Flipping houses—buying distressed properties, renovating them, and then selling them for a profit—has become a popular venture in the real estate market. The potential for substantial returns can be enticing. However, it’s crucial for house flippers to understand the tax implications associated with their endeavors. In this article, we’ll explore how flipping houses for profit can impact your taxes and the key considerations you should be aware of.
Capital Gains Tax
One of the primary tax considerations for house flippers is the capital gains tax. Profits made from the sale of a property are generally classified as capital gains. The tax rate on these gains depends on the holding period. Short-term capital gains, which apply to properties held for one year or less, are typically taxed at higher rates than long-term capital gains.
If you’re flipping houses, your gains will likely fall into the short-term category, which are taxed like ordinary income. This could potentially impact the overall profitability of your business. This happens because the IRS classifies you as a dealer with real estate inventory, rather than an investor with capital assets. If your profits are being taxed like regular income, it also means it’s subject to the 15.3% self-employment tax.
Deductible Expenses
Flipping houses often involves various expenses, such as renovation costs, property taxes, insurance, and interest on loans. While a normal homeowner would typically be able to deduct these costs, house flippers have stricter limitations. To deduct these costs, you’ll need to capitalize them into the basis of the property. In other words, the cost of renovating the home will be added to the original value of the property. In turn, this will reduce the amount of taxable gain when you sell the house.
Capitalized Costs
Capitalized costs are basically expenses incurred from a purchase that you expect to directly result in a financial benefit. The costs that you can typically include when you capitalized the basis of a property include:
Real estate taxes
Costs associated with purchasing the home, including closing costs
Materials and labor
Utilities
Rent
Equipment depreciation
Insurance
While capitalized costs increase your cost basis, there are other expenses that can reduce it. These include depreciation, insurance payments received for a casualty or theft, or home energy tax credits.
After renovating the home, the amount of capital gains tax you pay will be on any profit made above the entire cost basis of the property. For example, let’s say you purchased a property for $300,000 and did $70,000 worth of improvements to the property. This puts your cost basis at $370,000. After six months of owning the property, you sell the property for $500,000. You would be responsible for paying capital gains tax on the profits of $130,000 ($500,000 – $370,000).
Depreciation Recapture
If you claimed depreciation on the property when you owned it, you may be subject to depreciation recapture when selling. Depreciation recapture requires you to pay taxes on the depreciation deductions you previously claimed. This can result in additional tax liabilities when flipping properties. The recaptured depreciation is typically taxed at the ordinary income tax rate. This rate can be higher than the capital gains tax rate. This is because the depreciation deductions you previously claimed reduced your ordinary income in those years. That said, when recaptured, it is taxed at the ordinary income rate.
1031 Exchange
To defer capital gains taxes, some real estate investors utilize a 1031 exchange. Doing so allows them to reinvest the proceeds from the sale of one property into another like-kind property. While this strategy can be advantageous, strict rules must be followed to qualify for the tax deferral. For example, you must identify potential replacement properties within 45 days of selling the relinquished property. The acquisition of the replacement property must be completed within 180 days of the sale of the relinquished property.
Additionally, you must reinvest all the proceeds from the sale of the relinquished property into the replacement property. Any cash or non-like-kind property received in the exchange may be subject to capital gains taxes. For example, let’s assume you had a mortgage of $800,000 on the old property. The mortgage on your new property is $700,000. In this scenario, you have a $100,000 gain that will be taxed, likely as a capital gain. This is typically where most investors get mixed up when attempting to use a 1031 exchange.
Tax Help for House Flippers
Flipping houses for profit can be a lucrative venture, but it comes with significant tax implications. Understanding the tax landscape is crucial for optimizing your profits and ensuring compliance with tax laws. Seeking the guidance of a tax professional or accountant with experience in real estate transactions is advisable to navigate the complexities of house flipping and minimize your tax liability. By staying informed and making informed financial decisions, you can maximize your returns and build a successful house-flipping business while staying in good standing with the tax authorities. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
S Corporations (S Corps) are a popular business structure that combines the limited liability features of a corporation with the pass-through taxation of a partnership. This unique structure provides owners, also known as shareholders, with certain tax advantages compared to traditional C Corporations. In this article, we will explore the intricacies of the federal tax treatment of S-Corps.
What Are S Corporations?
