Tax News

2023 State Income Tax Rates and Brackets

2023 state income tax rates and brackets

We often discuss federal taxes here, from tax filings to deductions and credits. However, it’s important to note that federal taxes are typically only one half of a taxpayer’s responsibility. In addition to filing and paying federal taxes each year, taxpayers must also stay on top of their state tax responsibilities if they have any. Here we will discuss the different types of state tax systems, as well as the rates and brackets for each in 2023.  

State Tax Systems 

Not every state taxes their residents the same. In fact, some states don’t tax at all. These states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire does not tax regular income, but it does have a 5% tax on dividend and interest income. All other states either use a flat tax system or a progressive tax structure.  

Flat Tax System 

The flat tax system is the simpler of the two and involves one tax rate for most types of income. The factor that could change state to state is which income is considered taxable. Some states alternatively tax according to AGI instead of taxable income. States that have a flat tax rate in 2023 are: 

  • Arizona – 2.5% of taxable income 
  • Colorado – 4.4% of taxable income 
  • Idaho – 5.8% of taxable income 
  • Illinois – 4.95% of taxable income 
  • Indiana – 3.15% of taxable income 
  • Kentucky – 4.5% of taxable income 
  • Michigan – 4.05% of taxable income 
  • New Hampshire – 4% on dividends and interest income only 
  • Pennsylvania – 3.07% of taxable income 
  • Utah – 4.65% of taxable income 

Progressive Tax Structure 

The remaining states use a progressive tax system, in which higher incomes are taxed at higher rates. In 2023, states that use a progressive tax system are:  

State  Tax Rates  Number of Brackets 
Alabama  2%-5%  3 
Arkansas  2%-4.9%  3 
California  1%-12.3%  9 
Connecticut  3%-6.99%  7 
Delaware  0%-6.6%  7 
District of Columbia  4%-10.75%  7 
Georgia  1%-5.75%  6 
Hawaii  1.4%-11%  12 
Iowa  4.4%-6%  4 
Kansas  3.1%-5.7%  3 
Louisiana  1.85%-4.25%  3 
Maine  5.8%-7.15%  3 
Maryland  2%-5.75%  8 
Massachusetts  5%-9%  2 
Minnesota  5.35%-9.85%  4 
Mississippi  0%-5%  2 
Missouri  1.5%-4.95%  8 
Montana  1%-6.75%  7 
Nebraska  2.46%-6.64%  4 
New Jersey  1.4%-10.75%  7 
New Mexico  1.7%-5.9%  5 
New York  4%-10.9%  9 
North Dakota  1.1%-2.9%  5 
Ohio  0%-3.99%  5 
Oklahoma  0.25%-4.75%  6 
Oregon  4.75%-9.9%  4 
Rhode Island  3.75%-5.99%  3 
South Carolina  0%-6.4%  3 
Vermont  3.35%-8.75%  4 
Virginia  2%-5.75%  4 
West Virginia  3%-6.5%  5 
Wisconsin  3.54%-7.65%  4 

 

Conclusion 

Taxpayers should ensure that they stay on top of their state tax obligations as well as their federal. We often hear horror stories about what happens if the IRS begins to take collection action against you, but state tax agencies can be just as intimidating. Like the IRS, your state’s department of revenue can levy and penalize you. In addition, they can revoke or refuse to renew any state-issued licenses, including driver’s licenses and professional licenses you may need to operate a business. If you’re behind on your state taxes, Optima Tax Relief can help.  

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

By |Tax News|Comments Off on 2023 State Income Tax Rates and Brackets
Read More

What’s Going on with Social Security?

whats going on with social security

Social Security, a cornerstone of America’s safety net, has been providing financial support to millions of retirees, disabled individuals, and surviving family members for decades. However, as our society undergoes demographic shifts and economic challenges, it has become increasingly evident that the current Social Security system requires substantial reform to remain viable for future generations. Here we will break down why reform is becoming necessary and what political leaders are suggesting we do to improve the current situation as of July 2023. 

