Tax Planning

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.

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How to Claim a Domestic Partner as a Dependent

Every tax year, a large number of people are claimed as dependents on tax returns. Under certain circumstances, a dependent can be claimed if they are not related to you. Once someone is identified as a dependent and placed on your tax return, you’re essentially informing the IRS that you’re financially responsible for that person.

For 2020, the dependent credit for other than qualifying children is $500. A credit is different from a deduction because the credit reduces any taxes that are owed while a deduction will reduce the amount of income that is subject to tax.

A partner can be claimed as a dependent if they meet the following criteria:

  • No one else is able to claim your partner as a dependent child on their tax return.
  • The person that is being claimed must be a U.S. citizen, a U.S. national, a U.S. resident alien, or a resident of Canada or Mexico also might qualify.
  • Your partner must live with you year-round.
  • Your partner’s gross income for the year cannot exceed $4,300 for 2020.
  • You will need to require half of your partner’s financial support during the year.
  • Your partner cannot be married to someone else or file a joint return with that other person.

You and your partner must live together for the entirety of the year in order to qualify as a dependent. If you have moved in the middle of the year, you will be required to wait until the next year before claiming your partner as a dependent.

If you’ve taken a vacation, or were deployed with the military, you will be considered living together. Based off IRS guidelines, the following types of absences will not count against you:

  • Illness, such as time spent in a hospital or rehabilitation facility
  • Vacations
  • Business travel or assignments
  • Education-related absences
  • Absences for military service

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.

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Are Short-Term Disability Claim Payments Considered Additional Income?

If you’re temporarily disabled with an injury, serious medical conditions, or a pregnancy, it is possible you could be covered by short-term disability payments that can be obtained through private insurers and also as part of your employer’s compensation for employees. Payments that you receive could potentially be taxable, it all depends on how and when they are paid. Here’s what you need to know.

Income exemptions

Typically, all income that is received is considered taxable unless it is expressly exempted. These types of exemptions will include worker’s compensation payments and certain compensation that was awarded for damages through litigation.

Short-term disability payments that are received under an insurance policy are not considered exempt and could lead you to be liable for additional taxes if you have already taken on the cost of taxation through the structure of the plan.

Employer disability benefits

If both you and your employer share the cost of a disability plan then you will only be liable for taxes on the amount received due to payments made by your employer. If a taxpayer pays the entire cost of a sickness or injury plan with after-tax money, they will not need to report any payments received under the plan as income.

If an employer only pays half the cost of premiums and does not deduct these payments from a taxpayer’s pay, then a taxpayer will most likely report half the payments received as income. Medical costs that have been paid for after the plan was established and have yet to be reimbursed are generally not taxable.

Cafeteria plans

This is an insurance program that allows employees to pick the coverage they would like to receive from a menu of options. This coverage is typically paid for by directing pre-tax dollars to the plan.

If the amount of the premiums is paid for by an employer or by you with before-tax dollars, then a taxpayer will most likely need to report any payments received as income. However, if the income used for the plan was paid for by a taxpayer with after-tax dollars, they are considered to have paid the premium and no payments under the plan will need to be reported.

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.

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Are Political Contributions Tax Deductible?

Many Americans show their support for their preferred political candidate by voting for or donating to the candidate’s political party. If you’re wondering if your financial contribution to a political campaign affects your taxes in any way, you’re not alone. Here’s everything you need to know about tax deductible contributions for political campaigns.

Are Political Contributions Tax Deductible for Businesses?

In short, yes. However, businesses are cautioned against deducting political contributions, donations, or payments on their tax returns.

Can I Deduct My Expenses If I Volunteer for a Political Campaign?

For those who volunteer for a political candidate, campaign, or political action committee, the time you volunteer will not be considered a tax deductible donation when filing your taxes.

Is it Considered a Tax Deduction When Supporting a Presidential Campaign?

 When filing your taxes, you have the option to set aside $3 of your taxes to go towards the Presidential Election Campaign Fund when you complete your 1040 federal income tax return form. You can check the box to donate the funds and it will not affect your taxes or deductions.

Are There Limits to Political Contributions?

