Trading Stocks and What it Means for Your Taxes

stocks taxes

While stocks may seem like an effortless path toward financial stability, they do affect your taxes. Understanding what’s expected when you file can keep you out of trouble with the IRS.

Brokerage Accounts and Taxes

When you sell the stock shares in a brokerage account, you may be responsible for capital gains taxes. Capital gains tax can affect you in two ways, depending on your circumstance:

Short-term Capital Gains Tax

This tax applies to profits from sold assets that were held for a year or less. The rates for short-term capital gains tax match your income tax bracket.

Long-term Capital Gains Tax

The long-term variant of this tax applies to sold assets held for longer than a year. The rates are 0%, 15%, or 20% depending on your filing status and taxable income. It’s important to note that long-term capital gains tax rates are usually lower, so it may work in your best interest to hold that stock for a little longer.

How Dividends Affect Taxes

There are two types of dividends and they’re usually considered taxable income, qualified and nonqualified. Qualified dividend rates range from 0%, 15%, or 20% (the same rule for long-term capital gains tax). Nonqualified dividends are ordinary dividends that have the same tax rate as your income bracket.

Taxpayers in higher brackets typically pay more taxes on dividends. Overall, dividend investments can drastically alter your tax bill.

How to Reduce Taxes on Stocks

Holding onto shares long enough for them to become qualified dividends can result in reducing taxes.

If possible, you should hold onto your assets for a little longer than a year. Long-term capital gains tax rates are often lower when you sell your stocks. Making a profit from stocks is all about strategy and figuring out what falls in line with your financial goals.

Tax Debt Assistance

If you find yourself in debt with the IRS due to stock investments, you may qualify for relief. Give us a call for a free consultation at (800) 536-0734.

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May 16 Filing Deadline for Tax-Exempt Organizations

tax-exempt organizations

The IRS shared a reminder for tax-exempt organizations that have a filing deadline of May 16, 2022. Filing is mandatory, so if you need more time, you should request an extension as soon as possible.

Which Form should tax-exempt organizations file?

Tax-exempt organizations would file one of four tax forms for a return:

  1. Form 990-series annual information returns (Forms 990, 990-EZ, 990-PF)
  2. Form 990-N, Electronic Notice for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ
  3. Form 990-T, Exempt Organization Business Income Tax Return (other than certain trusts)
  4. Form 4720 Return of Certain Excise axes Under Chapters 41 and 42 of the Internal Revenue Code

Electronic filing for tax-exempt organizations

You should e-file to save time on processing and to avoid inevitable delays that occur when filing by paper. E-filing also reports your compliance with the IRS.

However, for tax-exempt organizations filing a Form 990, 990-EZ, 990-PF or 990-T for 2021, it’s mandatory to file electronically.

For organizations filing Form 990-N, the IRS website states, “organizations eligible to submit Form 990-N must do so electronically and can submit it through Form 990-N (e-Postcard) on IRS.gov.”

Requesting an extension for tax-exempt organizations

Should you need additional time to file, you can request a 6 month extension by filing  Form 8868, Application for Extension of Time To File an Exempt Organization Return. While this form allows you to file later, it does not push payment due dates if you owe the IRS.

Owing the IRS as a tax-exempt organization

Optima Tax Relief takes on clients with both individual and business tax debt. Give us a call for a free consultation today at (800) 536-0734.

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Optima Newsletter – April: IRS sends large tax bills for 2021 Unemployment Benefits

News

IRS Sends Large Tax Bills for 2021 Unemployment Benefits While some were able to return to work in 2021, approximately 25 million people received unemployment benefits and didn’t withhold taxes. The IRS is now looking to collect back taxes for the $325 billion in total benefits and mailed millions of large tax bills this season.

Does Inflation Affect Your Tax Debt? The state of the economy can be detrimental to your IRS or state tax liability. What exactly happens to your tax debt during inflationary periods? CEO David King and Lead Tax Attorney Phillip Hwang discuss the difference in interest rates, deadlines, and what to do if you find yourself in this circumstance.

IRS Backlog to Clear Up by End of 2022 Many American taxpayers have been waiting for refunds that are a year or more behind. In recent weeks, Commissioner Charles Rettig stated that the IRS backlog is due to clear up by the end of 2022.

Gas Stimulus: What You Need to Know In California, the average cost for regular gas is now up to $5.82, or $6.21 for premium. Recently, the government has decided to step in on federal and state levels to alleviate costs and provide support to the public. This has led to the creation of a new gas stimulus, which would support households that own vehicles.