The Challenge with Social Security 

The Social Security program was established in 1935 during a different era when life expectancy was lower, birth rates were higher, and the ratio of workers to retirees was far more favorable. Now, some of the latest projections show that the programs combined funds could run out in 2034. Today, the system faces numerous challenges that threaten its long-term viability, including: 

  • Aging Population: The baby boomer generation, a substantial portion of the population, is rapidly reaching retirement age, putting immense pressure on the system. With fewer workers contributing to support a growing number of retirees, the sustainability of the current pay-as-you-go model is at risk. 
  • Declining Birth Rates: Modern societies are experiencing declining birth rates, resulting in a shrinking workforce. This trend further exacerbates the strain on the system as there are fewer future contributors to Social Security. 
  • Economic Uncertainty: Economic downturns, like the 2008 financial crisis and the COVID-19 pandemic, have weakened the economy and reduced government revenue, leading to concerns about the long-term funding of Social Security. 

Proposed Solutions 

To ensure the long-term viability of Social Security, policymakers and experts have put forth various reform proposals. While no single solution can address all challenges, a combination of measures can create a more sustainable system: 

Gradual Retirement Age Increase 

One option is to gradually raise the full retirement age. People are living longer and staying healthier, so adjusting the retirement age to reflect longer life expectancies can help maintain a balanced system. For example, one proposal includes raising the full retirement age to 68 and another suggests raising the retirement age to 70. However, such a change should be implemented gradually to allow people to adjust their retirement plans accordingly. 

Adjusting Cost-of-Living Adjustments (COLAs) 

The automatic annual increase in Social Security benefits, based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), can be revised to better reflect the changing cost of living for retirees. A more accurate COLA calculation would ensure beneficiaries receive sufficient support while easing the financial burden on the program. 

Increasing Payroll Taxes 

Another consideration is raising the payroll tax cap, which currently limits the amount of income subject to Social Security taxes. Currently, the maximum amount of income that is subject to Social Security taxes is $160,200. Many are proposing raising the minimum to either $250,000 or $400,000. Increasing this cap would require higher-income earners to contribute more to the system, bolstering its financial health. 

Means-Testing 

Introducing means-testing for Social Security benefits could help direct assistance to those who need it most. By reducing or eliminating benefits for higher-income retirees, the system can allocate resources more efficiently to support vulnerable populations. Some are proposing to reduce benefits if a taxpayer has an AGI within a certain threshold, and even cut benefits completely if their AGI enters a higher threshold.

Finding the Balance 

While reform is essential for the sustainability of Social Security, any changes must be made with careful consideration of the program’s fundamental purpose: to provide economic security for vulnerable populations. Policymakers should balance the need for fiscal responsibility with compassion for those who heavily rely on Social Security for their basic needs. On the other hand, some Social Security income is taxable, so taxpayers should prepare for possible reform that could affect their taxes. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations. 

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

By |Tax News|Comments Off on What’s Going on with Social Security?
Read More

Many Erroneous CP14s Have Been Issued – Here’s What You Need to Know

irs notice cp14

IRS Notice CP14 is sent to taxpayers to inform them of an outstanding balance on their federal tax account. It serves as a bill for unpaid taxes and includes details such as the amount owed, accrued interest, and any penalties incurred. While receiving this notice might not be a shock for many, some taxpayers impacted by a declared disaster area may be surprised to see a CP14 in their mailbox despite IRS promises of tax relief. If you are one of these taxpayers who mistakenly received IRS Notice CP14 despite being in a disaster area, don’t panic. Many erroneous CP14s have been issued by the IRS. Here is what you need to know. 

Which disaster areas qualify for automatic tax extensions? 

The IRS has continued to issue automatic tax extensions to those impacted by natural disasters around the country and its territories. These areas have included impacted counties of the following 12 states: 

  • California 
  • Florida 
  • Oklahoma 
  • Indiana 
  • Tennessee 
  • Arkansas 
  • Mississippi 
  • New York 
  • Georgia 
  • Alabama 

It also includes the impacted areas of Guam and the Mariana Islands. A full list of impacted qualified disaster areas can be found at https://www.irs.gov/newsroom/tax-relief-in-disaster-situations. All taxpayers in impacted areas were automatically given an extension of time to file and time to pay until October 16, 2023, or another form of tax relief.  

Why did I receive a CP14 if I’m in a disaster area? 

