Tax Planning

Tax Credits vs. Tax Deductions

tax credits vs tax deductions

Tax season is officially here. As you prepare to file your tax return, it might be helpful to research ways to decrease your tax liability. A popular way to do this is to claim tax credits and tax deductions. Credits and deductions often seem like the same thing, but they are different. Here’s a comparison of the two. 

What is a tax credit? 

A tax credit is a dollar-for-dollar reduction of your income. They are created by the federal and state governments to encourage certain behaviors that benefit the economy or environment. For example, there is a solar tax credit available to taxpayers who purchase solar panels for their home. There is also a federal adoption tax credit that helps offset adoption costs. These credits reward behaviors that the government deems beneficial to society.  

How do tax credits reduce my tax bill? 

As mentioned, a tax credit is a dollar-for-dollar reduction of your income. Let’s say your tax liability is $1,000 but you are eligible for a $750 tax credit. This would reduce your tax liability to $250. There are two types of credits: refundable and nonrefundable. Refundable credits allow you to receive the full amount of the credit, even if it exceeds your tax liability. For example, if your tax bill is $1,000 and you claim $1,200 in refundable tax credits, you will receive a $200 refund. Nonrefundable credits do not have the same perk. If those same tax credits are nonrefundable, you would simply owe $0 and would not receive the additional $200 in your tax refund.  

What is a tax deduction? 

A tax deduction is a reduction of taxable income to lower your tax bill. You can lower your tax bill through deductions using one of two methods: claiming the standard deduction or itemizing your deductions. The standard deduction is a fixed dollar amount determined by the IRS each year that can be subtracted from your taxable income. Itemizing your deductions is more work and requires substantiation, but it allows you to deduct expenses like student loan interest, mortgage interest, retirement contributions, medical expenses, investment losses and more.  

How do tax deductions reduce my tax bill? 

Any taxpayer can claim the standard deduction. The standard deduction for single filers is $12,950 for the 2022 tax year. This means that if you are a single filer with a taxable income of $50,000, you can take the $12,950 standard deduction. Doing so would reduce your taxable income to $37,050. If you itemize deductions, you will need to tally up all your eligible expenses on Schedule A of Form 1040. This typically only makes sense to do if you have enough expenses to exceed the standard deduction. For example, if last year you had a lot of medical expenses, paid a lot of mortgage interest, or incurred disaster losses that were not insured, itemizing might be the best option for you. Finally, there is something called an above-the-line deduction, which is essentially a deduction that you can take to decrease your tax bill even further after taking the standard deduction. Some examples are self-employment tax, health insurance premiums for self-employed, and student loan interest. 

Tax Relief During Tax Season 

The bottom line is that both tax credits and deductions can help lower your tax bill. Many taxpayers may wonder which is better. Tax credits have a slight edge since they directly reduce taxes dollar-for-dollar whereas tax deductions will depend on your marginal tax bracket. For example, a single filer who earns $60,000 a year has a tax rate of 22%. If they had a $10,000 deduction, their taxable income would drop to $50,000 and would result in a tax bill of $11,000.  

$50,000 x 0.22 = $11,000 

If this same taxpayer had a $10,000 credit instead of a deduction, their calculated tax would be $13,200 before the credit and $3,200 after the credit.  

$60,000 x 0.22 = $13,200

$13,200 – $10,000 = $3,200 

Figuring out how to file your return yourself can be tricky and intimidating. Our team of qualified and dedicated tax professionals can help if you have tax debt. If you need tax help, call Optima at 800-536-0734 for a free consultation. 

By |Tax Planning|Comments Off on Tax Credits vs. Tax Deductions
Read More

How Student Loan Forgiveness Affects Your Taxes

how student loan forgiveness affects your taxes

Generally, student loan debt cancellation is considered taxable income. If you are one of the 43 million borrowers who will benefit from President Biden’s student loan forgiveness plan, you might be wondering how it will affect your taxes. Here’s a quick overview of how the plan can affect you. 

President Biden’s Student Loan Forgiveness Plan 

In August 2022, President Biden enacted a federal student loan forgiveness plan for up to $10,000 per borrower who earns less than $125,000 a year, or $250,000 if you file married filing jointly. The amount increases to up to $20,000 if you received a Pell Grant while in school. Forgiveness would be applied to those who submit a simple application to verify their income through the Department of Education. Borrowers on an income-driven repayment (IDR) plan would automatically receive loan relief. 

