Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses maximizing tax deductions.
Everyone wants a big refund. So, how do we know we’re maximizing our deductions to accomplish this? It depends on whether you choose to take the standard deduction or itemize your deductions. Most taxpayers find it more financially rewarding to take the standard deduction. In addition, itemizing deductions can be tedious work and meticulous expense tracking throughout the year. If you itemize, you can deduct expenses like:
Charitable deductions
State taxes paid
Mortgage interest
Property taxes paid
Some medical and dental expenses
How do you know which option of maximizing your tax deductions is best for you? It depends on how many deductible expenses you had for the year, as well as the standard deduction amount for your filing status. In 2023, the standard deductions are:
$13,850 for single filers and married couples filing separately
$20,800 for heads of household
$27,700 for married couples filing jointly and surviving spouses
You can fill out a Schedule A on Form 1040 to see the total amount of itemized deductions you have for the year. If your itemized deductions do not exceed the standard deduction for your filing status, you should take the standard deduction as it will result in a lower taxable income.
Next week, Phil will discuss an important update about IRS revenue officers. See you next Friday!
If You Want to Maximize Your Deductions, Contact Us Today for a Free Consultation
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses private collection agencies, otherwise known as PCAs.
Unbeknownst to some taxpayers, the IRS doesn’t always collect taxes on their own. Sometimes they hire private collection agencies (PCAs). The IRS contracts these agencies to collect overdue tax debt from individuals and businesses.
That said, if a collection agency contacts you and they are not the IRS, you should still take the warning seriously. Keep in mind that the IRS currently only utilizes the services of three PCAs:
CBE Group Inc.
Coast Professional, Inc.
Conserve
If another company is trying to collect on the IRS’s behalf, you should report them to the IRS immediately. The IRS will send you Notice CP40 to let you know that your overdue tax account has been assigned to a PCA.
Taxpayers should keep in mind that once the IRS assigns their account to a PCA, they will no longer be able to claim hardship or submit an offer in compromise. However, getting your case back to the IRS is possible and should be considered if you want the best possible resolution.
Join us next Friday as Phil will answer your questions about tax deductions, including how to maximize them!
If Your Tax Account Has Been Assigned to a PCA, Contact Us Today for a Free Consultation
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses the most common tax forms every taxpayer should know about.
Tax Form 1040 or 1040-X
The well-known U.S. Individual Income Tax Return, Form 1040 is what you will use to report both your income and deductions to determine your tax liability every tax year. Form 1040-X, Amended U.S. Individual Income Tax Return, allows taxpayers to correct a previously submitted 1040, make specific elections after the tax deadline, or change an amount adjusted by the IRS.
Tax Form W-2
If you’ve ever earned money from an employer, you have probably received a W-2, Wage and Tax Statement. This critical document for wage earners includes your income earned in the previous year, as well as taxes withheld, and helps you file your federal and state tax returns. It may also include any benefits you received through your employer. If you changed jobs mid-year, worked more than one job as an employee, or if your employer was acquired by another company mid-year, you may receive multiple W-2s.
Tax Form 1099-NEC
A 1099-NEC will report your income earned as a freelancer or independent contractor. Businesses will distribute this form if they make payments to you totaling $600 or more. Non-employee income can also include fees, benefits, commissions, and other sources of income paid to you.
Tax Form W-4
Whenever you begin employment with a new employer, you will fill out a W-4, Employee’s Withholding Certificate. This form basically tells your employer how much taxes to withhold from your paycheck. Withholding too little can result in a big tax bill, while withholding too much can result in smaller than necessary paychecks. That said, it’s important to ensure that your withholding is always correct.
Tax Form W-9
Form W-9, Request for Taxpayer Identification Number and Certification, helps verify your tax information so your employer, or other paying entity, can report your earnings to the IRS. This form is for both employees and self-employed individuals.
Remember these tax forms when it’s time to file. Don’t miss next week’s episode where Phil will discuss private collection agencies. See you next Friday!
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses his 5 top tips for how to avoid an IRS audit.
