Taxes & Your Savings

How long can the IRS Audit my Taxes?

 IRS Audit taxes

For most taxpayers, the worst thing that can happen after filing their taxes is having the IRS notify them that their tax return is being audited. What most people do not realize is that there is a time frame for how long the IRS can audit an individual and that taxpayers have a right to dispute an audit if they have proper substantiation. Here is everything you need to know if you are going through an audit.

Typically, the IRS has about three years from the date that a tax return was filed to charge you or assess additional taxes. The three-year timeframe is called the assessment statute of limitations. Tax returns that are flagged typically end up going into audit or the individual will receive notification from the IRS stating that some information on their return was underreported. This notice is called a CP2000.

The IRS procedural policy states that an IRS agent will be required to open and close an audit within 26 months after a tax return has been filed. The IRS strictly adheres to its guidelines to ensure that the audit and other processing needs are complete within the three-year timeframe.

For audits that start a few months after a return is filed, the IRS will typically freeze any refunds. The IRS will have to pay interest on refunds that are sent out late, which is why the IRS will attempt to resolve its audit quickly. Once a taxpayer answers the questions regarding their tax return with accuracy, then their refund will be released and sent out.

Audits that happen immediately after filing a tax return typically contain tax credits, earned income tax credits, and the child tax credit. The IRS usually wants to verify the filing status, dependents, and other return items before sending your refund.

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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Working from Home? Here’s what You need to know about the Home Office Deduction.

With so many Americans having to make the transition from working in the office to working remotely, one question individuals may have before filing their taxes is if working from home could yield any tax breaks. Certain small businesses may qualify for a home office tax deduction, but they need to be cautious of triggering an audit with the IRS if they are unsure of what they should be placing on their tax return.

Does working from home qualify you for a home office tax deduction?

Employees who are currently working remotely for an employer unfortunately do not qualify for the home office tax deduction. Employees should note that this deduction may be available to them as a state deduction depending on where they live. Prior to the Tax Cuts and Job Acts (TCJA) tax reform that was passed in 2017, employees did have the ability to deduct unreimbursed employee business expenses, which also included the home office deduction. For tax years 2018 through 2025, the itemized deduction for employee business expenses has been eliminated.

Should self-employed individuals take the home office deduction?

Those who are self-employed and are working out of their home do qualify for these write-offs and should take advantage of them when filing their tax return.

How do you know if you qualify for the home office deduction?

In order to qualify for the home office deduction, you must meet the following criteria:

  • Exclusive and regular use: A portion of your house, apartment, condominium, mobile home, boat, or similar structure must be used for your business on a regular basis. This also applies to structures on your property such as an unattached studio, barn, greenhouse, or garage. This deduction does not apply to any part of a taxpayer’s property used exclusively as a hotel, motel, inn, or similar business.
  • Principal place of business: A home office is required to be either the principal location of your business or a place where you regularly meet with customers or clients.

What is exclusive use?

One problem individuals may have when attempting to qualify for these deductions is that a portion of a home must be exclusively and regularly used for business.

The IRS is very strict about the exclusive-use requirement. If a taxpayer violates the exclusive-use requirement then they forfeit their chance for a home office deduction.

What to do if you have a home office for your business but do your work elsewhere

It is important for taxpayers to know that their home office needs to be their principal place of business, not their principal workplace. A home office should be used to conduct administrative or management tasks and if you don’t make substantial use of any other location to conduct those tasks, then you qualify.

Those who are employees for another company but also have their own part-time business based out of their home, also qualify.

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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Going Green can get You a Bigger Tax Refund

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.

Going green has tax benefits that could potentially reduce your total tax bill when filing your taxes. More taxpayers are taking advantage of these tax incentives by buying alternative vehicles, using Energy Star products or installing energy equipment in their home. Here are the top green tax credits you should be claiming.

  1. Clean energy vehicle savings

Although tax credits for most hybrid vehicles have expired, there are still ways that taxpayers can take advantage of having an alternative vehicle. 

There are certain vehicles that could qualify under the Alternative Motor Vehicle Tax Credit. The amount of the credits vary based on the make, model and year of the vehicle that a taxpayer is attempting to claim. Additional requirements to be aware of before claiming the tax credit are:

  • The car was purchased before 2017.
  • You are the original owner of the vehicle.
  • You drive your car primarily in the U.S.