Taxpayers wanting to support a political candidate or party can contribute the following amounts:

  • Up to $2,800 per candidate and election.
  • Up to $10,000 to state, district, and local parties combined each year.
  • Up to $106,500 to a national political party, per account, and per year.

Are there any Political Donations that are Tax Deductible?

To qualify, you must be a registered non-profit organization that operates as a true charity to take a tax deduction for the donation.

If you volunteer, give cash or non-cash items to a 501(c)(3) organization, your donation may be a qualified tax-deductible charitable contribution. To confirm if the organization you gave a donation to is a 501(c)(3) organization, you can use the Tax-Exempt Organization Search Tool from 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.

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How Renting Out Your Home Affects Your Taxes

Tax Tips For Landlords

If you have decided to dive into the sharing economy by renting your home or part of it out — whether it’s through a service like AirBnB or independently — you need to be aware of how the rental income will affect your taxes.

Renting any part of your home requires some work up-front and ongoing management. You have several tasks ahead of you. You’ll most likely want to spruce up the place with comfy furnishings and linens, and maybe a fresh coat of paint. You’ll also need to check the legal regulations for renting in your local area. You may discover there are limitations on the type of rentals you can offer, be they short-term or long-term.

And then, there’s landlord tax. Running afoul of the IRS can potentially wipe out any financial gains you may reap from renting your home – be sure to abide by the laws of landlord tax. Fortunately, you can reduce your potential tax bite with diligent record-keeping. Here’s everything you need to know about renting out a room and applicable taxes.

The 14-Day Rule & Paying Rental Income Taxes

The most convenient and potentially lucrative scenario would be to completely avoid reporting or paying rental income taxes on what you earn from renting out your home or a spare room. Well, you can, IF you meet two relatively easy requirements set by the IRS.

First, you must use the residence as a home at least 14 days out of each calendar year. Second, you must limit the time that you rent any part of the residence that you use as a home to 14 days or less each tax year. That’s it.

So if you have a primary residence plus a vacation home where you spend at least two weeks of the same year, you could rent out rooms in both and collect rental revenue for 28 days (14 days for each residence) completely tax-free. It gets better: the IRS places no upper limit on how much income you earn as long as you don’t exceed 14 total days of rental per property. (IRS.gov)

If you live near the town where the All-Star game for a major sport is being played that year, you could rent out one room or the entire place for the week, rake in major cash, and never report a dime on your tax return. Pretty sweet. But, if a renter burns a hole in your floor, you’re stuck paying for the repairs.

 Rent Your Home for More Than 14 Days?

Should you exceed the 14-day threshold, things become a bit more complicated. First, you must determine whether you or family members will reside in the residence or use it for personal purposes for at least 10% of the time that you rent at a fair rental price. You don’t have to be there at the same time you’re renting, but your time in the residence must equal at least 10% of the total rental time. So if you rent out your vacation home for 300 days each year, you or another qualifying person will need to live there for at least 30 days during the same year for the IRS to qualify the residence as a home. For the purposes of this article, the assumption will be that the residence qualifies as a home for IRS purposes. (IRS.gov)

The rules differ for rental properties that are used for what the IRS calls “personal purposes” rather than as residences. There are also different regulations that apply if you use the rental property as a residence, but don’t live there enough of the time for the residence to qualify as a home. To sort out those types of issues, consult with a professional such as a tax attorney from Optima Tax Relief.

Which IRS Form Do You Need to File Rental Income?

As a contractor with AirBnB living within the U.S., you would complete Form W-9, Request for Taxpayer Identification Number and Certification. You would also receive Form 1099, Miscellaneous Income before you file your federal income tax return for the following year. (International contractors need to complete different forms.) If you operate as an independent, you will need to maintain your own records for rental income and expenses, preferably separate from your personal household expenses.

If you provide sleeping space, but no frills, report income and losses on Schedule E, Supplemental Income and Loss, attached to Form 1040, Form 1040NR or Form 1041. If you splash out on fluffy towels, turn-down service, and catered breakfast in bed for your guests, report income and expenses through Schedule C, Profit or Loss from Business, also filed with Form 1040, Form 1040NR or Form 1041.