In December 2022, the Supreme Court put the plan on hold as there are multiple lawsuits challenging the lawfulness of the plan. The Court will begin reviewing the plan again in February 2023. As of now, there are tens of millions of borrowers waiting to hear if their loans will be forgiven. 

How Forgiveness Affects Taxes 

As mentioned, forgiven debt is usually taxable income. However, Biden’s American Rescue Plan of 2021 included a measure that exempts forgiven student debt from being taxed through 2025. This means that the forgiven debt would not be subject to federal income tax. On the other hand, there are some states that have already announced their plan to tax the debt cancellation if it is found lawful by the Supreme Court. Those states include: 

  • Indiana 
  • Minnesota 
  • Mississippi 
  • North Carolina 
  • Wisconsin 

If you live in one of the states listed above, you should plan to have your forgiven debt taxed as income. Since tax season has already begun and no debt has been cancelled, you may not have to worry about the taxation until 2024. However, this allows you greater time to plan accordingly. When the time comes, your forgiven debt will be added to your taxable income under Cancellation of Debt (COD) income. The exact amount forgiven is usually stated on Form 1099-C, so it is probably safe to assume that student loan forgiveness will work the same. 

The taxes owed on the debt will depend on your income tax bracket. Indiana has a flat tax rate of 3.23% for 2022. Indiana residents may also have to pay county taxes. Minnesota’s income tax rates are graduated for 2022, ranging from 5.35% to 9.85%. Mississippi does not have state income tax on the first $5,000 of taxable income but has a flat rate of 5% for all taxable income over $10,000. North Carolina’s 2022 flat tax rate of 4.99% will result in a state tax liability for the cancelled debt. Finally, Wisconsin has a graduate tax rate ranging from 3.54% to 5.3% in 2022. Borrowers can multiply their income tax rate by the forgiven amount to find their state tax liability.  

Tax Help for Student Loan Borrowers 

If you live in one of the states that will tax student loan forgiveness, you can begin preparing now. The plan is still being reviewed by the Supreme Court which gives you extra time to put money aside for the extra taxes you will owe. In short, receiving up to $20,000 in student loan forgiveness can result in an unexpected state tax liability. If the debt is forgiven, borrowers are allowed to opt out of receiving loan cancellation through the Department of Education. The only exception is if you are one of the 8 million borrowers who will receive automatic loan forgiveness because you are enrolled in an income-driven repayment program. 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. 

By |Tax Planning|Comments Off on How Student Loan Forgiveness Affects Your Taxes
Read More

Gambling Income and Losses

gambling income and losses

When we think of gambling, our first thoughts may be of casino games or the lottery. However, the IRS requires all gambling income to be reported, including winnings from raffles, fantasy football, and even sports betting. With sports betting on the ballot in California in 2022, it might be a good time to revisit the IRS rules on gambling income and losses.  

All Gambling Income Must Be Reported 

All income earned through gambling must be reported to the IRS. This also includes any goods or trips won in a raffle or contest. For example, if you win a TV or a trip to Vegas in a raffle, you must claim the prize’s fair market value at the time that you won it.  

Reporting cash winnings is more straightforward, but taxpayers should know that they are not allowed to subtract the cost of gambling from their winnings. In other words, if you place a $10 bet and then win $500, your taxable winnings would be $500, not $490. Both cash and the value of prizes should be reported as “Other Income” on your Form 1040. Larger payouts will typically result in Form W-2G, which includes reportable winnings, the date won, withholding amount, and wager type. 

You Can Deduct Gambling Losses If You Itemize 

While you cannot deduct the cost of your wager from your winnings, you can deduct your losses as long as you itemize your deductions. You can deduct losses up to the amount of the gambling income claimed. For example, if you won $1,000 but lost $3,000, you can only deduct $1,000. You must also include the $1,000 won in your income.  

You Can Deduct More If You’re a Professional Gambler 

If you gamble to make a living, you are also not allowed to deduct losses that exceed your winnings. However, you would be considered a self-employed individual and would be able to deduct “business expenses.” This can include magazine subscriptions that relate to gambling, internet costs if you place bets online, and travel expenses.  

