Tax Returns

What is the Presidential Election Campaign Fund?

what is the presidential election campaign fund

Every year when you file your taxes, you are asked a question about whether you want to donate $3 to the Presidential Election Campaign. The Presidential Election Campaign Fund (PECF) is a system of public funding for presidential campaigns in the United States. It was established as a result of the Federal Election Campaign Act (FECA) in 1971, which aimed to reform campaign finance laws and reduce the influence of money in politics. Here is what you need to know about the Presidential Election Campaign Fund and what your $3 donation supports. 

The PECF Runs on Voluntary Participation 

The PECF is funded through voluntary contributions made by taxpayers on their federal income tax returns. Taxpayers have the option to allocate $3 of their tax payments (or $6 for married couples filing jointly) to the PECF. This contribution does not increase the taxpayer’s tax liability but is a way to fund presidential campaigns. 

The PECF is a Source of Public Financing for Presidential Candidates 

Eligible presidential candidates can choose to participate in the PECF system. If they do, they can receive public financing for their primary and general election campaigns. This funding is intended to reduce candidates’ dependence on private contributions and limit the influence of wealthy donors. 

Candidates Who Use the PECF Must Agree to Several Conditions 

Candidates who accept public financing through the PECF are subject to spending limits on their campaigns. These limits are designed to ensure a level playing field and prevent excessive spending in presidential elections. Candidates who opt for public financing must adhere to certain restrictions and reporting requirements, including limits on campaign spending and the use of funds. They also need to meet criteria such as demonstrating significant public support by raising a minimum number of private contributions. 

To qualify for matching funds, the candidates must raise over $5,000 in 20 different states. However, this $5,000 must consist of small contributions or $250 or less. They must also forgo private contributions. Because of all the rules surrounding the use of the PECF, many candidates now opt out of accessing the fund. In fact, the last major presidential nominee to accept public funding was John McCain in 2008. As of 2022, the PECF held more than $410 million.  

Donating to the PECF Does Not Affect Your Taxes 

Donating to the (PECF) does not affect your taxes in the sense that it increases your tax liability or reduces your tax refund. Instead, it allows you to allocate a portion of your federal income tax payment to the PECF voluntarily. In addition, it does not disqualify you from donating to presidential campaigns privately. Currently, an individual can contribute up to $3,300 per election and this $3 contribution to the PECF will not count towards that limit. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities. 

If You Need Tax Help, Contact Us Today for a Free Consultation 

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I Lost My W-2. Now What?

i lost my w-2. now what?

Filing your taxes can be challenging, especially if you are missing crucial documents like your W-2 form. A W-2 tax form shows important information about the income you’ve earned from your employer, how much taxes were withheld from your paycheck, benefits provided and other details for the year. You file your federal and state taxes with this form. But what happens if you lose your W-2? If you lose your W-2 form, don’t panic. Here are some options you have if you do not have your W-2 form when filing your taxes. 

Contact Your Employer 

If you lose your W-2, your first reaction should be to contact your employer to request a replacement. You will typically need to contact your Human Resources department to obtain a duplicate. This is also true if you are trying to obtain a W-2 for a previous year or for an employer you no longer work for. Employers are required to keep copies of W-2 forms for four years; however, some may keep them for longer. It’s important to be aware that some employers might charge you a fee for providing a copy of your W-2. You should contact your employer for a copy of your W-2 form if you did not receive one for the year at all. Employers are required by law to distribute W-2s by January 31st of each year. You should note that some employers distribute these forms electronically through email or an employee portal. If you haven’t received one by early February, you might want to contact your employer.  

Contact the IRS 

In some rare cases, your employer may not be able to help you obtain another copy of your W-2. In this case, you can contact the IRS for help. During your phone call, you’ll need to verify your identity by providing your name, address, phone number and Social Security number. You will also need to provide your employer’s information and other employment information, including employment dates, estimate of wages and amount of federal taxes withheld last year. The IRS will reach out to your employer on your behalf and request your W-2 be sent to you. Note that the IRS will contact your employer about the current tax year’s W-2. If you’re looking for a previous tax year’s W-2, you’ll need to request a transcript copy from the IRS. The transcript will include federal tax information your employer reported. That said, it will not include any state or local tax information reported by your employer. Transcripts are available for up to 10 years.  