In either case, you are also allowed to deduct the costs of repairs, depreciation (by filing Form 4562, Depreciation and Amortization), uncollected rents and actual operating expenses. But if a renter trashes the place and you file Schedule E, you will also need to complete Form 6198, At-Risk Limitations or Form 8582, Passive Activity Loss Limitations. If you’re not sure which form you should complete, consulting a tax professional is your best strategy.

Fair Rental Prices and How They’re Calculated

If you live in the heart of Manhattan or in a condo overlooking Lake Michigan in Chicago, you might think that setting your rents at bargain basement levels will help you beat the competition. If you set your prices too low, you may well attract the unfavorable attention of the IRS.

That doesn’t mean that you must charge exactly what every other landlord or private renter in your area charges for rent. It does mean that you must set prices for your rental that are comparable to the going rent for similar properties in your area – what the IRS calls “fair rental price.”

If you fail to charge fair rental prices or if you never report a profit from your rental, the IRS may decide that you’re not serious about making money. You don’t have to show a profit every year, but the IRS assumes that you have a genuine profit-making motive if you show gains during at least three of the most recent five years, including the current year. (IRS.gov)

The Hobby Loss Rule

If you fail to show profit, you could be hit by the so-called “hobby loss rule,” which prevents you from using losses related from your venture to offset other income on your federal tax return. Instead, you use most losses related to your rental activities as itemized deductions on Schedule A. Deductions would be limited to the following strict limitations.

  • Deductions such as mortgage interest and taxes are allowed in full
  • Deductions like advertising, insurance, and premiums are allowed only to the extent that gross income exceeds deductions from the first category
  • Deductions such as depreciation and amortization are allowed only to the extent that gross income exceeds the amount of deductions taken for both of the prior two categories.

How the Sharing Economy Works

Knowing the ins and outs of renting your home and taxes can be tricky. However, this article is not intended to discourage you from renting out your home, being a live-in landlord, or otherwise participating in the sharing economy. It’s a potentially exciting way to meet interesting people from all over the country or even other parts of the world.

But just as you want your house or apartment to look its best, you’ll also want your financial house to be in order, too. That way you can concentrate on being the best host you can be, without being hit with unpleasant surprises at tax time.

Need some help with landlord tax? Consult one of our tax professionals to learn more about renting out a room and taxes.

California Tax Rates, Incentives & Exemptions

As the most populous state in the union, California attracts new residents from all over the country and around the world. From the glow of Tinseltown to the technological buzz of Silicon Valley, dreamers and entrepreneurs alike are drawn to the state. But California is also one of the most expensive states to call home – 3rd highest to be exact. California tax rates are some of the highest in the nation.

Businesses in California are not spared from the tax hammer. California imposes corporate income taxes on “C” corporations and limited liability companies that operate like corporations. As a result, many entrepreneurs who operate small businesses in California are subject to quadruple taxation – double taxation from Uncle Sam and double from California.

But as of 2014, California has enacted a series of tax breaks which will award millions of dollars in tax credits to qualifying businesses. These tax incentives were designed to lure businesses to re-locate or keep their base of operations within the state.

Aerospace Industry Gets a Break with State Tax Credits

One business field seeing some high-profile tax breaks in California is the aerospace industry. California was at one point in time the center of the aerospace industry, before the US government was forced to make drastic cut-backs in the 1990’s, essentially reducing the workforce by more than 50% of its workers. California Governor, Jerry Brown, has been trying to put together an incentive package of sorts to entice some of the larger employers to come back to the state, which would improve employment rates, bring a huge influx of new business and cash flows, as well as help off-set the current financial problems that California is facing.

The Aerospace Tax Clarification Act, which was passed in April, cleared up some ambiguity regarding the classification of rocket propulsion systems. This new act clarifies that these rockets qualify for an existing business tax exemption, rather than being classified as a taxable business supply as the prior law read.

“The space commercialization industry is not only developing some of the most advanced space vehicles in the world,” stated Assembly member Al Muratsuchi, “but is also creating thousands of local, high-paying manufacturing jobs.” This law was a direct nod to the Space Exploration Technologies Corporation, a Los Angeles based enterprise founded by Tesla billionaire, Elon Musk. The bill was also supported by Northrop Grunman, the Commercial Spaceflight Federation, Aerojet Rocketdyne Inc., a division of GenCorp Inc. and Lockheed Martin.