S Corps are a specific type of business entity that combines the limited liability protection of a corporation with the pass-through taxation of a partnership or sole proprietorship. This business structure is named after Subchapter S of the Internal Revenue Code, which outlines the rules governing S Corporations. In addition to limited liability and pass-through taxation, the main features of an S Corp include owner restrictions and a single class of stock.
Election and Eligibility
To be taxed as an S Corporation, a business must first qualify and elect to be treated as such by filing Form 2553, Election by a Small Business Corporation, with the IRS. There are strict eligibility criteria, including having no more than 100 shareholders, all of whom must be individuals, estates, certain trusts, or tax-exempt organizations. Shareholders cannot include partnerships, corporations, or non-resident aliens. Additionally, the corporation must be a domestic entity and cannot have multiple classes of stock. Finally, the corporation must not be an ineligible corporation, such as a financial institution, insurance company, or domestic international sales corporation.
Pass-Through Taxation
One of the primary advantages of S Corporations is their pass-through taxation. This means that the corporation itself does not pay income taxes, like a C Corporation. Instead, the profits and losses “pass through” to the individual shareholders, who report this income on their personal tax returns. This helps avoid the double taxation that C Corporations face, where both the corporation and the shareholders are taxed on profits. However, this may vary depending on which state you do business in.
To file a tax return for an S Corporation, use Form 1120-S, U.S. Income Tax Return for an S Corporation. S-Corp tax returns are due on the 15th day of the third month after the corporation’s tax year. Businesses should submit Form 1120-S with Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc. A Schedule K-1 form is needed for each individual shareholder to report their own individual profit and loss for the year. Shareholders of S Corporations then report their share of the corporation’s income on their personal tax returns. This income is subject to individual income tax rates. Unlike traditional employees, shareholders are also required to pay self-employment tax on their share of the S Corporation’s net income. This tax covers Social Security and Medicare taxes.
Distributions and Tax Consequences
When a company elects S Corp status, members are classified as employees and collect a salary. One of the biggest advantages that S Corporations has over a partnership is that it can distribute profits to shareholders in the form of dividends or distributions. Unlike a typical salary, distributions are not subject to the 15.3% self-employment tax. For example, let’s say a shareholder is paid a $50,000 salary and another $20,000 in dividends. Only the $50,000 would be subject to self-employment taxes, while the dividends are subject to regular income tax. Note that the IRS may view low salaries and high distributions as a method of avoiding taxes. Shareholders should keep this in mind when taking distributions.
Non-Compliance
Maintaining compliance with relevant laws and regulations is crucial for the smooth operation of any business entity, including S Corporations. If an S Corporation fails to remain compliant, it may face various consequences. The IRS may impose penalties and interest for late or inaccurate filings. If an S Corp does not follow the IRS’s strict guidelines, it can revoke S Corporation status. To avoid these potential consequences, S Corporations should stay informed about relevant laws and regulations, maintain accurate financial records, and fulfill their filing and reporting obligations.
Tax Help for S Corporations
Understanding how S Corporations are taxed is crucial for shareholders looking to make informed financial decisions. The combination of pass-through taxation, limited liability, and potential tax benefits makes the S Corporation an attractive option for many small to mid-sized businesses. However, navigating the complexities of S Corporation taxation requires careful consideration and often the assistance of tax professionals to ensure compliance with tax laws and optimization of financial outcomes. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
Filing taxes can be a complex process, and it becomes even more challenging when your spouse or dependent is incarcerated. In such situations, various considerations and adjustments must be made to ensure accurate and lawful tax filings. This article will guide you through the process, providing valuable information and tips on how to file taxes if your spouse or dependent is incarcerated.
Determine Filing Status
The first step in filing taxes when a spouse or dependent is incarcerated is to determine your filing status. If you are legally married, you typically have the option to file jointly or separately. Additionally, if you have a qualifying child, you can file as head of household.
Married Filing Jointly
The IRS considers married couples to be still married even when one spouse is incarcerated. As in more common tax situations, the married filing jointly status will provide the most tax benefits. For example, if your spouse does not earn income while imprisoned, your total taxable income will be lower and then further reduced by joint tax deductions. However, keep in mind that if you do file jointly, you may need to have a power of attorney to prepare, sign, and file your tax return on your spouse’s behalf.