File Your Taxes: Some taxpayers don’t file because they think they don’t have to. The minimum requirement to file a tax return depends on your filing status and income, but generally most U.S. citizens and permanent residents need to file. Remember, if you don’t file when you’re required to, you will be hit with IRS penalties and interest. The IRS could also file a tax return on your behalf. While this might sound like a burden lifted off your own shoulders, this could be much worse than filing yourself because it can result in owing more taxes. You can use the IRS’s online Interactive Tax Assistant to find out if you need to file a tax return.
Report All Your Income: Failing to report all your income is the quickest way to being audited by the IRS. Keep in mind that the IRS receives copies of every W-2, 1099, and other tax forms that you receive. They know exactly how much you earned in the previous year and if your reported income does not match what they have on file, you’re much more likely to be audited.
Use Common Sense with Business Expenses: This tip is for the self-employed filers. The IRS requires all business expenses to be ordinary and necessary to be deductible during tax time. This means it should be common for your industry and necessary for the production of income. Excessive meals and entertainment, trips taken for non-business purposes, and commuting costs are examples of nondeductible business expenses.
Keep Good Records of Income and Expenses: Keeping good records of income and expenses can not only help you monitor the progress and financial well-being of your business, but also keep track of your deductible expenses, prepare your tax returns, and substantiate claims made on your tax returns. The IRS recommends keeping returns, records, and other tax documents for at least three years.
Be Wary of Multi-Year Losses: If your business consistently reports losses during tax time, the IRS will likely audit you. In addition, the IRS only allows you to write off losses for three of the five previous tax years. If you can’t prove your business is beginning to turn a profit, even a small one, the IRS can categorize your business as a hobby, at which point you will be unable to deduct any of your expenses.
Tune in next Friday for another episode of “Ask Phil” where Phil will review common IRS tax forms.
If You Think You’re at Risk of Being Audited by the IRS, Contact Us Today for a Free Consultation
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses IRS notices, including when you can expect a notice to turn into enforcement and how to respond to a notice.
When does the IRS Levy?
Receiving an IRS notice can be very intimidating, especially when you are being notified of a tax balance due. But most people want to know exactly how many notices the IRS will send before they begin to take certain actions, such as levying your bank accounts, garnishing your wages, or placing a lien on your property. Unfortunately, there is not a set number that will trigger IRS enforcement as each case is different, but on average, a taxpayer might see about six notices come in the mail before the IRS begins to collect. A Final Notice of Intent to Levy will always be sent before the IRS takes action. The IRS will not and cannot take action without it.
IRS Final Notice of Intent to Levy
If you receive a Final Notice of Intent to Levy, you should act immediately. If you do not, the IRS can seize your property, bank accounts, wages, government benefits, and more. The most obvious way to resolve the issue is to pay your tax balance in full within the set amount of time the IRS provides. Although most people who find themselves in these situations typically do not have the funds to pay, doing something is better than ignoring the issue. Some other options you may have are:
Setting up an installment agreement with the IRS
Submitting an offer in compromise
Apply for Currently Not Collectible status
Apply for Innocent Spouse Relief
Request a Collection Due Process hearing if you disagree with the notice
Tune in next Friday for another episode of “Ask Phil” where Phil will break down IRS audits.
If You Received an IRS Notice, Contact Us Today for a Free Consultation
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses tax scams, including how to spot them and how to avoid being conned.
Tax fraud and scams are growing in popularity and have even recently taken on newer forms. Taxpayers are often conned over text, phone, email, and even regular postal mail. Some taxpayers have even been scammed through social media. Tax criminals are becoming more creative in their methods so it’s vital to know how to spot tax scams.
Remember that the IRS will never ask for immediate payment. Some scammers have claimed to be IRS agents, demanding payments in the form of prepaid debit cards or gift cards. The IRS will also never threaten a taxpayer with violence or jail time. Scammers use these tactics to intimidate taxpayers in financial hardship. Finally, the IRS will not request any personal information or banking information. Do not give your information to anyone who claims to be with the IRS.
In some cases, you may be able to deduct tax losses that result from tax scams. However, nothing is guaranteed. It’s best to stay vigilant when it comes to your identity and personal information.
Tune in next Friday for another episode of “Ask Phil.” Next week’s topic: IRS notices!
If You’ve Been a Tax Scam Victim, Contact Us Today for a Free Consultation