IRS Notice CP14s have been sent out because the IRS is legally required to as long as a balance is due. However, many Californian taxpayers living or working in disaster areas have received this notice which demands payment to the IRS within 21 days. Unfortunately for Californians impacted by disaster, this sends mixed messages. The IRS has issued guidance to let these taxpayers know that they do indeed have until October 16, 2023 to file and pay their 2022 taxes.  

What should I do if I received a CP14 if I’m in a disaster area? 

If you received IRS Notice CP14 but you have been given an automatic tax extension due to disaster relief, you do not need to worry about submitting payment within 21 days as the notice instructs. In fact, these letters should also include a specific insert stating that the payment date indicated in the letter does not apply to anyone covered by a disaster declaration, and that the disaster dates still apply. 

While it may seem counter-intuitive, affected taxpayers do not need to call the IRS for confirmation. Doing so may result in extremely long wait times. The IRS has issued an apology for the confusion this has caused. At Optima, we understand how intimidating an IRS notice can be.  

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

By |Tax News|Comments Off on Many Erroneous CP14s Have Been Issued – Here’s What You Need to Know
Read More

How to Avoid Tax Scams & Fraud

how to avoid tax scams and fraud

Tax scams have become one of the most popular ways criminals steal money and identities. The IRS flagged over $5.7 billion in tax fraud last year and 2023 is not looking any better with so many tax scams circulating. Luckily, there are ways to help avoid tax scams and fraud. Here are the most common tax scams in 2023 and how you can avoid them. 

What Are Tax Scams & Fraud? 

Tax scams are when criminals use stolen information, like your name, address, birthdate or Social Security Number (SSN), to file a phony tax return. The criminals then steal your refund and leave you with the burden of dealing with the IRS. Tax scams happen all year long but especially during tax season. 

Most Common Tax Scams in 2023 

According to the IRS, there are a handful of popular scams that you should be wary of in 2023.  

IRS Impersonation Scams: Criminals will ask for personal or financial information through unsolicited emails, phone calls, or text messages. Sometimes, scammers will send malicious links via email that entices you to click on it. This action prompts a download of identity-stealing malware onto your computer. 

Ghost Tax Preparer Scams: Scammers pose as tax preparers and file your tax returns but do not sign the return or include a preparer tax ID number (PTIN). During the process, they can steal your identity and/or your tax refund. 

Social Media Tax Scams: Criminals use your social media information to get other personal information. They might pose as a friend or relative to ask for money or donations. Alternatively, they can send messages that contain malware to steal your identity. 

Fraudulent Unemployment Claim Scams: Scammers attempt to steal personal information to claim unemployment benefits on your behalf. You may not realize you were scammed until you receive a Form 1099-G at the end of the year. 

Phony Charity Request Scams: Thieves set up phony charities to steal personal information or donations. These fake charities will not have an actual employer identification number (EIN), which is required to verify the existence of a charity. 

Economic Impact Payment Scams: COVID-19 stimulus checks have stopped being sent out, but scammers are still sending malicious text messages, phone calls, and emails to request bank account information. They lead you to believe you will receive a new stimulus check, when really they are stealing your personal and financial information. 

How to Avoid Tax Scams & Fraud 

Knowing how the IRS operates can be the best way to protect yourself against tax scams and fraud. For example, the IRS will reach out to you initially through regular mail through the U.S. Postal Service. If your IRS notice looks suspicious, you can go on the IRS website to search for the letter or notice and confirm its authenticity. The IRS does make phone calls to taxpayers but never threatens legal action or requests payment information over the phone. If you receive a suspicious email or text claiming to be from the IRS, do not reply, click on any links, or open any attachments. If in doubt, you can call the IRS yourself to communicate your concerns. 

Most importantly, you should report all tax scams. Just because you might recognize the scam immediately, it does not mean everyone else will. Reporting the scams can potentially help thousands of other taxpayers. Here’s a breakdown of what to do if you think you are being scammed. 

If you receive a suspicious email about your taxes, forward the email to phishing@irs.gov. 

If you receive a phony call, email a summary of the occurrence to phishing@irs.gov. 

If you clicked on a link within a suspicious email, or entered personal information, report the incident on the IRS Identity Theft Central webpage. 

If you receive a suspicious text message about your taxes, you can forward it to 202-552-1226. 