There may be a scenario in which your spouse does earn income while in prison. If this is the case, you still need to report that income on your tax return. Even if your spouse was paid with non-cash income, such as commissary credits, the value of the credit needs to be counted as income. One important thing to note, however, is that your incarcerated spouse’s income, whether it be cash or non-cash payments, does not qualify as earned income. This includes any payments accepted while in a work release program or while living in a halfway house. This is important for those who claim the Child Tax Credit (CTC) or the Earned Income Tax Credit (EITC).
Head of Household
As previously mentioned, if you have a qualifying child or dependent, you can file as head of household. However, if you are married, you can only do this if you and your spouse did not live together in the last six months. You may not count your incarcerated spouse as a dependent. Additionally, you could file as head of household if the person incarcerated is your dependent, like a qualified child or relative. If the imprisoned person is your child, to qualify, they must:
Be under age 19, a full-time student under age 24, or permanently and totally disabled;
Not provide more than 50% of their own total support; and
Live with you for more than 50% of the year.
If the imprisoned person is another family member or dependent, they must:
Not provide more than 50% of their own total support; and
Not be someone else’s qualifying child or dependent; and
Not earn more $4,700 in 2023
Note that according to the IRS, temporary absences for special circumstances are permitted. This includes the incarceration of the child or dependent at a juvenile facility.
Tax Credits and Deductions
Explore available tax credits and deductions that may apply to your situation. For example, you may be eligible for the Child Tax Credit, Earned Income Tax Credit (EITC), or other credits depending on your circumstances. Understanding these options can help maximize your tax savings.
Many people in this situation ask if the money they send to their imprisoned spouse or dependent is tax deductible. The answer to this question is no. You cannot deduct any donations sent to a single person. This includes any fundraising money that might’ve been collected to fight a wrongful conviction case. Any qualified donations must be made to an IRS-approved 501(c)(3) organization.
Seek Professional Assistance
Filing taxes when your spouse or dependent is incarcerated requires careful consideration and a thorough understanding of tax laws. By following these steps and seeking professional advice, you can navigate the complexities of tax filing and ensure compliance while maximizing potential benefits. Remember to stay organized, gather all necessary documentation, and approach the process with diligence to achieve a smooth tax filing experience. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
As the year comes to an end, it’s an opportune time to take stock of your financial situation and implement strategies to optimize your tax position. End-of-year tax planning is a crucial aspect of managing your finances. It allows you to make informed decisions that can positively impact your tax liability. In this article, we’ll explore various tips to help you navigate the complexities of the tax code and make the most of available opportunities.
Review Your IRS Account
Every taxpayer should have an online account with the IRS. In your account you can view any tax balances, payment history or payment plans. You can access tax records, manage communication preferences from the IRS, and view your Power of Attorney authorizations. You can also make payments or request a payment plan with the IRS.
If you do not have an IRS online account, you can create one on their website. Alternatively, if you want to access your tax information without using your online account, you can request an Account Transcript by mail. Knowing where you stand with the IRS is always crucial. Doing this before tax season is key as it can help prepare you for a tax bill or refund.
Organize Your Records
Getting organized can help facilitate a smooth filing season. It’s important to make sure you have all relevant tax forms before filing. This can help avoid errors that can lead to rejections or even IRS audits. You should have a W-2 form from each of your employers. You may also receive 1099 forms if you earn income from other sources. For example, Form 1099-INT will be sent to all taxpayers who were paid interest on financial accounts. Form 1099-G will be sent to anyone who received unemployment benefits. Form 1099-DIV will be sent to all taxpayers who received at least $10 in dividends and distributions.
You’ll also want to collect any IRS notices you receive throughout the year. Having these documents on hand when filing your tax return will allow a much smoother filing process. Don’t be tempted to file before receiving all of these key documents. Doing so can lead to underreported income, which is a big red flag for the IRS.
Check Your Individual Tax ID Number (ITIN)
An ITIN is a tax processing number that the IRS issues to individuals who are required to have a U.S. taxpayer ID number but don’t qualify for a Social Security number. Typically, an ITIN is valid unless you did not use it at least once during the previous three-year period. After this, the ITIN would expire. In other words, if your ITIN wasn’t used on a federal tax return at least once for tax years 2020, 2021, and 2022, it will expire on December 31, 2023. While the IRS will still accept a tax return with an expiring or expired ITIN, it could result in delays.