Contact the Social Security Administration 

Since your employer reports your earnings to the Social Security Administration, you can request copies of your W-2s from them if you lose the original. You can request a copy for any W-2 from the years 1978 to the present, however it may cost you. You can get free copies if you need them for a Social Security-related purpose. There is a $126 fee per request for other purposes including: 

  • Federal or state tax filings 
  • Residency establishment 
  • Private pension entitlement 
  • Worker’s compensation income information 

If you are seeking W-2s from multiple tax years, this option can quickly become expensive. In some cases, it might be necessary to find all the relevant information needed to file both federal and state tax returns.  

Tax Help for Those Who Lost Their W-2 

Remember that just because you lost your W-2, or never received it, you still may need to file your taxes if you meet certain income thresholds. Locating a lost W-2 can be tricky and time-consuming, especially if it’s from a previous tax year or from an employer that you no longer work for. If you need help with your tax debt, tax relief is always an option. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

Contact Us Today for a No-Obligation Free Consultation 

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What Happens If You Don’t File Your Taxes?

what happens if you dont file your taxes

The April 18th tax deadline passed, and you did not file your tax return. Now what? First, don’t panic. Not everyone needs to file a tax return. Typically, if you earn less than the standard deduction associated with your filing status, you do not need to file a return. On the other hand, if you did not file a tax return even though you were required to, you might have an issue. Here’s what happens if you don’t file your taxes. 

You will be charged a Failure to File penalty. 

If you did not file a tax return when you were required to, the IRS will charge you a Failure to File penalty. This penalty is currently 5% of the unpaid taxes for each month or partial month that a tax return is late, up to 25% of your total unpaid tax bill. If you are due to receive a tax refund, then you will not receive a penalty for failing to file. However, not filing may result in losing that refund. Keep in mind, a tax refund can be only claimed within 3 years of its due date.  

You will be charged a Failure to Pay penalty. 

If you owe a tax balance and do not file your taxes, you will be penalized for failing to pay your tax bill. In 2023, the Failure to Pay penalty is 0.5% for each month or partial month your tax balance goes unpaid, up to 25% of your total tax bill. If both a Failure to Pay and a Failure to File penalty are applied in the same month, the Failure to File penalty will be reduced by the amount of the Failure to Pay penalty applied in that month. For example, instead of a 5% Failure to File penalty for the month, the IRS would apply a 4.5% Failure to File penalty and a 0.5% Failure to Pay penalty.  

Your tax bill will accrue interest. 

If you do not file your taxes, the IRS will assess interest on your unpaid taxes, even if you do not receive a Failure to File penalty. Even worse, the IRS begins accruing this interest beginning on the date your taxes are due, which is April 18th in 2023. If you do receive the Failure to File penalty, not only will you incur interest on your unpaid taxes, but on the penalty as well. Underpayment interest rates can change each quarter. The interest rate through June 2023 is 7% per year, the highest it has ever been. This essentially means that having a tax balance is more expensive than ever. 

The IRS may file a return on your behalf. 

In some cases, the IRS will file a substitute tax return on your behalf using tax documents that were sent to them from your employers and financial institutions. What they will not do, however, is try to reduce your tax liability with credits and deductions. If you still take no action, the IRS will continue processing the return and charge you any taxes owed.  

The IRS statute of limitations is delayed. 

Some may think that they can avoid filing a tax return for many years and the IRS will lose its power to enforce after the 10-year statute of limitations ends. However, the statute of limitations does not begin until a tax return is actually filed. This means that the unfiled tax return will essentially follow you until you file it. If you wait too long though, you risk losing out on refunds and tax credits. 

What Should I Do If I Didn’t File My Taxes? 

The simple answer to this question is to file immediately. The tax deadline has passed, and so has the deadline to request a tax extension. However, penalties and interest will be minimized if you file a tax return now. Some taxpayers do not file because they know they cannot afford to pay taxes they owe, but not filing and not paying only escalates the issue at hand. If you need help with your tax debt, tax relief is always an option. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.  

