Tax Planning

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 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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How to Avoid Tax Fraud During Tax Season

man working late at night

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.

  • Tax Season leaves many taxpayers vulnerable to identity theft and scammers.
  • Scammers can pose as tax preparers and steal your personal information. 
  • Protect your social security and bank information to ensure it does not end up in the wrong hands. 
  • Ask your tax preparer how you can avoid your personal information getting leaked if there is a data breach. 

Most people don’t realize how vulnerable they are to fraud during tax season.  The scary truth is that during this time of year, many identities are stolen and fraudulent tax returns are unwittingly filed on behalf of a taxpayer. In order to protect yourself, it is vital to exercise caution and provide only the documents and information that are absolutely necessary. Below are a few scams to be aware of during tax time to help avoid becoming a fraudster’s next victim.

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.

Medical Identity Theft

Financial fraud such as a stolen credit card can be frustrating but can be quickly resolved since it’s easier to detect, and often doesn’t have significant long-term financial impacts. Medical identity fraud, on the other hand, can cost a victim $13,500 on average and be notoriously difficult to resolve. Because of advancements in electronic communication and collaboration in the healthcare industry, personal health information (PHI) is more exposed and accessible. At the same time, this doesn’t always mean that your health provider is on the same page with your insurer. PHI is rarely tracked across multiple networks and this gap can make stealing and using it feasible.

In conclusion…

Tax Season is now upon us, and it’s important to protect your personal information and ensure that it can’t be compromised. Always be wary of phone calls or emails that you receive claiming to be from the IRS, especially when they’re asking for your bank information or social security number. Also, do your research when looking for a tax preparer to file your taxes for you, and make sure they have their license, as well as positive reviews from previous clients. Lastly, make sure to monitor your social security number to ensure that your data has not been breached and your identity hasn’t been stolen. 

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

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What is the Minimum Income to File Taxes?

Do I Need to File a Federal Tax Return?

More than 43% of Americans don’t have to file a federal tax return. Are you one of them?

While the IRS expects to receive more than 150 million tax returns this year, it is estimated that nearly 43% of Americans don’t have to file a federal tax return according to the IRS.

So how are millions of Americans avoiding this tedious task? Is there minimum income to file taxes?

Do I Need to Pay Federal Income Taxes?

The recent recession had a lot to do with the fact that nearly half the country is off the hook when it comes to filing a tax return. Many people faced a drastic reduction in their earned income, and now simply do not make enough money to meet the minimum requirements to file. Additionally, President Obama teamed up with Congress to boost existing credits and create new stimulus measures which have resulted in many people qualifying for tax benefits and credits which eliminate their tax obligation entirely.

What is the Minimum Income to File Taxes?

There is a minimum income to file taxes. If you are age 64 or younger, filing as single and earned more than $10,000.00 in 2013 ($11,500.00 if age 65 or older), then you are among those who have to file a tax return with the IRS this year. If you were married at the end of 2013 and you plan on filing separate returns, you must file if you earned more than $3,900.00 in 2013.

* Is there a minimum income to file taxes for children?

These days there are more and more children working each year, oftentimes earning enough throughout the year to require that they file a return as well. This can be a complicated matter when trying to decide if the child should file a return and how that could affect their parents claiming them as dependents on their own return. Basically, a child must file a tax return if their earned income was over $6,100, however parents are still able to claim these children as dependents on their tax return if the child lived with them.

Even if you’re not required to file…

One important thing to consider is even if you are not required to file a federal tax return for 2013, you may want to still file a return as it may result in a refund owed to you. If you had income tax withheld from your paycheck or if you qualify for the EITC, additional child tax credit, health coverage tax credit, or refundable American opportunity education credit, filing a return will most likely result in the IRS sending you a refund check.

The Earned Income Tax Credit

A major tax credit that helps Americans reduce their tax liability is the Earned Income Tax Credit (EITC). The EITC was originally approved by Congress in 1975 to help working Americans (with a low to moderate income level) keep more of what they earned. According to the TPC, about one in five tax returns (close to 28 million) that were filed in 2010 claimed the EITC, resulting in over 60 million dollars in credit to Americans. For the 2013 tax year, working families with children that have annual incomes below $37,870 to $51,567 (depending on number of children) will be eligible for the federal EITC, as well as those without children that have incomes below $14,340.

According to the IRS, about three out of four people who file a tax return this year will receive a refund. Last year taxpayers received an average refund of $2,744, and the IRS is typically able to process that refund within 3 weeks. You can get your refund from the IRS quickest by e-filing your tax return and opting to direct deposit your refund into your bank account.