Update Your Withholding
Having the wrong amount withheld from your paychecks can result in a tax bill or a larger refund. If you had a tax bill last year, it could be that you did not withhold enough from your paychecks. While a larger refund sounds positive, it could mean that you withheld too much during the year. This means you could’ve had more money in each paycheck during the year. Some people even like to compare this to an interest-free loan to the government.
If you had a major life change, it may be a good time to adjust your withholding. This includes a marriage, divorce, the birth of a child, or getting a second job. The IRS website has a free Tax Withholding Estimator tool that can help you calculate the correct amount of tax to withhold from each paycheck. Adjusting your withholding is as simple as submitting a new Form W-4 with your employer.
In some cases, you may not have an employer to withhold tax for you. This is common for self-employed individuals or those who have investment income, pensions, Social Security benefits and other sources of income. If this applies to you, it’s important to make estimated tax payments to avoid a tax bill and penalties. The last quarterly tax payment for 2023 is due on January 16, 2024.
Leverage Tax-Advantaged Accounts
Leveraging tax-advantaged accounts at the end of the year is a financial strategy that can help optimize your tax situation. For example, you can contribute the maximum allowable amount to your employer-sponsored retirement plans, such as a 401(k) or 403(b). These contributions are generally tax-deductible, reducing your taxable income. In 2023, you can contribute up to $22,500 to your 401(k), 403(b), most 457 plans, and federal government’s Thrift Savings Plans. If you are age 50 and over, you can contribute an additional $7,500 in 2023.
If you have a heath savings account (HSA), you can also make more contributions to this account up until the April tax deadline. HSA contributions are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are tax-free as well. You can also make additional contributions to your flexible spending account (FSA) if you haven’t reached the maximum limit of $3,050 in 2023. These contributions are made with pre-tax dollars, reducing your taxable income. Keep in mind, however, that contributions made to your FSA do not carry over to the next year. On other words, they have a “use it or lose it” policy.
Tax Relief for Taxpayers in 2023
Following these steps can help you prepare for the 2024 filing season.
By strategically implementing these tax planning strategies, you can optimize your financial position and start the upcoming year on a sound financial footing. Consult with a tax professional or financial advisor to tailor these end of year tax planning strategies to your specific situation. More importantly, this will ensure compliance with the latest tax regulations. Taking the time to plan now can mean reduced taxes and improved overall financial well-being. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
For freelancers, self-employed individuals, and small business owners, managing finances is an integral part of their professional journey. One key aspect of financial responsibility is handling taxes. For those with income not subject to withholding, estimated quarterly taxes become a crucial obligation. In this article, we will explore what estimated quarterly taxes are, why they matter, and how individuals can navigate this aspect of tax compliance.
What Are Estimated Quarterly Taxes?
Estimated quarterly taxes are periodic tax payments that individuals and businesses make to the IRS throughout the year. Unlike traditional employees who have taxes withheld from their paychecks, freelancers, self-employed individuals, and certain business owners are responsible for estimating their tax liability and making quarterly payments.
Who Needs to Pay Estimated Quarterly Taxes?
Those who anticipate owing $1,000 or more in taxes are generally required to pay estimated quarterly taxes. Remember, this is after subtracting their withholding and refundable credits. This includes freelancers, independent contractors, sole proprietors, partners in partnerships, and S corporation shareholders. Additionally, if you had a tax liability in the previous year, the IRS may require you to pay estimated taxes. This is the case even if you expect a lower income in the current year. Corporations may have to make estimated tax payments if they expect to owe $500 or more in taxes.
Why Estimated Quarterly Taxes Matter
Failure to pay estimated quarterly taxes can result in penalties and interest on the unpaid amount. By meeting the quarterly deadlines, individuals can avoid unnecessary financial burdens and maintain compliance with tax regulations. It also allows individuals to budget effectively and avoid a large, lump-sum tax payment at the end of the year. This approach promotes financial stability and helps prevent unexpected financial setbacks.
How to Calculate Your Estimated Quarterly Tax Payments
To make things easier when calculating your estimated tax payments, you can use last year’s tax liability as a baseline. Then divide that amount into four equal payments. Typically, if you pay 100% of what you owed last year, you are more likely to be protected from underpayment penalties. However if you expect to earn more or less than last year, you should calculate it another way.