If you were scammed by your tax preparer, or believe your tax preparer is not following IRS rules, you can report them with Form 3949-A, Information Referral. 

If you receive a bogus form from a financial institution, you should report the incident to the financial institution directly.  

It’s better to be safe than sorry in these scenarios, so always report when in doubt. Not doing so can lead to several issues with the IRS that can take months to correct. Dealing with the IRS under any circumstances can be tough. If you need tax help, Optima and our team of experts are here. Contact us for a free consultation. 

By |Tax News|Comments Off on How to Avoid Tax Scams & Fraud
Read More

The 1099-K Reporting Threshold Is Delayed – Now What?

the 1099-k reporting threshold is delayed now what

In December 2022, the IRS announced that the new reporting thresholds for Form 1099-K have been delayed. The new thresholds are part of the American Rescue Plan of 2021, which will require Form 1099-K to be issued by well-known third-party settlement organizations (TPSOs) for any aggregate transactions of $600 or more. Here’s an overview of what this means for your taxes. 

Old 1099-K Thresholds vs. New 1099-K Thresholds 

Prior to the American Rescue Plan of 2021, taxpayers would only receive Form 1099-K if they earned an aggregate amount of $20,000 in over 200 transactions for goods and services. The plan changed the reporting requirements by drastically lowering it to any payments exceeding $600. Beginning January 1, 2023, TPSOs were supposed to be required to report third-party network transactions paid in 2022 that exceed $600 through an annual Form 1099-K. However, due to concerns about lack of guidance, the existing tax return backlog, and taxpayer confusion, the IRS will delay the requirement until 2024. In other words, the original $20,000 and 200 transaction threshold will remain in place through the rest of 2023.  

What This Means for Taxpayers 

It is a lot more common for taxpayers to also be freelancers or small business owners now, especially those who receive payments for goods and services via third-party payment networks. These can include PayPal, Venmo, Amazon, Square, Cash App, Stripe and many more. 1099-Ks are only generated for payments associated with goods and services, so taxpayers should not worry about receiving one for personal expenses paid via these apps. For example, you might collect rent from your roommates through Venmo, which you then send to your landlord. This is a personal expense, and you will not receive a 1099-K. However, if you are the landlord collecting rent through a third-party payment network, you should expect to receive a 1099-K.  

If you are a freelancer or small business owner who collects payments with a third-party payment app, you should use the delay to become more familiar with the new reporting rules that will take effect in 2024. You can also ensure that any transactions you receive through apps like Venmo or PayPal are correctly classified as a personal transaction and not a business transaction for goods and services. With the new rules taking effect, a single large transaction of $600 accidentally marked as a business transaction could trigger Form 1099-K to be generated. While this issue is correctable, it has to be done with the third-party payment network directly and the IRS will expect to see the reported income on your return until a correction is sent to them. This process could be time-consuming and cause further delays in processing your return. 

Tax Relief for Freelancers and Small Business Owners 

If the new rules go into effect and the IRS’s numbers do not match up with your own, you risk triggering an IRS audit, which can lead to unmanageable stress. You’ll want to avoid owing taxes now more than ever as IRS interest rates have recently increased, making your balance more expensive, especially with interest and penalties. Taxpayers should also note that this delay does not change any rules regarding taxable income. If you earn money through freelancing or your small business, you should report all income on your tax return, even if you did not receive a 1099-K. Our team of qualified and dedicated tax professionals can help if you have tax debt. If you need tax help, call Optima Tax Relief at 800-536-0734 for a free consultation. 

By |Tax News|Comments Off on The 1099-K Reporting Threshold Is Delayed – Now What?
Read More

Common IRS Penalties & How to Avoid Them

common irs penalties and how to avoid them

Owing the IRS doesn’t just stop with your tax balance. If your tax obligations are not met, you could face penalties that can make your debt even more unmanageable. Here are some of the most common IRS penalties and how to avoid (or reduce) them. 

Failure to Pay 

The Failure to Pay penalty is charged if you do not pay taxes owed by the due date. The 0.5% penalty is applied to any unpaid taxes for every month or partial month the tax is not paid. However, it will not exceed 25% of your unpaid taxes. There are some scenarios in which this penalty can increase or decrease. For example, if the IRS sends a notice with an intent to levy, you have 10 days to pay your tax. If you do not, the Failure to Pay penalty increases to 1% per month or partial month. However, if you set up a payment plan, the penalty is reduced to 0.25% per month or partial month.  