For those who purchased a plug-in electric vehicle, you could be eligible for the Qualified Plug-In Electric Drive Motor Vehicle Credit. The credit applies to new electric vehicles bought after December 31, 2009. In order to qualify for the credit you will need the following:

  • The vehicle must have been purchased new.
  • The vehicle must have been made by an eligible manufacturer under the Clean Air Act.
  • Have at least four wheels.
  • Have the ability to be driven on highways and public streets.
  • Have a weight rating of less than 14,000 pounds.
  • Purchased an electric motor that uses a rechargeable battery to generate at least 5 kilowatt hours of capacity.

Tax credits for both of these can range from $2,500 to $7,500 based on the vehicle’s battery capacity and the overall size of the vehicle.

  • Make a donation for a smaller tax bill

Taxpayers who make charitable contributions such as cellphones, game consoles, computers or any other qualifying electronic donation, can write it off based on the fair market value. In order to be eligible for the tax credit, you must have the following:

  • A donation that is valued at less than $500, no forms will be required to be filled out.
  • Charitable deductions exceeding $500 must be submitted with Form 8283, which lists the name of the organizations and types of donations made with your tax return. 
  • Keep a receipt for your files.
  • Use Energy Star products

The Energy Star program of the U.S. Environment Protection Agency and the U.S. Department of Energy helps taxpayers save money when they go green. Taxpayers should be advised that not all Energy Star products qualify for the incentive and some tax breaks for energy expired in 2011. There are still a few credits available through 2021 for certain energy programs that have been mentioned above.

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

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Tax Implications for Having a Nanny or Housekeeper

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 families that juggle working and family obligations, it can be overwhelming and sometimes even feel impossible to manage. As a result, some families may require hiring a nanny or housekeeper to help assist around the house.

Families that are thinking about hiring a nanny or housekeeper may enjoy the extra assistance but also need to think about what the typical pay for hiring the extra help. Will you have to pay additional taxes? Will the nanny or housekeeper be considered 1099 or W-2? 

Here are some answers to questions taxpayers may have when filing their taxes:

Will my nanny or housekeeper qualify as a household employee?

Taxpayers will need to review whether or not a housekeeper qualifies as a household employee and how to place it on their tax return.

If a housekeeper or nanny earns more than $2,100 in a calendar year, the IRS will consider this person to be a household employee. This means that you will be expected to pay employment taxes.

What forms are required in order to pay a nanny or housekeeper?

Taxpayers who choose to hire additional help around the house are not required to withhold federal income tax from their employee’s wages. However, if your employee asks you to withhold taxes from their income, you must agree to do so. You will need to have your employee fill out the W-4 Employee’s Withholding Certificate so the proper amount of taxes from your employee’s paycheck. 

When tax time comes around, you will be required to file a Form W-2 reporting household employee’s income that was earned as well as any withholdings. You will also need to file Form W-3 Transmittal of Wage and Tax Statements with the Social Security Administration. 

When filing your taxes, you will also need to file a Schedule H where total household employment taxes will be reported.

Are there any taxes that I will need to pay for my nanny or housekeeper?

As an employer, you will be expected to pay a portion of your employee’s social security and Medicare taxes, which is 7.65% of their gross wages.

When issuing your employee’s paycheck, you will be responsible for deduction of your employee’s share of their gross pay. In some cases, you may also be accountable to pay federal unemployment taxes.

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Is there a Deduction Limit on Charitable Donations?

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’re debating whether or not to donate to charity, it’s important to understand the tax benefits and tax-saving opportunities that could be available to you. Here’s a breakdown of what you need to know when understanding what you could qualify for when it comes to charitable donations.

Some donations may not be eligible for deductions. In order to make a donation, it must be to a charity with a tax-exempt status determined by the IRS. This means that charitable donations cannot be made to friends, relatives, or groups that do not fall under the tax exempt status. The list of approved organizations are the following:

  1. A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals.
  2. A church, synagogue, or other religious organization.
  3. A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions.
  4. A nonprofit volunteer fire company.
  5. A civil defense organization created under federal, state, or local law (this includes unreimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services).
  6. A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes.
  7. A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.