Calculate Your Estimated Income
Begin by estimating your adjusted gross income (AGI) for the year. Be sure to factor in any changes in your financial situation. This could include fluctuations in income, additional sources of revenue, or changes in business expenses.
Determine Deductions and Credits
Consider potential deductions and credits that may apply to your situation. This includes business expenses, self-employment tax deductions, and any eligible tax credits. Subtracting these from your estimated income will give you a more accurate picture of your taxable income.
Use IRS Form 1040-ES
The IRS provides Form 1040-ES, which includes a worksheet to help individuals estimate their quarterly tax payments. This form guides you through the process of calculating your estimated tax liability and provides payment vouchers for each quarter.
Set Aside Funds Regularly
Consider setting aside a portion of your income in a dedicated savings account. This can help ensure you have the funds available to make quarterly payments. A general rule of thumb is to set aside 30-35% of your income for your taxes. This disciplined approach can help you meet your tax obligations without disrupting your cash flow.
Mark Key Deadlines
The IRS has established specific deadlines for estimated quarterly tax payments. These deadlines are April 15, June 15, September 15, and January 15 of the following year. If the due date falls on a weekend of a legal holiday, the payment will be due on the next non-holiday business day. Mark these dates on your calendar and set reminders to avoid missing any deadlines. Also, note that you may pay your entire estimated tax in one payment.
The final quarterly tax payment for 2023 is due on January 16, 2024. The quarterly tax payment deadlines for 2024 are:
Q1 of 2024: April 15, 2024
Q2 of 2024: June 17, 2024
Q3 of 2024: September 16, 2024
Q4 of 2024: January 15, 2025
Make Adjustments as Needed
If you find that you overestimate or underestimate your earnings in Q1, complete another Form 1040-ES to recalculate your estimated tax for the next quarter. You’ll want to adjust until you get an accurate estimate to avoid penalties and interest.
How to Pay Your Estimated Quarterly Taxes
You can make your estimated tax payments using the following methods:
Pay Via Mail: Pay by mailing your completed Form 1040-ES. The address you will mail it to varies based on the state you live in and your residency. Be sure to check the IRS website for clarification.
Pay Online: You can pay through one of the many electronic options the IRS offers. These include through your IRS Online Account, Direct Pay, and the Electronic Federal Tax Payment System (EFTPS).
Pay Via Phone: You can pay over the phone by calling the IRS. However, this option may not be best due to wait times.
Pay Via the IRS2Go App: The IRS2Go mobile app allows you to make secure payments to the IRS via Direct Pay or through an approved payment processor.
Tax Help for Those Who Make Estimated Quarterly Tax Payments
Navigating the world of estimated quarterly taxes is a crucial aspect of financial responsibility for freelancers, self-employed individuals, and small business owners. By understanding the importance of these payments, calculating your tax liability accurately, and following the IRS guidelines, you can seamlessly incorporate estimated quarterly taxes into your financial routine, ensuring compliance and financial stability throughout the year. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Social Security benefits are a crucial financial lifeline for many retirees, providing a steady stream of income to help maintain a comfortable lifestyle during their golden years. Many taxpayers are often shocked to learn that their Social Security benefits can be taxed by the federal government. Taxes on Social Security benefits are dependent on a variety of factors, making it essential for retirees to understand the rules and implications of Social Security taxation. Here’s a brief overview of how Social Security income is taxed, both at the federal and state level.
Will My Social Security Income Be Taxed?
The taxation of Social Security benefits is determined by the recipient’s total income, which includes not only the Social Security payments but also other sources of income. According to the IRS, the easiest way to determine if your Social Security benefits are taxable is to add half of your annual Social Security income and add it to your adjusted gross income (AGI), plus all tax-exempt interest, to find your total combined income. If your combined income is above the IRS base amount, you’ll be required to pay some tax. The 2024 combined income limit for single filers, heads of household, or qualifying widows with dependent children is $25,000. The limit for joint filers is $32,000. Married couples who file separately will likely need to pay taxes on Social Security income.
How Much Will I Be Taxed?