You Should Keep Adequate Records 

If you are ever audited, the IRS will expect to see detailed records of your gambling winnings and losses. Whether you gamble professionally or casually, you should record the date, name of the gambling establishment, type of wager made, amount won or lost, and the names of anyone with you during the gambling. You should also keep copies of receipts, W2-G forms, wager tickets, and anything else that can supplement your gambling log.  

Tax Relief for Gamblers 

Whether you gamble casually or professionally, you must always report all gambling winnings. It may be tempting to report large losses and downplay your winnings, but reporting losses typically raises red flags with the IRS. This means higher chances of being audited by the IRS, which is a whole other issue. In short, it’s always best to report your gambling income and losses accurately. Optima Tax Relief can help with your tax debt needs. Give us a call at 800-536-0734 for a free consultation today. 

By |Tax Planning|Comments Off on Gambling Income and Losses
Read More

Borrowing From Your 401(k): Loans vs. Withdrawals

borrowing from your 401k loans vs withdrawals

Although it is not recommended, sometimes we find it necessary to borrow from our 401(k) savings in order to cover unexpected expenses or hardships. Doing so comes with tax penalties and it is important to understand your options before tapping into these funds. 

401(k) Loans 

A 401(k) loan allows you to borrow money from your retirement savings. Typically, the maximum amount that can be borrowed is 50% of the account balance, up to $50,000 in a 12-month period. However, since 401(k) accounts are distributed through employers, each plan can come with different rules and limitations.  

Since this option is considered a loan, the funds will need to be returned to the account, usually within 5 years. This also means that no taxes or penalties will need to be paid on the loan because the borrower is expected to return the money. Borrowers should keep in mind that this option does come at a price, as the loan will require paying interest. On a positive note, the interest paid goes back into the account.  

Some borrowers may wonder what happens if you miss a payment or even default on the loan. The good news is your credit score will not be impacted. The only exception to this is if you leave your current job. Since a 401(k) account is an employment perk, the benefits are withdrawn once you are separated from the employer. Sometimes, borrowers are required to repay the loan within a short period of time after termination, and failure to do so can result in not only a defaulted loan but taxes and penalties.  

401(k) Withdrawals 

In some cases of hardship, you may be able to qualify for a 401(k) withdrawal. Some examples of hardship that the IRS deem a 401(k) withdrawal an acceptable form of financial relief are: 

  • Medical expenses 
  • Foreclosure 
  • Tuition payments 
  • Funeral expenses 
  • Purchase or repair of primary residence 

Although borrowers are not required to pay back these funds, you will be charged a 10% early withdrawal penalty. In addition, the amount you withdraw will also be taxed as regular income.  

Tax Debt Relief for 401(k) Account Holders 

Taking a loan or withdrawal from your 401(k) should not be your first choice for immediate funds. Instead, borrowers can look into using their HSA savings for medical expenses and regular savings and emergency funds for other expenses.  

Optima Tax Relief can help with your tax debt needs. Give us a call at 800-536-0734 for a free consultation today. 

By |Retirement, Tax Planning|Comments Off on Borrowing From Your 401(k): Loans vs. Withdrawals
Read More

Types of Loans for Small Businesses

loans

Small business loans can be helpful and sometimes necessary in order to continue or expand a business. There are several types of loans available to small businesses, each with their own sets of pros and cons. 

Term Loans 

One of the most common types of loans for small businesses, a term loan is a lump sum of funds that is paid back over a fixed term and typically via fixed monthly payments. Business owners should note that interest will be paid on top of the principal balance borrowed and sometimes at higher rates than those offered by a traditional bank. However, it is a popular loan because funding is quick and it offers opportunities for business expansion.  

Small Business Administration (SBA) Loans 

SBA loans are offered by banks and lenders but administered by the Small Business Administration, a government agency that provides support to small businesses. Some business owners will prefer this type of loan since it’s backed by the government, offers high borrowing amounts at low rates, and has long repayment terms. On the other hand, it’s harder to qualify for this type of loan and it comes with a long and tedious application process.  