Governor Brown is also pushing for the aerospace bill to be expanded to cover the automotive industry. California is one of several states currently bidding for Tesla to build its proposed $6 billion factory to manufacture a new auto battery, known as the “gigafactory”, here in the state. This addition to California would mean the creation of at least 6500 new jobs as well.

Additionally, Governor Brown signed a law in July 2014 which grants a 17.5 percent tax credit on wages for workers hired to build aircraft. The bill serves as an incentive to score lucrative contracts for high-paid aerospace jobs within the state. There was also a 10-year tax exemption granted for the manufacturing of equipment used for the space travel industry.

Is there a tax credit for small businesses in California?

Under the California Competes program, a full 25 percent of the $29 million in tax credits will be reserved to small businesses with gross receipts of less than $2 million annually. Huge corporations are not the only beneficiaries of the new tax incentives in California. The state recently instituted the California Competes tax credit program, designed to provide financial incentives for businesses to relocate to California or for businesses within the state to remain and add jobs.

The California Competes tax credit program replaces the former Enterprise Zone program, which was eliminated in 2013 due to it being wasteful and inefficient. Credits allocated by the program are tentatively set at $30 million for fiscal year 2013/14, $150 for fiscal year 2014/15 and $200 million for each fiscal year after that through 2018. The state’s website lists the following criteria by which California Competes tax credits will be awarded:

  • The number of jobs created or retained
  • Total compensation, including wages and fringe benefits
  • Investment in the state
  • Unemployment or poverty rates where businesses are located
  • Other state and local incentives available to the business
  • Incentives from other states
  • Duration of commitment of the business or project
  • Overall economic impact
  • Strategic importance of the business to the state, region, or locality
  • Future growth or expansion opportunities
  • Expected benefit to the state in excess of benefit to the business from the tax credit

The California Competes Tax Credit is a non-refundable tax credit, meaning that businesses cannot receive cash back even if the credit is greater than what they would otherwise owe in corporate income taxes. But excess funds from the credit can be carried forward for as long as five years, or until the excess funds are exhausted, whichever is sooner.

Other Business Tax Incentives in California

Other tax incentives for businesses that locate or expand within the state of California include the Manufacturing Equipment Sales Tax Exemption and the New Employment Credit program. Each program is for businesses located within designated Enterprise Zones, or areas that are struggling economically.

The sales tax exemption allows eligible businesses to exclude the State’s portion of the sales and use tax (currently 4.19%), from the first $200 million in equipment purchases made between July 1, 2014 and June 30, 2022. This program will generate significant savings for eligible businesses, allowing them to pay a reduced sales and use tax rate of 3.3125% on qualifying equipment purchases.

The New Employment Credit program allows eligible businesses to receive a credit that may be taken against corporate income tax. This credit may be taken for all qualified employees hired on or after January 1, 2014. The amount of the tax credit equals 35% of the qualified wages paid for each new full-time employee hired, making a potential tax break of up to $56,000 or more per new employee over a five-year period.

For a newly hired employee to qualify the business for the New Employment Credit, they must fall into one of the following categories:

  • Unemployed for 6 months or more (excluding students and self-employed workers) either without a degree or having completed a degree more than 12 months before being hired
  • Veterans separated from active duty for less than 12 months
  • Earned Income Tax Credit (EITC) recipients during the previous year
  • Ex-offenders convicted of felonies
  • Current CalWORKS or county general assistance recipients

Attracting New Business with Tax Incentives

Many Californians approve of Governor Brown’s latest attempts to keep California in the running when it comes to attracting new businesses and keeping the existing ones from moving to another state that offers better business incentives. California is beginning to offer many appealing incentives to businesses, including State Tax credits, new employee credits, green tax incentives, as well as energy and transportation credits. When combined with available Federal tax credits and discounts, California can be a very profitable place for business owners to call home.

Below is a list of some additional tax incentives and tax credits currently offered in the state of California.