In 2024, 50% of a taxpayer’s benefits can be taxed if they meet any of the following criteria:
Filing single, head of household, or qualifying widow with combinedincome between $25,000 and $34,000
Married filing separately and lived separately from their spouse for the entire 2023 year, and earned between $25,000 and $34,000
Married filing jointly with income between $32,000 and $44,000
If the taxpayer fits any one of these criteria, then 50% of their benefits will be subject to tax. However, the actual amount will be the lesser of either:
Half of their annual Social Security benefits, or
Half the difference between their combined income and the IRS base amount
For example, let’s say a single filer had an annual Social Security income of $20,000 and a combined income of $27,000. Half of their annual Social Security income would be $10,000. Half the difference between their combined income and the IRS base amount of $25,000 would be $1,000.
($27,000 – $25,000) / 2 = $1,000
The taxes on Social Securitybenefits would be the lesser of the two amounts, which is $1,000.
If the taxpayer earns more than the IRS base amount, the tax rate is higher. In 2024, 85% of a taxpayer’s benefits can be taxable if they are:
Filing single, head of household, or qualifying widow and earn more than $34,000
Married filing jointly and earn more than $44,000
Married filing separately, and lived separately from their spouse for the entire 2023 year, and earned more than $34,000
Married filing separately and lived with their spouse at any time during 2023
Does My State Tax My Social Security Benefits?
In addition to federal taxes, residents of the following 11 states may also have to pay state taxes:
Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont: Tax according to federal rules but offer deductions or exemptions based on age or income
Missouri and Nebraska tax according to federal rules but will cease taxation in 2024
Tax Planning Strategies
To minimize the tax impact on Social Security benefits, retirees can employ various tax planning strategies:
Diversify Income Source: Consider diversifying your income sources, such as drawing from Roth IRAs, which provide tax-free withdrawals in retirement.
Manage Withdrawals: Strategically manage withdrawals from retirement accounts to control your total income and stay below the taxation thresholds.
Delay Social Security: Delaying the commencement of Social Security benefits can increase the overall amount received and potentially reduce the percentage subject to taxation.
Tax Relief for Social Security Recipients
Being taxed on Social Security benefits can be unexpected. Generally, the benefits won’t be taxed if it’s a taxpayer’s only source of income, but with limited income during retirement age, it’s important to be prepared. Taxes on these benefits can be paid through quarterly estimated tax payments. You can use IRS Publication 915 for more information on how to calculate your Social Security taxes. Federal tax can even be withheld from these benefits. In any case, all Social Security recipients should ensure that they remain compliant and report their Social Security earnings during tax time. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Changing your legal name is a significant life event that can have various implications, including those related to taxes. While the process of changing your name involves legal and administrative steps, it’s essential to understand how this transformation can affect your tax obligations. In this article, we’ll explore the key aspects of how a legal name change can impact your taxes.
Update Social Security Records
One of the first steps after changing your legal name is to update your Social Security records. This is crucial for ensuring accurate tax reporting. Your Social Security number (SSN) is a unique identifier linked to your tax filings. Any discrepancies can lead to complications with the IRS. Notify the Social Security Administration (SSA) promptly to avoid any issues with your tax returns. Since the IRS matches the name and SSN listed on your tax return with SSA records, you will not need to take any additional steps to notify the IRS of your name change. However, you should expect a minimum of 10 days for processing before your SSA records are updated.
Impact on Filing Status
A name change might also affect your filing status. For example, if you changed your last name due to marriage, it’s essential to update your name with the SSA. This ensures that your tax returns accurately reflect your marital status and any associated tax benefits or obligations. On the flip side, getting divorced may also require a name change with the SSA. This could also result in changing your tax filing status.
Review and Update Withholding Information
If you’re employed, don’t forget to update your name with your employer and review your withholding information. Your employer uses your name and SSN to report your income to the IRS. Ensure that your W-4 form, which determines the amount of federal income tax withheld from your paycheck, reflects your new name to avoid any discrepancies in tax reporting. This will also ensure that your W2 has the correct legal name.
Tax Deductions and Credits
A legal name change might impact your eligibility for certain tax deductions and credits. For instance, if you changed your name due to marriage, you may become eligible for new deductions or credits available to married couples. On the other hand, if you changed your name due to divorce or other reasons, it’s crucial to reassess your eligibility for any deductions or credits you previously claimed. Additionally, you’ll need to learn about the taxability of things like alimony or child support payments.