Business Lines of Credit 

Like a regular credit card, a business line of credit gives business owners access to a credit line of a certain limit, which is usually determined by business revenue and credit. Interest is only paid on the money charged, allowing greater flexibility in cash flow. This type of loan may also require paying additional account maintenance fees. 

Equipment Loans 

Businesses that want to own equipment can look into obtaining an equipment loan, which allows them to pay for business equipment over a specific term. The equipment will then serve as collateral for the loan. Sometimes a down payment is required for this loan.  

Microloans 

Microloans are small loans usually offered by nonprofits or government agencies and loan business owners up to $50,000. They are popular among startups and businesses located in disadvantaged cities. Some of these loans are accompanied by mentoring or consulting from the loan provider as well. 

Invoice Factoring  

This service allows businesses to sell their unpaid invoices to lenders to collect on. In return, the business will receive a percentage of the invoice value. This can benefit businesses that are awaiting payment from customers but need cash immediately.  

Invoice Financing 

Similar to invoice factoring, invoice financing allows businesses to sell their unpaid invoices as collateral in order to receive a cash advance. In this case, the business is still responsible for collecting payments from their customers in order to repay the amount financed.  

Tax Debt Relief for Small Businesses 

There are several loan options available to small businesses, whether they are a startup in need of fast cash, or an established business looking to expand. It is essential for small businesses to ensure that they are compliant with all tax laws in order to keep their business going. If you need tax help, give us a call at 800-536-0734 for a free consultation today. 

By |Tax Planning|Comments Off on Types of Loans for Small Businesses
Read More

Tax Fraud: How Do You Protect Yourself From Something You Don’t Know Exists?

You’ve always filed your income tax returns electronically in the past. Your returns were less vulnerable to calculation errors and you received your tax refund much quicker than you did filing paper returns. But this year, when you attempted to e-file your federal income tax return, the IRS rejected your submission, issuing a statement that a previously filed return using your Social Security number was already on file. How could such a thing happen?

Welcome to the world of identity theft, tax fraud style. Scammers filing falsified returns reap millions for their fraudulent efforts, spending the money from their ill-gotten gains long before the IRS – or their victims – become privy to the fact that a crime has even been committed. Many victims only learn that they’ve been targeted after receiving an audit notice from the IRS. In the meantime, fines, fees, penalties and interest from tax return fraud have accumulated, – and it’s largely up to victims to straighten out the mess.

How tax fraud victims are targeted

Phone and Email Scams

The most obvious way to protect yourself against scammers is to never give out your personal information to someone you don’t know, especially over the phone. If someone from the “IRS” is attempting to contact you over the phone or by email and asks for your social security or card information, don’t give it to them. The IRS almost never contacts via phone, instead preferring to send notices via mail.  Even if you do receive a call from the IRS, they won’t ask for your social security number – they already have that information.  If you feel uncomfortable about the validity of a call, hang up and call the IRS yourself – that way you know if what they’re telling you is true.

Accountant fraud

Be wary of scammers who will pose as a tax preparer and then rip off customers through refund fraud or identity theft. These phony accountants will tell you that they can get you a large tax refund and typically prey on low-income and non-English speaking taxpayers. 

Even if you go to a legitimate tax preparer, your information can still be exposed if there is a data breach. To avoid this happening – and being left vulnerable – ask your tax preparer what more you can do to protect your information in case of a breach.

Identity theft

Make sure to protect your social security number at all costs. Identity thieves will attempt to steal this information in order to steal not only your identity but your tax refund too. As long as you notify the IRS that your information has been compromised and your refund has been stolen, the IRS will work with you to provide your refund. However, it will take extensive time and paperwork to prove that your information was stolen.

Protecting Yourself from Tax Return Fraud

The best way to protect yourself from tax return fraud is by limiting access to your Social Security number. A bit of vigilance will protect you from many fraudulent attempts to obtain your Social Security number. Don’t carry your Social Security card unless you need to provide a copy for a job application or a similar purpose. Protect sensitive information on your computer by maintaining up-to-date antivirus and antispyware software and firewalls.