Contact Us Today for a No-Obligation Free Consultation 

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Should I File a Tax Extension?

should i file a tax extension

The tax filing deadline is just around the corner. If you need more time to prepare your tax return, you can file a tax extension. While a tax extension won’t give you more time to pay your taxes, it will allow a few more months to file your tax return without receiving a failure-to-file penalty. Here’s an overview of how tax extensions work and how to file one.  

What is a Tax Extension? 

The IRS allows taxpayers to file for a tax extension, which gives them more time to prepare their tax returns. If approved for a tax extension, the new tax deadline would be October 16, 2023. You can file for a tax extension for any reason and the IRS will approve it as long as you submit Form 4868 by the April 18th tax deadline. While some states accept federal tax extension forms, others have their own requirements for obtaining an extension. Some states like California, Wisconsin, and Alabama offer automatic extensions, which means you don’t have to file a form. Other states require you to request an extension. You can check with your own state tax authority for more information on this. 

Does a Tax Extension Delay My Tax Payments? 

While a tax extension won’t delay the deadline to pay taxes, it will allow a few more months to file your tax return without receiving a failure-to-file penalty. That said, you might be wondering how much tax to pay if you aren’t sure how much you will owe, if any at all. In this case, you’ll need to estimate the amount of tax you will owe and pay that amount by April 18. If you do not, the IRS will begin to charge you interest on the balance owed, plus penalties. The failure-to-pay penalty is 0.5% of the tax owed after April 18, for every month or part of a month the tax remains unpaid, up to 25%.  

To calculate your estimated tax payment, you’ll need to first calculate your taxable income and then subtract tax deductions, or the standard deduction. The amount leftover should be an estimate of your taxable income for the year. Then you can apply your tax rate determined by your tax bracket, which is based on your taxable income and filing status. This should help you find the amount of tax owed for the year. Tax withholding should cover most, if not all, of this amount. If it does not, you can offset this amount by claiming tax credits you are eligible for. The tax remaining should be paid at the April tax deadline. If you overpay, you will receive a tax refund when you file before the October extension deadline. If you underpay, you will owe the balance, plus an underpayment penalty. The IRS advises taxpayers to pay either 90% of the current year’s tax or 100% of last year’s tax, whichever is less. Doing so should help you avoid the underpayment penalty. 

Should I File a Tax Extension? 

If you are certain that you cannot file your tax return by the April 18 deadline this year, then you should at the very least file a tax extension before the tax deadline. This can immediately save you the trouble of dealing with a failure-to-file penalty. The current failure-to-file penalty can be up to 25% of the tax due. This penalty will not be charged if you file an extension, but it will be if you do not file a return by the extension deadline of October 16. Additionally, you should make sure you pay estimated taxes by the April 18 deadline to avoid the failure-to-pay penalty. Filing a tax extension can be very helpful if you are still awaiting important tax documents, need some documents corrected, or just simply do not have time to file before the deadline. If you are wondering if you should file an extension because you owe taxes and you are unable to pay, filing an extension may not be a good idea. Instead, you might consider getting a payment plan or installment agreement set up with the IRS. We know dealing with the IRS on your own can be intimidating. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt. If you need tax help, we can assist.  

Contact Us Today 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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How to File Taxes When You Have Dependents

dependents and your taxes

Claiming a dependent on your tax return can help save a lot of money each year. Some taxpayers may be unsure about who qualifies as a dependent, especially since a living situation can change year to year. Here’s all you need to know about dependents and your taxes. 

What is a dependent? 

In the tax world, a dependent is someone who can be claimed on your tax return because they rely on your financial support. While you cannot claim yourself or your spouse as a dependent, you can claim your children, relatives, or domestic partners as dependents, as long as they meet the requirements for a qualifying child test and qualifying relative test. All dependents must be a U.S. citizen or resident. They also cannot be claimed on another return or file a joint return. 

What is the qualifying child test? 

A qualifying child must one of the following relationships to you: 

  • Son, daughter, or stepchild 
  • Eligible foster child or adopted child 
  • Brother, sister, half-brother, or half-sister 
  • Stepbrother or stepsister 
  • An offspring of any of the above 

They must be under age 19, or age 24 if they attend school full time. Permanently and totally disabled children can be claimed at any age. The child must live with you for most of the year and you must provide more than half of their financial support. 