Retirement Accounts and Investments
If you have retirement accounts or investments, make sure to update your name with the respective financial institutions. This ensures seamless reporting of income, contributions, and withdrawals, preventing any tax-related complications. Review beneficiary designations on retirement accounts to ensure they align with your new legal name.
Legal Name Changes of Dependents
These rules do not only apply to name changes for yourself. They should also apply to scenarios in which your dependent changes their name legally. If the dependent is a minor, you can notify the SSA of their name change on their behalf. If the dependent is an adopted minor, you can apply for a temporary Adoption Taxpayer Identification Number (ATIN) with the IRS. You can do this by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S Adoptions. If the adopted minor is not a U.S. citizen, you should use Form W-7, Application for IRS Individual Taxpayer Identification Number.
Tax Help for Those with Legal Name Changes
A legal name change is more than just a personal choice. It has implications for various aspects of your life, including your taxes. To navigate these changes smoothly, it’s crucial to proactively update your information with the Social Security Administration and other relevant institutions. By staying organized and informed, you can ensure that your tax filings accurately reflect your new legal identity, avoiding potential issues with the IRS and ensuring a smooth tax season. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
The worst thing that can happen for most taxpayers is being told by the IRS that they are being audited. What most people don’t realize is that there is a timeframe for how long the IRS can audit an individual. This timeframe is known as the audit statute of limitations. Taxpayers have a right to dispute an IRS audit if they have proper substantiation. Discover how long the IRS has to audit taxes and what factors may affect this timeline.
Owing a tax liability means that individuals are at a higher risk of falling into collections with the IRS. Optima CEO David King and Lead Tax Attorney Philip Hwang explain the risks taxpayers face when handling a tax liability on their own, as well as the benefits of hiring a tax professional to help you when dealing with a revenue officer.
As we usher in the new year, it’s that time again when individuals and businesses eagerly await the release of the IRS tax brackets and standard deductions for the upcoming tax year. These figures play a pivotal role in determining the amount of tax liability for taxpayers across the nation. Let’s take a closer look at what has been announced for the 2024 IRS tax brackets and standard deductions.
The IRS has recently announced a delay in the implementation of changes to the reporting threshold for Form 1099-K. Form 1099-K is used to report third-party platform payments. Originally scheduled for 2023, the IRS has decided to postpone the implementation of greater reporting thresholds. However, they’ve cited the need for additional time to address concerns and provide a smoother transition for affected parties. Learn the new reporting thresholds amounts and when they will be implemented.
The tax firm was recognized for its embodiment of trust and ethics in the marketplace.
Optima Tax Relief proudly announces its distinguished recognition as the sole Category 4 recipient of the Better Business Bureau (BBB) International Torch Awards for Ethics, underscoring the company’s unwavering commitment to ethical business practices. This accolade is a testament to the company’s dedication to excellence, integrity, and transparency in the tax resolution industry.
The BBB International Torch Awards for Ethics is a prestigious honor bestowed upon businesses that exemplify the highest standards of ethics and integrity. The award is divided into four categories with a single recipient for each: Category 1 (1-10 employees), Category 2 (11-99 employees), Category 3 (100-499 employees), and Category 4 (500+ employees). Optima was awarded the International Torch Award amongst 1,000 BBB regional winners from Canada, Mexico, and the U.S. that were automatically entered into the competition.
Conferred each year since 1996, the International Torch Awards for Ethics recognize companies whose leadership centers on four C’s: evaluating the Character of the organization’s leadership, fostering an authentic Culture, maintaining a transparent relationship with Customers, and assessing the impact the organization is making in the local Community. Optima Tax Relief’s commitment to maintaining these principles has set the company apart and positioned it as a leader in the industry.
This international honor comes after Optima Tax Relief’s BBB Torch Award for Ethics in 2021 and 2017. David King, CEO of Optima Tax Relief, expressed his gratitude for the award, stating, “Receiving the BBB International Torch Awards for Ethics is a significant achievement and a reflection of the values that guide Optima. Our hope has always been to set the example of what a tax “relief” company should be, and this award assures us we are on the right track.”
Christine Bui, Chief Customer Officer of Optima Tax Relief, echoed King’s sentiments, stating, “Ethics and compliance are at the core of our company culture. We believe in doing what is right for our clients and maintaining the trust they place in us. Receiving the BBB International Torch Awards for Ethics is a tremendous honor and reinforces our commitment to ethical business practices.”