Think twice before responding to unsolicited “pre-approved credit” offers received online or in the mail. Never supply sensitive personal or financial information unless you have initiated the transaction or conversation – or unless you are 110 percent sure that the person on the phone or the website you’re dealing with is the real deal. If you receive questionable communication requesting (or demanding) sensitive financial or personal information from a company you’ve done business with, contact the company directly to verify that it is indeed them requesting the information.

If you receive unsolicited email, social media or text messages claiming to be from the IRS, there is a 100 percent probability that they’re fake. The IRS only initiates communications with taxpayers by regular mail or by telephone – period. Do not respond directly to such communications in any way. Instead, report suspicious IRS-related communications to phishing@irs.gov or call 1-800-366-4484.

If You’ve Been Victimized by Tax Return Fraudtax_fraud

The first indication that you’ve been victimized by tax return fraud often comes in the form of an inquiry from the IRS about discrepancies in your return. You may be questioned about returns issued in your name which you never received or wages earned for companies you’ve never even heard of. You may also be assessed additional taxes or tax return offsets for years that you didn’t file a tax return at all. Another telltale sign is a notice from the IRS that multiple returns have been filed during a single year using your Social Security number.

Once you become aware that you’ve been targeted by tax return fraud, you must act quickly to limit the damage. File a complaint with the Federal Trade Commission and a police report with your local law enforcement agency. Contact one or more of the three major credit reporting bureaus (TransUnion, Equifax or Experian) to have a fraud alert placed on your credit report. Close any credit card or other accounts that have been compromised or opened without your knowledge. Also, check your earnings report annually with the Social Security Administration to endure that there is no fraudulent activity.

If your federal tax refund has been stolen or you have other unresolved tax-fraud related issues, contact the IRS Identity Protection Specialized Unit at (800)908-4490. You can protect yourself from further tax return fraud attempts by filing “Form 14039 – Identity Theft Affidavit” with the IRS. It’s likely that you’ll be required to file a paper return for the present tax year and it may take months to resolve your case, as well as restore any refunds to which you’re rightfully entitled.

However, the IRS will issue you a unique IP PIN that will replace your Social Security number and which will allow you to e-file future federal income tax returns safely. Do not use this IP PIN for any other reason – including state income tax returns.

By |Tax Planning|0 Comments
Read More

Tax Evasion, Fraud & the Statute of Limitations

Tax Evasion, Fraud & the Statute of Limitations on Tax Crimes

Tax evasion and fraud is not just a problem for white-collar crime criminals. Filing your taxes, particularly if you have considerable assets or run your own business, can be terribly complex. This means that the line between an aggressive – but legal – tax planning strategy and fraud is thinner than you might think.

Perfectly innocent mistakes may be interpreted by an IRS investigator as suspect. Therefore, even if you are a law-abiding taxpayer it pays to know the difference between tax evasion and tax fraud, the penalties, and what the IRS’ statute of limitations is when prosecuting tax crimes.

Tax Evasion vs. Tax Fraud

Although often used interchangeably, there are important differences between tax evasion and tax fraud. Tax evasion refers to the use of illegal means to avoid paying your taxes. This includes felonies, such as refusing to pay your taxes once they have been assessed, and misdemeanors; such as failing to file a return. Tax fraud, on the other hand, refers to lying on your tax return and falsifying tax documents- which is always a felony charge. This can extend to tax scammers will pose as a tax preparers and then rip off customers through refund fraud or identity theft. These phony accountants are committing Accountant Fraud and will tell you that they can get you a large tax refund and typically prey on low-income and non-English speaking taxpayers.

Take for example celebrity-convict Wesley Snipes, who was charged with three counts of failing to file a return. Snipes was convicted for three misdemeanor charges and received the maximum one-year sentence for each count. If he had been found guilty of a felony evasion charge or of tax fraud, he could have received up to five years for each count.

Statute of Limitations for Tax Evasion or Tax Fraud

The statute of limitations of a crime is the amount of time a prosecutor or a plaintiff has to file charges. In the case of taxes, it represents how long you should be looking over your shoulder after – willfully or otherwise – lying on your tax return.

The general rule of thumb is that the IRS has three years to audit your tax returns. If an investigation of your tax return reveals you concealed over 25% of your income, the IRS gets twice the time, six years, to file charges. However, this time period can be extended for a variety of reasons.

How can the Statute of Limitations be extended?