Failure to File 

If you don’t file by the tax deadline, or the requested extension deadline, you will be charged with a Failure to File penalty. This penalty is 5% of your unpaid tax for every month or partial month that your return is late. Like the Failure to Pay penalty, it caps out at 25% of your balance. The best way to avoid this penalty is to file on time. If you can’t file, or don’t have the money to pay your balance, by the April deadline, you should request an extension. The deadline to file your 2022 tax return is April 18, 2023. Taxpayers should note that for tax returns due after January 1, 2020, and more than 60 days late, there is a minimum penalty of either $435 or 100% of the owed tax, whichever is less. 

Underpayment of Estimated Tax 

If you don’t withhold enough taxes throughout the year, you need to make quarterly estimated tax payments. If you don’t pay the correct amount of estimated tax, or if you pay late, you may be penalized. Estimated payments are due every April 15th, June 15th, September 15th and January 15th. The penalty can change quarterly but as of Q1 of 2023, individuals are charged 7% on underpaid tax while large corporations are charged 9%. You can avoid this penalty by meeting one of two requirements: 

  • Pay 90% of the tax you owe for the current year in four equal estimated payments, or through paycheck withholding 
  • Pay 100% of last year’s tax bill, before withholding or tax credits. If you have an AGI of more than $150,000, you should pay 110%.  

Accuracy-Related Penalty 

If you don’t report all your income, or if you claim deductions or credits you don’t qualify for, you could be given an accuracy-related penalty. The two types of this penalty are: 

  • Negligence or Disregard of the Rules of Regulations Penalty: This penalty is common among those who do not follow tax laws or are careless when preparing their return. Examples include not reporting all income or not checking tax deductions that result in a refund that seems too good to be true. 
  • Substantial Understatement of Income Tax Penalty: This penalty is given to those who understate their tax liability by 10% of the tax required to be shown on your return or $5,000, whichever is greater.  

Both of these accuracy-related penalties charge 20% of the portion of underpaid tax that resulted from negligence, disregard, or understated income.  

Penalty Relief for Reasonable Cause 

In some cases, the IRS may remove or reduce penalties if you acted in good faith with reasonable cause. These situations are determined by the IRS on a case-by-case basis. Some valid reasons for not filing or paying taxes might be because of a natural disaster, inability to obtain records, death, or certain system issues. The IRS may also reduce accuracy-related penalties if you made an effort to correct the issue or seek help about your error. You may qualify for First Time penalty abatement if you have been and are currently compliant with your taxes.  

Get Help Avoiding and Reducing IRS Penalties 

Remember, the IRS charges interest on penalties and interest will continue to increase your balance until it’s paid in full. Since interest on underpayments begin on the tax due date, it’s important to act as quickly as possible to resolve your tax issue. If you can pay your balance in full, you should do so immediately. If you cannot afford to, you should look into options including payment plans or tax relief. Our team of qualified and dedicated tax professionals can help if you have tax debt. If you need tax help, call Optima Tax Relief at 800-536-0734 for a free consultation. 

By |Tax News|Comments Off on Common IRS Penalties & How to Avoid Them
Read More

What is the IRS Fresh Start Program?

what is the irs fresh start program

A new year could mean a financial fresh start. The IRS Fresh Start program was created to help struggling taxpayers and small businesses. In 2023, taxpayers are still asking how the program works. Here are some key details about the program. 

The History of the Fresh Start Program 

The Fresh Start Initiative was established in 2011 to give first-time tax offenders leniency and the opportunity to solve their tax issues through consolidated tax bills and payment arrangements Shortly after launching the program, the IRS made it easier to remove federal tax liens and allowed taxpayers to come to more favorable payment arrangements with the IRS. One year after that, the IRS gave more taxpayers access to the Offer in Compromise (OIC) program.  

Changes to Federal Tax Liens and Installment Agreements 

The IRS used to file tax liens on balances above $5,000. The Fresh Start program increased the tax balance limit to $10,000. It also gave taxpayers the chance to withdraw their lien, which then helped those taxpayers access more credit. 