Some contributions may lead to only a partial credit. For particular donations, a taxpayer will only receive a portion of a credit. For example, if you purchase a shirt that is a part of a charitable cause, the entire price of the shirt is not deductible. The fair market value must be determined and subtracted from the cost of your purchase in order to determine the amount of your donation.

When determining how much of a charitable donation you would like to make, it is important to know there is a limit on all donations you make throughout the tax year. Total charitable contributions are generally limited to no more than 50% of your adjusted gross income. 

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

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Should Taxpayers Consider Using Direct Deposit for Tax Refunds?

couple working together

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’re looking to receive a tax refund this season and want it expedited, consider direct deposit.
  • It’s completely free to request direct deposit on your tax return
  • You’ll receive your refund through your bank instead of via check
  • It costs the IRS more to cut a check compared to transferring the money directly to your bank account. 

It’s tax time and everyone is scrambling to get their last-minute tax appointments scheduled before the deadline. If you’re expecting a refund this year, choosing the direct deposit option may be the more viable choice. Let’s explore the benefits:

It doesn’t cost you anything 

Whether you have a tax preparer file for you or you’re filing your tax return yourself, adding your bank information is free to include on your tax return. 

Get your refund faster

When you e-file with your direct debit information on your tax return, you’ll receive your refund much quicker compared to mailing off the return and having the IRS process it.

It’s secure

Using direct deposit information prevents the risk of having a paper check lost or stolen since the funds will be transferred directly to your bank.

You don’t have to e-file

If you prefer to mail out your tax return instead of e-filing, don’t worry, you’re still able to include your direct deposit information and receive your refund through your requested bank of choice.

It will save you money

It costs the IRS more than $1 for every paper refund check issued, but only a dime for each direct deposit made.

Tax season is a busy enough time to get through without having to worry about how you’re going to receive your refund or when it’s going to come. Having your refund deposited directly into your bank account is the ideal way to receive your money because it’s secure, quick, free, and saves taxpayers money. 

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

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10 Travel Hacks when You’re on a Budget

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.

  • There are ways to travel and go on vacation without having to go broke. 
  • If you’re looking to travel but don’t want to spend the high prices, consider planning around off-peak travel times. 
  • Find a hotel that has additional amenities, saving you more money in the long run.
  • Staying at a hostel is probably one of the most cost-effective ways to travel. 
  • Try doing some sightseeing and look for iconic landscapes that you can’t find back home. 

As the season gets warmer, and with summer looming just around the corner, it’s time to start planning on where you want to go on vacation – and, inevitably, spend more money than usual. Typically, flight costs go up as the temperature does and hotels start to upcharge a bit more than they usually do. So what do you do if you’re on a budget but still want to vacation? Believe it or not, there are ways to travel and go on vacation without having to go broke. 

1. Plan Around Travel Time

Certain times of the year can cause flight and hotel prices to go up because of the surge in tourists that are visiting their location. If you’re looking to travel but don’t want to spend the high prices, consider planning around off-peak travel times. 

If you’re looking to get more bang for your buck, start looking at countries that fit into your budget based on the price of their merchandise and how affordable the country is overall.

2. Check to see if your hotel offers free breakfast

Traveling can become expensive very quickly.  If you’re looking to take a more economical route, consider looking for a hotel that serves their guests’ breakfast. Some hotels provide a few morning snacks while others have a full continental breakfast served to guests every morning. In the end, it might benefit you to find a hotel that has additional amenities, saving you more money in the long run.

3. Hostels may be the cheaper option

Staying at a hostel is probably one of the most cost-effective ways to travel. Not only are you getting the lowest price compared to hotels or rentals, but you’ll also be able to have the opportunity to connect with many other travelers from all around the world. No matter where you travel to, there is usually a hostel that can accommodate you.

4. Explore the town

Believe it or not, the best experiences are typically free. Try doing some sightseeing, like looking for iconic landscapes that you can’t find back home. You could also try looking for hiking trails that may lead to hidden treasures or views you never dreamed of. 

If you’re planning to travel, try to get the most out of your experience without having to hurt your wallet. Always make sure that you compare prices against other hotels and prepare an itinerary ahead of time to project what possible costs you may have to incur. Traveling doesn’t have to be expensive, and you can still have an enjoyable trip without breaking the bank.

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

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