Filing your annual income tax return can be a complicated and tedious task, but there are many benefits and credits available now to help reduce or even eliminate your tax liability. Even if you are not required to file a return, these tax credits can result in an unexpected refund from Uncle Sam. However, you have to file the return to receive the cash, so be sure to explore all of the available credits and deductions when preparing your return this year.

Need some help filing taxes? Optima Tax Relief offers tax consultation.

Tips to Help Understand and Avoid Tax Scams

Tax Scams

You’ve just received a notice from the IRS.  It indicates that, after multiple attempts to get in touch with you, they are going to levy you. You start to panic; you don’t remember the IRS ever attempting to reach out to you.  Maybe you’ve never even owed a tax liability. After calling the number on the notice, the agent on the line tells you to pay up – or face the consequences. Afraid that the IRS will levy your bank account – and possibly seize your house – you provide your payment information over the phone. You check your bank account and your entire savings are gone. You contact the number again, but the line has been disconnected. When you do get in touch with a real IRS Agent, they tell you that you never owed a balance with them in the first place.  You were just scammed.

Millions of Americans will receive communication from scammers impersonating the IRS, using scare tactics to get people to fork over their hard earned money.  These scammers will attempt to take your money by calling your personal phone, sending malicious emails, and sending fake letters like the one in the example above.  Below we will break down these different forms of communication and the different tactics they will take to gain your trust and steal your money.

One of the most common forms of tax scams is by leaving automated voicemails on your personal phone that tell you the IRS will be collecting on owed taxes or that there is a warrant for your arrest. In some cases, they will even mirror their number to make it appear similar to an actual IRS number. These fraudsters will most likely ask for cash payments sent to a temporary address or try to get you to tell them your social security number. Some may even ask for your bank account number directly in an attempt to bleed your account dry.

Sending false emails is a tactic known as “phishing.” When people click on a link in these emails, it uploads a virus that steals your sensitive information, allowing them access to your passwords, and even your bank accounts and credit cards.

Fake IRS notices are sent in an attempt to have you call the number listed on the letter.  Once they have you on the line, they bully you just so they can gain access to your personal information. The letter itself may look like it was directly sent to you by an assigned revenue officer from the IRS, and it can be difficult to tell the difference.

There are ways to protect yourself from scammers. It is important to know that the IRS will never ask for your bank account or card information over the phone, nor will they ever demand you to pay back your supposed balance immediately without first providing you with balance due notices in the mail. The IRS will also never ask you for your payment in one specific or unusual way, such as with gift cards or prepaid cards.  In addition, if the IRS is claiming that there are discrepancies on your tax return and you feel as though their claim is wrong, the IRS will allow you to provide proof your tax return is accurate. Finally, the IRS will never call you and tell you that they are going to have you arrested or sued for not paying your tax liability back to them.

It is important to always verify where the source of notices, phone calls or emails you receive are coming from. Owing the IRS can be frightening, but what’s even scarier is knowing that there are scammers preying on taxpayers, trying to steal from them. Always be cautious and aware of your tax situation and be sure to verify who you’re speaking with and where your money is going. You can contact the IRS directly at 1-800-829-1040 or you can go directly onto the IRS’s website to learn more about preventative measures to take to ensure you won’t get scammed.

Some safeguards you can take to stay protected this tax season are:
  • Schedule time with your tax preparer now so you can get your taxes done as early as possible. This will help decrease the chances that a fraudster will get your refund before you do.
  • Sign up for Scam Alerts from the FTC to stay abreast of all the dirty tricks scammers are currently using.
  • Talk to someone in your HR department to see if you can get your W-2 before it’s mailed out. This will help ensure that you actually receive it so you don’t have to risk it being lost or stolen in the mail.
  • Never send emails with personally identifiable information (PII) attached. It’s best to never send them through email at all, but if you must, you should encrypt your message by making a change in your email’s security settings.
  • Beware of computer scams. These can come via email or as popups on your computer asking for your personal information.
  • Always use a professional, trustworthy tax preparer. Sometimes, even national tax preparation chains can scam you out of your money or use less-than-secure procedures when it comes to handling your personal information. Make sure you use someone you trust.
  • Never provide any personal information over the phone to someone who says they are from the IRS. The IRS will never contact you via phone, email or social media.