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Optima Provides Free Tax Assistance to Local Community Through Partnership with VITA Program

optima vita

Optima Tax Relief has once again teamed up with the IRS to provide assistance to low-income residents and other members of their surrounding community with free tax preparation services. Over 100 members of Optima’s staff registered with the United Way of Orange County, California to participate in the Volunteer Income Tax Assistance (VITA) program, which was launched by the IRS to provide free tax preparation services to those such as:

  • Persons with disabilities
  • Limited English-speaking taxpayers
  • Elderly taxpayers
  • Low to moderate-income taxpayers

The free tax help offered by the VITA program is particularly beneficial for those who are 60 years of age and older, as it specializes in questions about pensions and other retirement-related issues that are unique to seniors. Many of the community members who would qualify for the program are retired individuals associated with non-profit organizations that receive grants from the IRS. This year, however, we saw a wide range of ages attend for assistance. We were happy to help anyone that we could!

“It gave me the opportunity to offer assistance, to the people of our community, who may not have had the fortune to go elsewhere for tax assistance and walk away with a smile on their face for the help and guidance they received,” said Associate Director of Payments Steve Stoffel.

SVP of Accounting, Richard Hamiprodjo called volunteering for the VITA program “a rewarding experience getting involved with the community and helping those who are in need.”

By partnering with the IRS, the VITA program is able to offer reliable, trustworthy tax filing services for free. Optima’s volunteers for the VITA program helped with tax preparation, greeting guests, and some gathered the appropriate tax documents from taxpayers.

Associate VP of Human Resources Kimberly Carson was also a volunteer this year. She shared her thoughts and experience, saying, “It was great to have the opportunity to give back to our community and help people with getting their taxes completed. Not everyone has extra money to get their taxes done by professionals to ensure it is done correctly, so to be able to provide this service to the community is not only needed but fulfilling. Thank you for the opportunity!”

Our volunteers exclaimed how exciting and fulfilling it was to be part of this event. The culture within Optima is very community oriented, and it shows through the tenacity Optimians have for helping others and connecting. Martha Casillas, a Payments Coordinator at Optima said, “My participation as a VITA volunteer gave me a boost of self-confidence, and self-esteem within the company. Being new to the OTR family, it also allowed me to connect with other Optimians, as well as see some of the involvements OTR has within the surrounding communities.”

Case Manager Kateri Drewes added, “For me, being a VITA volunteer means taking the time to give back to my local community. I cherish the opportunity to help folks get the care and quality service they deserve!”

Optima looks forward to working with United Way to host our very own VITA site at our California office next year. Our goal is to serve more taxpayers with a bigger outreach in the Santa Ana community.

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How to Choose a Qualified Tax Preparer

Working with a qualified tax preparer can lessen the likelihood of delays and mistakes when you file. What makes a tax preparer qualified? Lead Tax Attorney Philip Hwang and CEO David King discuss tips for choosing your tax preparer. The Tax Show hosts cover types of tax professionals, credentials, minimum requirements, and red flags to look out for. Tune in to learn how to choose the best tax preparer for your tax situation.

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IRS Form 8300 & What it Means For You

The main purpose of the IRS is to collect funds that are due and payable to the US government’s Treasury Department. To that end, taxpayers are required to report their taxable income and pay taxes on that income. This system is known as voluntary compliance.

Voluntary Compliance: Trust, but Verify

But as we all know, Uncle Sam doesn’t just take taxpayers’ word on the reporting of taxable income. Every year at tax time, we are required to file our income from work via forms known as W-2s or 1099s. The W-2 Form records income earned as wages while various versions of Form 1099 provide the IRS with records of non-wage income. Information from these forms ensures that the Treasury Department has an accurate record of payments and revenues received by taxpayers.

But many businesses deal in transactions involving large sums of cash. Car and boat dealerships, art galleries, antique and collectibles merchants are just a few examples. Nonprofit institutions, such as hospitals and colleges, also deal with large cash transactions such as endowments for new equipment or buildings, or scholarship funds, respectively.

What is IRS Form 8300?

IRS Form 8300 is designed to provide the Treasury Department with information pertaining to these large cash transactions. In 2011, nearly 200,000 paper submissions of Form 8300 were filed with the Treasury department. Since 2012, the IRS has made e-filing available for Form 8300 free of charge.

Federal law requires individuals or businesses receiving more than $10,000 in a single cash transaction or in two or more related transactions within a 12-month period to file Form 8300 within 15 days of receipt. Transactions must be received in the course of business from a single payer or agent. Businesses and individuals may also voluntarily file Form 8300 concerning suspicious transactions of any amount. (IRS.gov)

Information from Form 8300 is added to the Financial Crimes Enforcement Network (FinCEN) database. The information is then cross-referenced with other FinCEN information such as Suspicious Activity Reports and Currency Transaction. The Treasury Department uses information from these cross-reference reports to create traceable money trails that expose criminal activities. (FinCEN)

Form 8300 provides the IRS and FinCEN with a tangible record of large cash transactions. FinCEN has its own ideas about what constitutes cash and what does not – and how individual or related transactions are determined.