California Tax Programs, Credits, and Incentives Benefits to Businesses
California Competes $29 million in various tax credits to businesses who create or retain jobs within the state of California
Aerospace Tax Clarification Act Qualifies rocket propulsion systems for an existing business inventory tax exemption
California Motion Picture and Television Production Credit (AB-1839) 20% of expenditures for a qualified motion picture and 25% of production expenditures for an independent film or a TV series that relocates to California
Manufacturing Equipment Sales Tax Exemption Allows businesses to exclude the state share of sales tax (4.19%) from the first $200 million equipment purchases.
SB 1309 Tesla bill to include tax credits, workforce training grants and streamlined permitting and environmental reviews
New Employment Credit 35 percent of wages between 1.5 and 3.5 times the minimum wage for a period of five years.
California Research and Development  Tax Credit Credit for costs attributable to research activities conducted in California
California Capital Access Program Collateral Support (Cal-CAPS CS) Pledges cash (up to 40% of loan) to cover collateral shortfall of loans of $100,000 or more in Severely Affected areas
Small Business Loan Guarantee Program Enables small businesses to obtain a loan it could not otherwise obtain
Industrial Development Bond Provides manufacturing and processing companies low-cost, low-interest financing for capital expenditures
Employment Training Panel Helps assist with post-hire training reimbursement
Community Development Financial Institutions Investment Credit 20% of qualified investments made into a community development financial institution
Disabled Access for Eligible Small Businesses  (FTB-3548) $125 per eligible small business, and based on 50% of qualified expenditures that do not exceed $250
Enhanced Oil Recovery  (FTB 3546) 1/3 of the similar federal credit but limited to qualified enhanced oil recovery projects located within California
Environmental Tax (FTB 3511) $0.05/each gallon of ultra-low sulfur diesel fuel produced during the year by a small refiner at a California facility
Low-Income Housing (FTB 3521) Similar to the federal credit but limited to low-income housing in California
Manufacturing Enhancement Area Hiring Hiring credit for Manufacturing Enhancement Area
Prison Inmate Labor (FTB 3507) 10% of wages paid to prison inmates
Targeted Tax Area Hiring (FTB 3809) Business incentives for trade or business activities conducted within a targeted tax area

 This article was written by staff writers Audrey Henderson and Jennifer Leonhardi. Consult with Optima’s Tax Relief  professionals to learn more.

 

How to Qualify for the Earned Income Tax Credit

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.

The Earned Income Tax Credit (EITC) is known as a refundable tax credit that applies to low and moderate-income workers. For those who have children, the amount will vary based on the number of kids placed on their tax return. For the tax year 2020, the current earned income credit ranges from $538 to $6,660. 

If you qualify for this tax credit, be sure to claim it on your tax return so you can get the most out of your tax refund. Here’s how you know whether or not you qualify.

In order to know if you qualify for EITC you have to ensure that your earned income does not exceed a certain range. Taxpayers can meet the requirements for EITC without a qualifying child if you have a child that meets all the qualifying child rules for you or your spouse if filing a joint return. Taxpayers can utilize the EITC Assistant to find out their filing status and how they can qualify.

In order to meet the standards for an EITC credit you must use one of the following statuses:

  • Married filing jointly
  • Head of household
  • Qualifying widow of widower
  • Single

For those filing married filing separately, they will not be able to claim the EITC. If you or your spouse are a nonresident alien for any part of the year, you will be unable to claim the EITC unless your filing status is married filing jointly. 

Additional 2019 income rules taxpayers must follow in order to qualify for the EITC:

  • Tax year investments must be $36,000 or less.
  • Form 2555, Foreign Earned Income, Form 2555-EZ, and Foreign Earned Income Exclusion can’t be filed.
  • Total earned income must be at least $1.

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

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What is the Difference Between Form 1099-Misc and 1099-K?

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.

1040 and W2 tax forms

Being self-employed comes with a lot of benefits like being your own boss and making your own hours. Although there are a lot of perks to being self-employed, there are also a lot of additional responsibilities you will have to take on that most W-2 employees don’t have to deal with. For instance, you are responsible for keeping track of all your expenses you incur throughout the tax year, tracking your mileage and maintenance associated with your work vehicle, and ensuring that you are making estimated tax payments throughout the year to avoid owing when filing your taxes.

If you are self-employed or have worked on a contract basis where no taxes were withheld from your pay, it is extremely important to understand the difference between a 1099-MISC versus a 1099-K when filing your taxes.