 Streamlined installment agreements (SLIAs) were also expanded in 2011 that allowed more favorable terms for the taxpayer and helped avoid tax liens. This allowed taxpayers with debt of up to $50,000 to be set up with a SLIA, up from the previous $25,000 cap. Further, the term length was increased from 60 months to 71 months. The simple installment agreement is preferred for most taxpayers since it does not require giving the IRS extensive documents detailing financial situations.  

Changes to the OIC Program 

The OIC program is very sought after by taxpayers with a large tax debt balance. An Offer in Compromise is essentially an agreement between the IRS and taxpayer that settles the owed tax debt for a lesser amount. However, offers are not accepted if the IRS thinks that the taxpayer is capable of paying the balance in full. In 2012, the IRS allowed greater access to the OIC program by revising how it calculates taxpayer future income, allowing taxpayers to repay student loans and past-due state and local taxes, expanding the allowable living expense amount, and reducing the offer amount for those who qualify for an OIC. It’s important to note that the IRS does not accept OICs often. In fact, the IRS only accepted about a third of OIC applications from 2010-2019.  

Tax Help for Those Who Owe 

The Fresh Start program can really help taxpayers who owe the IRS but don’t necessarily have the funds to pay their debt. Working with an experienced tax relief company can help ease the process. If you are wondering if you are eligible for the Fresh Start program, let Optima Tax Relief help. Contact us today at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals. 

By |Tax News|Comments Off on What is the IRS Fresh Start Program?
Read More

IRS Interest Rate Increases for Q1 of 2023

irs interest rate increases for q1 of 2023

While the Fed continues to increase interest rates, other entities are adjusting their own rates accordingly, the IRS included. In fact, the first quarter of 2023 has already seen a rise in IRS interest rates that took effect January 1, 2023. Here’s what it means for taxpayers. 

How much did rates increase? 

Both overpayment and underpayment rates with the IRS increased from 6% to 7%. These rates are per year and are compounded daily. The rate for overpayments corporations is 6%. If the corporation’s overpayment exceeds $10,000, the excess payment will accrue interest at a rate of 4.5%. However, if a corporation underpays, it will be charged interest on the balance due at a rate of 9%.   

How will this affect taxpayers? 

Taxpayers receive an overpayment credit when their tax payments exceed what they owe. In other words, the rate increase will be good for those still waiting for past refunds. If a taxpayer is still missing their tax refund for 2022, they will receive 7% interest from the IRS, beginning January 1, 2023. The IRS adds interest to a tax refund if it takes more than 45 days after the filing deadline to process a return and refund. As of November 18, 2022, there were still over 3 million unprocessed individual 2022 tax returns. This figure does not include unprocessed returns from the previous tax years. 

Tax Relief for Those Who Owe 

The rate increase will be good news for those still waiting to receive their 2022 tax refunds. However, this is bad news for those who owe a tax balance. If a taxpayer owes taxes but does not pay the balance in full, the remaining balance will be charged underpayment interest. Because underpayments just became more expensive, it is essential to pay off your tax debt as quickly as possible to avoid even more interest charges. Now more than ever, neglecting your tax bill can be very costly due to the interest rate increases accompanied by the regular penalties for underpayment. Optima Tax Relief and our team of qualified and dedicated tax professionals can help if you have tax debt. If you need tax help, call us at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals. 

By |Tax News|Comments Off on IRS Interest Rate Increases for Q1 of 2023
Read More

End of Year Tax Planning

end of year tax planning

As the year comes to an end, it’s time to prepare for the tax filing season. Getting prepared can help ease the process and result in a more accurate return and faster refund. Here are some tips for end of year tax planning.  

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 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. However, you’ll need to request one transcript per tax year, and they may not have the most up-to-date information regarding your penalties, interest, or pending actions. Businesses or individuals who filed a form that is not a 1040 can request transcripts through Form 4506-T. 

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 to 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. Form 1099-G will be sent to anyone who received unemployment. Form 1099-DIV will be sent to all taxpayers who received at least $10 in dividends and distributions. A new form to be on the lookout for if you are a gig worker or small business owner this coming year is Form 1099-K, which will include income earned through third-party payment networks, like Venmo or PayPal. You’ll also want to collect any IRS notices you receive throughout the year.  