Cash Transactions & Form 8300

On its face, the definition of a cash transaction is obvious: it involves currency, either domestic or foreign. But wire transfers, which are readily accessed as cash don’t count, and don’t need to be reported on Form 8300. But, for the purposes of Form 8300 any of the following DO count as cash and transactions for more than $10,000 in any of these forms must be reported:

  • Travelers’ Checks
  • Cashier’s Checks
  • Bank Drafts
  • Money Orders

Eligible Transactions

Some exchanges, such as sale or rental of tangible goods or intangible property exceeding $10,000, are obvious forms of transactions. Cash exchanges, contributions to trust or escrow funds, loan repayments and conversions from cash to checks or bonds that exceed $10,000 also count. The IRS also considers transactions that take place within a single 24-hour period to be related transactions for the purposes of filing Form 8300.

Tax-exempt charitable organizations need not report cash donations or sales proceeds that are related to their tax-exempt status of more than $10,000, but cash in excess of $10,000 received from business transactions does. An example would be a college receiving a large donation to its endowment. But the same college would have to report receiving more than $10,000 in cash for tuition. 

Penalties for Failure to File Form 8300

The penalty for failure to file Form 8300 in a timely fashion is $100 per occurrence. For businesses with annual gross receipts of $5 million or less, the annual aggregate limitation is $500,000. If the deficiency is corrected within 30 days, the annual aggregate limitation for businesses with annual gross receipts of $5 million or less is reduced to $75,000. The total annual limit for businesses with annual gross receipts of more than $5 million is $1.5 million.

Deliberately failing to file the form carries a much higher financial cost. The IRS imposes a penalty of $25,000 or the actual amount of the transaction up to $100,000 for each occurrence, whichever is greater. There is no annual limit for intentionally failing to file form 8300.

Failure to Furnish Full Information

The IRS requires taxpayers to include the names and Taxpayer Identification Numbers (TIN) for each person involved in cash transactions over $10,000 on Form 8300. If individuals refuse to provide their TIN, taxpayers should file Form 8300, along with a statement detailing attempts to obtain the required information. Taxpayers should also retain records that verify when and how attempts to get the required information were made and be prepared to provide copies of those records to the IRS.

Failure to furnish the names of individuals who are required to be included on Form 8300 carries penalties of $100 per violation. The annual aggregate limit for penalties is $500,000 for businesses with annual gross receipts of $5 million or less. Penalties for businesses with more than $5 million in annual gross receipts have an aggregate annual limit of $1.5 million.

If the deficiency is corrected within 40 days, the penalty is decreased to $30 per incident. Annual aggregate limits for penalties imposed on businesses with $5 million or less in annual gross receipts that correct deficiencies within 30 days is reduced to $200,000. The annual aggregate limit for penalties imposed on larger businesses that correct deficiencies within 30 days is $250,000.

As with deliberate failure to file Form 8300, the IRS imposes harsher penalties on taxpayers who deliberately omit information. The penalty for intentional failure to furnish required information is $250 per incident or 10% of the aggregate annual limit of items that should have been reported, whichever is greater. There is no annual aggregate limitation on penalties.

 

Revenue Officers and Small Businesses

Many small business owners are at risk of being assigned a Revenue Officer (RO). If a small business withholds taxes from their employees but fails to hand it over to the IRS, the IRS can assign an RO, garnish bank accounts and wages, seize property and real estate, and even show up at your place of business. CEO David King and In-house Expert & Enrolled Agent Rosie Steele provide helpful tips on what small business owners should do if they are assigned an RO.

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What Does IRS Code 9001 Mean?

There are still many IRS terms and codes that are a mystery to the average taxpayer. Tax terms can be confusing, whether you’re a first-time tax filer or have been filing tax returns for years. IRS Code 9001 is a common error code, but many people don’t know what it means. We’ll explore what the IRS Code 9001 is, and how to avoid it.

IRS Code 9001

You filed your federal income tax return a while ago and you are expecting a refund. You can check the status of your return and your refund check (for paper returns) or direct deposit (for electronic returns) at the IRS.gov website. The “Where’s My Refund?” portal also provides an estimate of when you should expect your refund.

If you receive an error code such as IRS Code 9001 when you check the status of your return, you may worry that your return has been flagged for an audit. Relax. In fact, IRS Code 9001 is one of an entire set of codes that are included within the Internal Revenue Manual (IRM), which is the set of guidelines used by the IRS. This is not an audit flag, but rather an error code generated when taxpayers attempt to access return or refund results using the wrong Social Security Number or TIN.

Where’s My Refund?