What is the qualifying relative test? 

You might also be able to claim qualifying relatives in your life if they lived with you all year long. You can claim someone who has not lived with you all year if they are: 

  • Your child, stepchild, adopted child, foster child, or descendant of any of these 
  • Your brother, sister, half-brother, half-sister, stepbrother, or stepsister 
  • Your parent, stepparent, or grandparent 
  • Your niece or nephew of your sibling or half-sibling 
  • Your aunt or uncle 
  • Your immediate in-laws, including son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law 

They cannot have made more than $4,400 in 2022 and you must have provided more than half of their total support.  

What deductions and credits are available for dependents? 

  • Child Tax Credit: The CTC is $2,000 per qualifying child under age 17 in 2022 
  • Earned Income Tax Credit: While you don’t need children to claim the EITC, the credit does increase if you have children. For tax year 2022, you can claim a max credit of $3,733 for one child, $6,164 for two children, and $6,935 for three or more children.  
  • Child and Dependent Care Credit: This credit is meant to help pay for daycare while you work, go to school, or if your parent is unable to take care of themself. This credit is worth 20-50% of up to $6,000 of expenses in 2022. 
  • Adoption Credit: In 2022, you may claim a nonrefundable credit up to $14,890 of expenses that pay for the adoption of a child who is not your stepchild.  
  • Higher Education Credits: The American Opportunity Tax Credit and Lifetime Learning Credit can be claimed for yourself, your spouse, or dependents who are enrolled in college, vocational school, or job training. You can get a maximum annual credit of $2,500 per eligible student with the American Opportunity Tax Credit. The Lifetime Learning Credit allows a credit of 20% of the first $10,000 in qualified education expenses, and a maximum of $2,000 per tax return. 
  • Credit for Other Dependents: This nonrefundable credit allows a maximum credit of $500 for each dependent. 

Tax Relief for Those with Dependents 

Knowing the rules surrounding dependents and taxes is very important. Claiming someone on your tax return when they are not eligible can result in the IRS rejecting your return or an IRS audit. On the other hand, knowing these rules can help save money if you suddenly become financially responsible for another person, like a sick parent or a foster child. Optima Tax Relief can help with your tax debt situation. Contact us at 800-536-0734 for a free consultation.

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Tax Tips for 2023

tax tips for 2023

The 2023 tax filing season will be different than the past few years and getting prepared early can help make the process much easier. Some of the changes expected in 2023 could affect tax bills, which in turn could affect tax refunds. Here are some tax tips for 2023.  

Wait for Form 1099-K Before Filing 

Perhaps the most notable change for tax year 2022 is the reporting rule change for Form 1099-K. The form reports all funds received through third-party payment networks like Venmo and PayPal. With the rise of small businesses and gig work, a large number of taxpayers are expected to receive this form, especially since the reporting threshold has changed. Prior to the American Rescue Plan Act of 2021, Form 1099-K was not sent out unless a taxpayer collected more than 200 transactions valued at an aggregate above $20,000. Now, that threshold has dramatically decreased to just $600. 1099-Ks must be sent out by January 31, 2023, which would make filing at the end of February or early March ideal for taxpayers. The IRS is urging everyone to wait until they receive these forms before filing. Failing to include this income can have serious, negative consequences. 

Consider Changes to Tax Credits 

Another major change for tax year 2022 is the end of expanded tax credits that were introduced during the COVID-19 pandemic. Some of these credits, including the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit will return to pre-COVID levels. For example, the expanded CTC which previously granted $3,600 per dependent in 2021 will be reduced to $2,000 for the 2022 tax year. In 2021, eligible taxpayers without children received about $1,500 for the EITC but that amount will drop to about $500 for 2022. The Child and Dependent Care Credit is returning to a maximum of $2,100, down from 2021’s maximum of $8,000. These changes can drastically affect tax refunds so taxpayers should plan accordingly. 