There are some stipulations that can make those ten years spread out to an even longer period of time. Here are some reasons you may have an extended tax statute of limitations:

  • If you agree to an extension, your statute is placed on hold until that extension time is up.
  • If you file bankruptcy, your statute is placed on hold until six months after the bankruptcy and court proceedings have been finished.
  • If you leave the country for at least six months, the statute is placed on hold until you decide to return.
  • If you are making payment installment arrangements or request innocent spouse relief, the statute is placed on hold until the final decisions are made.

For instance, if you are not in the United States or you become a fugitive, the statute of limitations may be “tolled” – or stop running – until you are found or return home. Another matter to consider is when the 6-year period starts. The IRS could prosecute a series of fraudulent tax returns as a single charge and only start counting the six-year period from your last act of tax evasion or fraud.

It gets worse. Although the IRS is limited to how far back it can look when filing charges in criminal court, there is no statute of limitations for civil tax fraud. This means the IRS can look back as far as it wants when suing for civil fraud. In practice the IRS rarely goes back more than six years because it has a high enough burden of proof to meet in fraud cases without having to deal with the added difficulties of proving older charges.

Tax Crime Statistics

Let’s end with the good news. Although the law grants extensive powers to the IRS, the chances of you being charged — never mind convicted — of tax fraud are minimal. According to IRS statistics, of the approximately 240.2 million tax returns filed, less than 2,000 people were investigated for fraud in 2020. Of those who were investigated, only half were actually charged with a criminal offense. However, once the IRS charges a taxpayer, the conviction rate is high: around 93%. Tax prosecutors have a high burden of proof to meet and their resources are limited; so they tend to focus their efforts on clear-cut cases.

Another positive tidbit is that the IRS rarely brings up an original return in audits or criminal prosecutions, if you came forward and tried to correct mistakes through an amended return. This means that if you avoid blatant abuses and correct filing errors when they come up in an audit, your chances of staying on the right side of a prison cell are excellent.

By |Tax, Tax Planning|Comments Off on Tax Evasion, Fraud & the Statute of Limitations
Read More

Live Here, Work There. Where do I pay state income taxes?

After weeks or months of job seeking, you land the position of your dreams — but the job is in a different state. The location of the job is close enough so that you can commute every day rather than move, but you are still faced with the dilemma of where and how to pay state income taxes. Here’s what you should know if you live in one state but work in another.

Do I Pay State Income Taxes Where I Live Or Work?

The easy rule is that you must pay non-resident income taxes for the state in which you work and resident income taxes for the state in which you live, while filing income tax returns for both states.

However, this general rule has several exceptions. One exception occurs when one state does not impose income taxes. The other exception occurs when a reciprocal agreement exists between the two states.

States with No State Income Tax

There are currently seven states in the U.S. that have no state income tax:

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

Two more states, New Hampshire and Tennessee, tax only dividend and interest income. If you work in one of these nine states but live in one of the 41 states (plus the District of Columbia) that do impose state income taxes, you will generally pay only resident state income taxes for the state where you live. Similarly, if you live in one of these nine states but work in a state that imposes state income tax, you would only pay nonresident taxes for the state where you work.

For instance, if you live in Bristol, Virginia but work in Bristol, Tennessee, you will pay Virginia resident state income taxes. Likewise, if you worked in Bristol, Virginia and lived in Bristol, Tennessee, you would pay Virginia nonresident state income taxes. In both cases, you will only file a single state income tax return.

States with Reciprocal Tax Agreements

What if you live in Milwaukee but you commute every day by Amtrak to Chicago? It just so happens that Wisconsin and Illinois share what is known as a reciprocal tax agreement. Reciprocal agreements allow residents of one state to work in neighboring states without having to file nonresident state tax returns in the state where they work. As a result, your employer would deduct only Wisconsin state taxes from your paycheck, and none for Illinois. Likewise, if you live in Chicago but work in Wisconsin, your employer will only deduct Illinois resident state income taxes from your paycheck. In both instances, you would only be required to file one state income tax return.

States without Reciprocal Tax Agreements

If you are unlucky enough to work across state lines in a state with no reciprocal agreement with your resident state, (for instance, Illinois and Indiana), then you will need to file income tax returns for both states. However, you should also be able to claim a credit on your resident state income tax return for the state income tax that you paid for the nonresident state. The result is that you actually pay taxes for one state, even though you must deal with the hassle of filing returns in both states.