The IRS established the “Where’s My Refund?” portal to allow taxpayers to check the status of their federal income tax return and refund. To access the portal you need three pieces of information: your Social Security Number (SSN) or Taxpayer Identification Number (TIN), your filing status, and amount of the refund that you are expecting. This refund amount should be listed in whole dollars and must match the amount listed on your tax forms exactly.

Taxpayer Identification Number (TIN)

Most taxpayers include a SSN on their tax returns. But certain taxpayers, such as resident and nonresident aliens, are not eligible to get one. The TIN is designed to allow individuals to file federal and state income tax returns, without an SSN.

How to Fix an IRS Code 9001

In most instances, when you check the status of your return on the “Where’s My Refund?” portal, you will receive a message stating that your return is being processed or that your refund is on its way. Occasionally, you may receive one or more error codes, including IRS Code 9001: “Taxpayer accessed Refund Status using a secondary TIN. Refund Status could not be returned. Get a Primary TIN Analyze account and follow appropriate IRM.” The fix is simple – enter the proper Social Security number or TIN into the “Where’s My Refund?” portal. If you still receive error messages, contact the IRS or an expert such as an attorney with Optima Tax Relieve for further assistance.

Wondering where your tax refund is? Read our dedicated blog to learn more. If you need tax help, contact us for a free consultation.

I Just Moved. How do I File Taxes in Multiple States?

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.

If you’ve moved within the last year, you may have questions on how to prepare your tax return and how you should file in the current state you live in or the state you moved from. It’s also important to know if you will need to file multiple tax returns depending on whether or not the state you moved to has an income tax. 

It can be confusing to know how you should file and how many tax returns you need to prepare. Here are a few answers to some questions that you may have:

Filing part-year resident tax returns

A part-year resident tax return will be filed for the year of your move. Taxpayers don’t have to worry about paying double the state tax since most states don’t tax the income earned in the other state.

If income was earned through interest or dividends that were paid during the year, a taxpayer will need to divide that in accordance with the number of days spent at each location. 

Reporting income earned in some states

Some states require that all your income for the year is reported if you are a resident in that state at the end of the year. There’s also no need to worry about having to pay double the state tax on your income if you have to report some of the income you earned to the previous state that you lived in. On the tax return for your new state, you can claim a tax credit to your old state on the same income. The tax credit will offset any additional tax on the income that you reported to both states.

If you need tax help, contact us for a free consultation.

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How to Get a Copy of Your IRS Transcript

Getting a copy of your IRS transcript is easy and can be done entirely via the IRS.gov website. Follow these simple steps to retrieve your tax transcript.

Keep in mind that only transcripts for filed taxes are available. For example, if you did not file in 2003, there won’t be a tax transcript for that year. Also, if the IRS has not finished with your taxes, the transcript will not be available until they have completed those taxes.

What is an IRS Transcript used for?

IRS transcripts are typically used to validate past income and to prove income to lenders. They are often used to determine status for mortgage, student, and small business loan applications and help with tax preparation.

What information is on an IRS Transcript?

An IRS transcript includes most line items from your tax return, including all accompanying forms and schedules, as it was originally filed. Any changes made after the original filing will not be reflected.  Key information listed on transcripts include marital status, AGI, taxable income, payment methods, and W-2 information.

How to get your IRS Transcript Online

You can request tax transcripts online for the current tax year and the three prior tax years. To request older transcripts, you’ll need to submit Form 4506-T. To request a transcript online:

  1. Visit the IRS website at IRS.gov.
  2. Look under the Tools tab that is part way down the web page. Click: Get transcript for your tax records.
  3. Once you reach the transcript page, you can request to get them by mail or continue getting them online by clicking on the box to the left, Get transcript online.
  4. If you have gotten transcripts before, you can sign in. If not, you will need to click on the right side to create an account: Sign up.
  5. Complete the sign up process and log in.
  6. The next page will show a drop-down menu and ask why you need the transcript. Choose the answer that best fits your needs and continue. They ask you what you need it for so they can help you pick the right transcript.
  7. The next page lists all your transcripts, in four different categories for all the years you filed. These include Tax Return Transcript, Record of Account Transcript, Account Transcript, and Wage and Income Transcript.
  8. Select the transcript you need for the right year.
  9. The site will automatically generate a PDF file of your transcript. Print it and save it.
  10. Log out completely or close the browser when you are finished.

Make sure your pop-up blocker is off for the IRS site. It can cause errors when trying to retrieve your transcripts. If you chose mail, allow 5 to 10 business days for them to arrive before requesting another.

If you have problems navigating the website, you can contact the IRS for further assistance at 1-800-829-1040. For further assistance or help with a different tax issue, contact Optima Tax Relief. Optima Tax Relief offers a comprehensive range of tax relief services. Schedule a consultation with one of our professionals today.