The virtual award ceremony took place on November 16, 2023, at the BBB’s inaugural Trust Summit, where Optima Tax Relief was celebrated for their commitment to ethical excellence.
As technology continues to reshape the financial landscape, investment apps have become increasingly popular tools for individuals seeking to grow their wealth. These apps provide a user-friendly interface for managing investments, offering convenience and accessibility. However, as with any financial endeavor, it’s crucial to understand the tax implications associated with using investment apps. In this article, we will explore how these apps can affect your taxes and what considerations you should keep in mind.
What Are Investment Apps?
Investment apps are mobile applications that facilitate and streamline the process of investing. These apps offer user-friendly interfaces and access to a range of investment options. They allow you to manage portfolios, buy and sell securities, and monitor market trends from the convenience of your smartphones or tablets. Some common types of investment apps are:
Robo-Advisors: These automated investment platforms use algorithms to provide financial advice and manage investment portfolios of ETFs (Exchange-Traded Funds). Examples of robo-advisor apps include Betterment and Wealthfront.
Stock Trading Apps: These apps enable users to buy and sell individual stocks, often with low or zero commission fees. Examples of stock trading apps are Robinhood, E*TRADE, and TD Ameritrade.
Cryptocurrency Apps: These apps help buy, sell, and manage cryptocurrencies. Examples include Coinbase, Binance, and Kraken.
Micro-Investing Apps: These apps allow users to invest small amounts of money, often by rounding up purchases or contributing spare change to investments. Examples of these apps include Acorns, Stash, and Qapital.
Retirement Savings Apps: These apps help users save for retirement by offering Individual Retirement Accounts (IRAs) or similar retirement investment options. Examples include Wealthsimple, SoFi Invest, and Fidelity.
Capital Gains and Losses
One of the primary ways investment apps influence your tax liability is through capital gains and losses. When you sell an investment for a profit, it results in a capital gain, and conversely, if you sell at a loss, you incur a capital loss. Investment apps provide a platform for buying and selling securities, and the transactions made within these apps have tax implications.
Capital gains are generally categorized into two types: short-term and long-term. The holding period for an investment determines its classification. Short-term gains, from assets held for one year or less, are typically taxed at a higher rate than long-term gains, which are from assets held for more than one year. Understanding these distinctions is crucial for accurate tax reporting.
Dividend Income
Many investment apps offer users the ability to invest in dividend-paying stocks or funds. Dividends received from investments are considered taxable income. The tax treatment of dividends depends on whether they are classified as qualified or non-qualified. Qualified dividends are generally taxed at a lower rate, aligning with long-term capital gains rates, while non-qualified dividends are taxed as ordinary income. Investors need to keep track of their dividend income generated through investment apps and report it accurately when filing their tax returns.
Tax Efficiency Tools
Some investment apps offer tax-efficient features designed to minimize tax liabilities for investors. For example, tax-loss harvesting is a strategy certain apps use to offset capital gains with capital losses, helping investors reduce their overall tax burden. Additionally, automated tax documentation and reporting features simplify the tax filing process for users. While these tools can be advantageous, investors should thoroughly understand how they operate and consult with tax professionals if needed to ensure compliance with tax regulations.
Reporting and Documentation
Accurate and timely reporting is crucial when it comes to taxes. Investment apps typically provide users with annual tax documents, such as Forms 1099, summarizing their investment activities throughout the year. These documents include information on capital gains, dividends, and other relevant transactions.
Investors must carefully review these documents and incorporate the information into their tax filings. Failure to accurately report investment income and transactions can lead to penalties and complications with tax authorities.
State and Local Tax Considerations
In addition to federal taxes, investors using investment apps must be aware of state and local tax implications. Tax laws vary across jurisdictions, and some states may impose additional taxes on investment income. It’s essential to research and understand the tax regulations applicable to your specific location.
Tax Help for Investors
Investment apps offer a convenient and accessible way for individuals to participate in the financial markets. However, users must be aware of the tax implications associated with their investment activities. Proper record-keeping, understanding the tax treatment of capital gains and dividends, utilizing tax-efficient tools, and staying informed about state and local tax regulations are essential steps to navigate the complex intersection of investment apps and taxes. Seeking advice from tax professionals can enhance your understanding and help you optimize your tax strategy. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