Please note that reciprocity is not automatic. You must file a request with your employer to deduct income taxes based on your state of residence rather than where you work. Unless you make a formal request, with your employer, you will continue to be taxed by both states and you will continue to be obliged to file two state income tax returns.

Filing Multi-State Income Tax Returns

Many people are faced with the dilemma of working in one state and living in another, meaning they need to file a nonresident state tax return. People living and working in two different states often delegate the task of filing state income tax returns to a tax preparation expert, an accountant, or a tax attorney. Still, know that many online and home-based tax preparation software programs include state income tax forms with detailed instructions on how to file multi-state tax returns. If your tax situation is otherwise straightforward, you can save yourself a considerable amount of money by using a software program that includes both state and federal income tax forms and filing your own income tax returns.

If your career move was international there are other tax considerations, you should be aware of. Read our article on reporting foreign income to learn about your tax obligations when working overseas.

Get Tax Help

Let Optima Tax Relief Help

Our professionals will put your mind at ease.

Get Tax Help
By |Tax Planning|0 Comments
Read More

What is IRS Notice 1444 and will you need it for filing your 2021 taxes?

With the pandemic still ongoing and many Americans out of a job, the distribution of two stimulus checks has helped many individuals pay their bills. Now that it is tax filing time, tax filers should have received Notice 1444 in the mail from the IRS. This notice will be required when filing your taxes in order to notify the IRS you have received the stimulus check.

Understanding Notice 1444

If you were sent Notice 1444, you probably received an economic impact payment (EIP), also known as the stimulus payment. Notice 1444 was sent out to each stimulus recipient within 15 days of the IRS issuing out the payment. The notice should indicate the following:

  • The amount of the payment.
  • A phone number to call if a recipient has any questions.
  • Where a recipient can find information about their payment.
  • How the payment was made i.e. direct deposit, check, or debit card.
  • A reminder to keep the notice with your taxpayer records for your 2020 tax return.

Why Notice 1444 was mailed out

Notice 1444 was issued by the IRS to recipients of the economic impact payment. It should be kept with other important tax documents to be used for when it comes time to filing your 2020 taxes. For those who did not receive the full amount for the stimulus payment but qualified for the full amount, having Notice 1444 will come in handy. The notice will reflect the total amount you received and can be used when filing your taxes in order to get the rest of your payment.

Is there a deadline for IRS Notice 1444?
There is no deadline for Notice 1444. It is important that taxpayers hold on to their notice and file it away with their other tax documents for end of year tax preparation.

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.

By |Tax Planning|Comments Off on What is IRS Notice 1444 and will you need it for filing your 2021 taxes?
Read More

How to Renew Your ITIN

Taxpayers need to act quickly to renew their Individual Taxpayer Identification Number (ITIN). An ITIN is a tax ID number used by those who aren’t able to obtain a Social Security number. Individuals can get their ITIN renewed quickly in order to avoid any processing issues by submitting their application as soon as possible.

ITINs with the middle digits 88 expired at the end of 2020 including any ITIN that was not used on a tax return within the past three years. ITINS assigned in 2013 with the middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99 that have yet to be renewed will also expire at the end of the 2021 year.

Renewing your ITIN

Taxpayers can submit Form W-7 along with all required forms of ID and residency documents to the IRS. If you’re submitting a Form W-7 to renew your ITIN, you’re not required to attach a federal tax return. For spouses and dependents, they will only need to renew their ITIN if they are filing an individual tax return or if they qualify for an allowable tax benefit.

Families have the ability to renew their ITINS together

If you have other family members that need to renew their ITIN too, the IRS will accept W-7 forms from everyone in the family if a minimum of one family member listed on a tax return has an ITIN that is expiring.

Alternative ways to submit an ITIN Application Form

Some taxpayers may be eligible to use an IRS authorized Certifying Acceptance Agent to make an appointment at a designated IRS Taxpayer Assistance Center. This allows you to hand-deliver your documents to the IRS.

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.

By |Tax Planning|Comments Off on How to Renew Your ITIN
Read More