for buying and selling securities, and the transactions made within these apps have tax implications.
Capital gains are generally categorized into two types: short-term and long-term. The holding period for an investment determines its classification. Short-term gains, from assets held for one year or less, are typically taxed at a higher rate than long-term gains, which are from assets held for more than one year. Understanding these distinctions is crucial for accurate tax reporting.
Dividend Income
Many investment apps offer users the ability to invest in dividend-paying stocks or funds. Dividends received from investments are considered taxable income. The tax treatment of dividends depends on whether they are classified as qualified or non-qualified. Qualified dividends are generally taxed at a lower rate, aligning with long-term capital gains rates, while non-qualified dividends are taxed as ordinary income. Investors need to keep track of their dividend income generated through investment apps and report it accurately when filing their tax returns.
Tax Efficiency Tools
Some investment apps offer tax-efficient features designed to minimize tax liabilities for investors. For example, tax-loss harvesting is a strategy certain apps use to offset capital gains with capital losses, helping investors reduce their overall tax burden. Additionally, automated tax documentation and reporting features simplify the tax filing process for users. While these tools can be advantageous, investors should thoroughly understand how they operate and consult with tax professionals if needed to ensure compliance with tax regulations.
Reporting and Documentation
Accurate and timely reporting is crucial when it comes to taxes. Investment apps typically provide users with annual tax documents, such as Forms 1099, summarizing their investment activities throughout the year. These documents include information on capital gains, dividends, and other relevant transactions.
Investors must carefully review these documents and incorporate the information into their tax filings. Failure to accurately report investment income and transactions can lead to penalties and complications with tax authorities.
State and Local Tax Considerations
In addition to federal taxes, investors using investment apps must be aware of state and local tax implications. Tax laws vary across jurisdictions, and some states may impose additional taxes on investment income. It’s essential to research and understand the tax regulations applicable to your specific location.
Tax Help for Investors
Investment apps offer a convenient and accessible way for individuals to participate in the financial markets. However, users must be aware of the tax implications associated with their investment activities. Proper record-keeping, understanding the tax treatment of capital gains and dividends, utilizing tax-efficient tools, and staying informed about state and local tax regulations are essential steps to navigate the complex intersection of investment apps and taxes. Seeking advice from tax professionals can enhance your understanding and help you optimize your tax strategy. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