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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Save Tax Green By Going Green

If you are eco-conscious, you probably sort your disposables for recycling, wash your clothes in cold water, carry reusable shopping bags to the grocery or perform other environmentally-friendly actions. But did you know that you may also be eligible to receive tax credits and deductions from Uncle Sam? While tax breaks for going green are not nearly as generous as they were in past years, it is still worth your while to investigate possible savings from the IRS for projects that you plan to carry out anyway.

Make Home Improvements

Did you recently replace one or more drafty windows or reinforce the insulation on your home? If so, you may qualify for tax credits through the Non-Business Energy Property Credit, which covers 10 percent of costs associated with purchasing and installing qualified energy-efficient insulation, doors, metal and asphalt roofs and windows.

The credit is also available for non-solar heating, ventilating and air conditioning (HVAC) systems, biomass stoves and non-solar water heaters. A maximum of $200 in credits can be claimed for window installation, with a $500 lifetime limit in total credits. The credit can only be applied to improvements made on your existing primary residence located within the United States. The Non-Business Energy Property Credit expired at end of December, 2013; new projects will not qualify unless Congress votes to renew the credit.

Update to Energy Efficient Appliances

Have you resorted to showering with cold water to save money on your utility bills? Perhaps you should consider installing an energy-efficient solar hot water heater.The Residential Energy Efficient Property Credit covers up to 30 percent of the cost of purchasing and installing a solar hot water heater, along with costs associated with solar electricity arrays, residential wind turbines and geothermal heat pumps.

There is no upper limit to the amount of tax credits you can claim, and the credit is applicable to new and existing residential construction. You can also claim up to 30 percent of the cost of installing residential fuel cells and microturbine systems up to a limit of $500 under the program. The Residential Energy Efficient Property Credit remains in effect through the end of December 2016, so you have plenty of time to make those improvements.

Optima Tax Relief has more about how you can get credit for making your home energy efficient in this post.

Green Up Your Ride

If you missed out on the recent Cash for Clunkers program, you may still have a chance to collect tax breaks for buying an energy-efficient car – as long as the car you buy is either a plug-in hybrid or an all-electric model. The Plug-In Electric Drive Vehicle Credit (IRC 30D) applies to four-wheeled passenger vehicles acquired by individuals and businesses after December 31, 2009. Some two-wheeled and three-wheeled vehicles acquired after December 31, 2011 and before January 1, 2014 also qualify for the program. Tax credits for non-plug-in hybrids, diesel-powered vehicles and alternative fuel vehicles (AFVs) expired at the end of 2010.

You may claim $2,500 for all eligible vehicles. In addition, for a vehicle that draws what the IRS calls “propulsion energy” from a battery with a capacity of at least 5 kilowatt hours, you may claim an additional $417. You may claim an additional $417 for each additional kilowatt hour capacity up to a maximum credit of $7,500.

The IRS will begin phasing out the credit over a one-year period beginning with the calendar quarter following a calendar quarter during which a specific manufacturer sells at least 200,000 qualifying vehicles in the United States. (The clock starts after December 31, 2009). During the first two quarters of the phase-out period, individuals who purchase qualifying vehicles may claim 50 percent of the applicable credit; during the second two quarters of the phase-out period, taxpayers may claim 25 percent of the applicable credit. No credit may be claimed after the end of the phase-out period.

As of January 2014, there is little danger of sales triggering the phase-out stage of the Plug-In Electric Drive Vehicle Credit program. The most popular plug-in electric car, the Chevrolet Volt, has sold approximately 56,000 units since it was introduced to the consumer market in December 2010. (Chevy representatives made an announcement at the 2014 Detroit Auto Show that mass production of the all-electric Volt has been suspended; instead, the car will be reclassified as a “niche” model targeted for specific audiences, much like the iconic Corvette.) The Ford Focus electric model had sold just under 21,000 cumulative units in the United States as of November 2013, according to the IRS website.

How to Claim Your Tax Breaks

To claim tax breaks for home improvements and energy-efficient appliances, file Form 5695, Residential Energy Credits.

To claim tax breaks under the Plug-In Electric Drive Vehicle Credit program, individual taxpayers submit Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit along with their federal income tax returns. Under the American Recovery and Reinvestment Act (the “stimulus”), individuals who purchase qualified vehicles during 2010 or later may apply the credit toward payment of the Alternative Minimum Tax (AMT), if they are subject to the tax. To claim the credit for vehicles purchased for business use, submit Form 3800, General Business Credit.

Going green doesn’t reap the same rewards it used to, but there’s still money on the table if you’ve made any of these changes. Don’t let these tax credits fall through the cracks!

Photos: Flickr, Al.com