1099-MISC

This form is issued to independent contractors or those that are self-employed who have been paid $600 or more. If you were paid under $600, this may not trigger a 1099-MISC to be generated, however, you are still responsible for reporting all tax income that you have received throughout the tax year. It is also required to report all self-employment income if your net earnings are $400 or more. 

When a taxpayer receives their 1099-MISC form, they can also claim deductions against their income that should be listed on their schedule C. Adding any work expenses as deductions can help reduce a possible balance you may owe at the end of the tax year.

1099-K

A 1099-K, also known as a Payment Card or Third Party Network Transactions, is used by credit card companies and third-party processors like Paypal and Amazon to report payment transactions they process for retailers or other third parties. You’ll typically receive a 1099-K if you have accepted credit cards or third-party processors and also had more than $20,000 in sales as well as over 200 individual transactions through a third-party processor.

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

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Am I Required to Make Estimated Tax Payments?

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.

For most employees, their employer withholds taxes from their paychecks before sending the money directly to the IRS and state government. These employees don’t have to worry about having to calculate their taxes every paycheck, because it automatically comes out, which could lead to them receiving a nice refund come next tax season.

If you’re self-employed, then you know that your taxes are not automatically withheld from your paychecks. You need to calculate how much taxes need to be withheld by making estimated tax payments either monthly or quarterly. Here are a few tax tips the self-employed should follow in order to stay up to date with the IRS.

  1. Determine your business income. If you expect to be in a higher tax bracket this year, you’ll want to review what deductions you qualify for in order to reduce your income since you will most likely be subject to the highest tax rate. 
  2. Decide when you want to receive your income. Being self-employed usually means you can determine when you receive your payment for the service that you rendered. This can help you estimate how much income you will have and when you need to make your estimated tax payments in order to stay compliant. 
  3. Review what medical deductions you qualify for. Make the most out of your medical insurance deduction by deducting yourself, spouse, or any dependents you have. This will adjust your total income for the year which could help you owe less at the end of the year or even possibly receive a refund. 
  4. Understand itemized deductions vs. business deductions. It’s important to understand the difference because taking business deductions instead of itemized deductions will help you reduce your total adjusted gross income and self-employment tax for the year. 
  5. Track your business mileage. Make sure to keep all business expenses that you incur throughout the tax year such as gas, oil, vehicle maintenance as well as other expenses that may apply. Once you have kept a record of these business expenses, you can deduct it from your tax return. 

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

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Should I File an Amended Tax Return?

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 already filed your tax return only to realize that there’s an error or you omitted pertinent information, you may need to consider amending your tax return. Here are the dos and don’ts you should follow when it comes to determining whether or not you should amend your return.

  1. You received a CP2000 notice. If you received this notice, the IRS is notifying you that they determined there is underreported income on your tax return. Don’t immediately file an amended return when you receive this notice. Instead, review the information that the IRS has provided you and see if there is something in fact missing on your return.
  2. You received an audit notice. In the event you receive this type of notice, the IRS will request you provide further information that they feel you did not prove on your tax return(s). Keep in mind that you are unable to file an amended return when you are being audited by the IRS. 
  3. The IRS rejected your e-filed return. Don’t immediately jump to the conclusion that you need to amend your return if the IRS rejects it. Instead, review all the information to ensure it is accurate (name, birthdates, social security numbers) and attempt to e-file again. The IRS typically rejects returns if they believe identity theft is occurring or if two people have claimed the same dependent. 
  4. You forgot to include additional information on your tax return. If you already filed your return with the IRS and realized that you forgot to include additional income you earned throughout that tax year, you do have the option to amend your tax return to include this additional income. This ensures that the IRS won’t send you a notice later on inquiring about the additional income that you received.  
  5. You forgot to claim a credit of deduction. The IRS offers many credits and deductions for eligible taxpayers to place on their tax return that could potentially lead to them reducing a tax balance they may have or receiving a bigger refund. If you qualify for either a credit or deduction but failed to include it on your return, you can amend your tax return to include this in order to receive the most out of your tax filing.
  6. Your employer made a mistake on your W-2. If there were errors on your W-2 form that lead to your employer having to send you a corrected W-2 form after you filed your taxes, the IRS will allow you to amend your return to include the new information.

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

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