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 who not 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, at which point it would expire. In other words, if your ITIN wasn’t used on a federal tax return at least once for tax years 2019, 2020, and 2021, it will expire on December 31, 2022. 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, meaning you could’ve had more money each paycheck. If you had a major life change, like a marriage, divorce, the birth of a child, or a second job, it may be a good time to adjust your withholding. 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 any taxes withheld. 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 the year is due on January 17,2023 and can be made in your online IRS account. 

Tax Relief for Taxpayers 

Following these steps can help you prepare for the filing season in 2023. It is important to note that the 2023 tax season will be a bit different from previous years. Keep in mind that there will be no stimulus payments to collect and that some tax credit amounts have returned to pre-COVID levels. There will also be a much larger number of taxpayers who will receive Form 1099-K. Taxpayers should be warned that if their return does not include what is reported on Form 1099-K, it can trigger an automatic IRS notice or even an audit. Filing an accurate return can prevent financial stress in the long run. If you need Tax help, give Optima a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals. 

By |Tax News|Comments Off on End of Year Tax Planning
Read More

Tax Checklist for Moving States

tax checklist for moving states

A new year means new beginnings for taxpayers, and sometimes that means moving to a new state. One of the things that taxpayers commonly overlook when moving states is taxes. It’s important to note that not all states have the same tax laws. Some states do not have state income tax while others may tax your retirement income. Here’s a quick tax checklist for moving states.  

Check the Income Tax Rate 

When researching where to move, finances are sure to be a top priority to keep in mind. Sometimes this means choosing a state that has a lower cost of living. Another thing to consider is the state income tax rate. Certain states do not tax any income. These include: 

  • Alaska 
  • Nevada 
  • South Dakota 
  • Texas 
  • Tennessee 
  • Washington 
  • Wyoming 

Florida does not tax personal income but does tax certain business assets. New Hampshire does not tax W-2 wages but does tax certain investment and business income. California, Hawaii, New Jersey, Oregon and Minnesota currently have the highest income tax rates.  

Check Your Filing Requirements 

If you lived in two or more states during a year, you would need to check the filing requirements for each state. The requirements are typically listed on the state’s tax authority website. In most cases, you’ll need to file a return in all states you lived in during the tax year. To do this, you’ll need to calculate your earnings in each state and determine the percentage of your income that was earned in each state. You’ll need to file the relevant tax forms in each state, usually as a resident or part-year resident. It’s important to note that two different states legally cannot tax the same income, so moving states does not necessarily mean you will pay more taxes.  

There may be some scenarios in which you moved states, but still work in your old state. In this case, you would likely need to file a tax return in the state where you live, as well as a nonresident tax return in the state where you work. You may also want to check the tax laws in your new state. Finding out how your new state handles itemized deductions, state tax deductions, or federal tax changes can help you avoid unexpected issues during tax time. 

Check Which Income Types Are Taxable  

If you have multiple sources of income, it is vital to check how the income will be taxed in your new state. Interest and dividend income is typically taxed by the state in which you are a permanent resident. In addition, some states require estimated tax payments on some incomes. Not knowing the rules or deadlines for these can result in underpayment penalties.  

Investments that are tax-exempt in your old state may suddenly be taxable in your new state. While all states do not require you to pay taxes on federal bonds, not all states have the same definition of a federal bond, meaning some tax bonds and others do not. Retirement income is also taxed differently in certain states, so if you are moving because of retirement, you may want to check the tax laws surrounding retirement income first.  

Check Your Eligibility for Moving Expense Deductions 

The 2017 Tax Cuts and Jobs Act (TCJA) eliminated the moving expense deduction for taxpayers, unless they are active-duty military members. However, this act is set to expire beginning in 2026.  

Tax Relief for Those Moving States 

It goes without saying that filing taxes after moving states can become very complex, especially if you have several income sources. Sometimes the new state you move to may not be your first choice, like when you’re an active-duty military member or are relocating for a job. In other cases, you may have the option to choose which state you want to relocate to. In these cases, researching tax laws in your new state can save a lot of time, money and stress during tax time. It may be best to seek the help of a credible tax preparer or professional to look at your tax situation. Give Optima a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals.

By |Tax News|Comments Off on Tax Checklist for Moving States
Read More