Check Eligibility for a Clean Vehicle Credit 

The Inflation Reduction Act of 2022 amended the Qualified Plug-in Electric Drive Motor Vehicle Credit, also known as the Clean Vehicle Credit. If you purchased a new electric vehicle after August 16, 2022, you may be eligible for a tax credit. To qualify, your purchased vehicle must have finished assembly in North America. You can check the Department of Energy’s list of approved vehicles. If you purchased an electric vehicle before August 16, 2022 but did not take possession of the vehicle until on or after August 16, 2022, you may still claim the credit. In this scenario, the final assembly of your vehicle does not need to be in North America. The credit is worth up to $7,500.  

Tax Relief for Taxpayers 

The changes for the 2022 tax year can leave many taxpayers with surprise tax bills, especially if they have not prepared for these changes throughout the year. Still, steps can and should be taken to prepare for 2023 tax filing season. These new changes can result in a more stressful tax season. Working with a qualified and dedicated tax professional can help ease the process. If you need tax help, call us at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals. 

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How Inflation Will Affect Your Taxes in 2023

how inflation will affect your taxes in 2023

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

What is Inflation? 

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

Does Inflation Always Affect Taxes? 

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

How is Inflation Affecting Income Tax Brackets in 2023? 

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

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

How is Inflation Affecting the Standard Deduction in 2023? 

The standard deduction will also increase.  

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

Tips for Taxpayers 

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

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Expenses You Didn’t Know Were Tax Deductible

 

Expenses you didn't know were tax deductible

 

Tax deductions can help lower your tax bill and even increase your tax refund on your return. There are several tax deductions you might not know are deductible. 

Sales Taxes 

In some tax years and some states, it might make sense to itemize your deductions rather than take the standard deduction. For example, if you made a large purchase like a vehicle or engagement ring, you could deduct sales taxes off your federal return. Or, if you live in a state that does not impose a state income tax, you could write off the sales tax you paid that year.  

Medical Expenses 

You can deduct medical expenses that exceed 7.5% of your AGI if you itemize your deductions. You may even be able to deduct 100% of your health insurance premiums if you are self-employed. To qualify, you must have no other health insurance coverage and you may only deduct the amount of business income earned that year.  

Home Office Deduction 

Any space in your home used exclusively for conducting business can be deducted at $5 per square foot, up to 300 square feet.  

Charitable Gifts 

Cash donations to approved charities can be deducted for up to 50% of your AGI but must be substantiated with bank statements or receipts. Non-cash donations can be deducted at fair market value. Even out-of-pocket expenses for charitable work can be deducted. Be sure to confirm that the charity has a tax-exempt status with the IRS before donating if you plan to claim a deduction. A few examples of approved organizations include a trust, foundation, church, synagogue, or other religious organizations, and veterans’ organizations.

Childcare & Dependent Care 

If you pay a babysitter to watch your children while you work, look for work or attend school full-time, you may be able to claim the Child Care Credit. This can also apply to care for an elderly parent who lives with and is a dependent of the adult child.  

Student Loan Interest 

If you are required to repay student loan debt, you can deduct the interest paid, up to $2,500, on your federal return. In addition, if your parents paid your student loan debt, the IRS views that money as a gift to you used to pay the loan. In this case, you can deduct up to $2,500 of the student loan interest they paid, as long as they do not claim you as a dependent on their tax return. 

College Expenses  

The number of deductions related to college is quite large. You can deduct up to $4,000 of eligible tuition. The Lifetime Learning Credit is worth up to $2,000 per year and can be claimed for education expenses to help gain or improve skills. The American Opportunity Tax Credit allows a maximum annual credit of $2,500 for qualified education expenses paid in the first four years of higher education. Some states even allow you to deduct contributions made to your 529 College Savings Plan.  

Tax Relief for Taxpayers 

Every tax situation is different. There are countless deductions and credits taxpayers can claim on their federal or state returns. The best thing to do is speak with a tax preparer about which deductions and credits you are eligible for and what substantiation might be needed to claim them. Remember claiming deductions without proper substantiation can lead to audits and delays in processing your return. If you need tax help, give Optima a call at 800-536-0734 for a free consultation with one of our knowledgeable agents. 

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