The 2023 tax filing season will be different than the past few years. That said, getting prepared early can help make the process much easier. Some of the changes expected in 2023 could affect tax bills, which in turn could affect tax refunds. Here are some tax tips for 2023.
Wait for Form 1099-K Before Filing
Perhaps the most notable change for tax year 2022 is the reporting rule change for Form 1099-K. The form reports all funds received through third-party payment networks like Venmo and PayPal. With the rise of small businesses and gig work, a large number of taxpayers are expected to receive this form. This is especially since the reporting threshold has changed. Prior to the American Rescue Plan Act of 2021, Form 1099-K was not sent out unless a taxpayer collected more than 200 transactions valued at an aggregate above $20,000. Now, that threshold has dramatically decreased to just $600. 1099-Ks must be sent out by January 31, 2023, which would make filing at the end of February or early March ideal for taxpayers. The IRS is urging everyone to wait until they receive these forms before filing. Failing to include this income can have serious, negative consequences.
Consider Changes to Tax Credits
Another major change for tax year 2022 is the end of expanded pandemic-era tax credits. Some of these credits, including the Child Tax Credit (CTC), Earned Income Tax Credit (EITC) and Child and Dependent Care Credit will return to pre-COVID levels. For example, the expanded CTC which previously granted $3,600 per dependent in 2021 will be reduced to $2,000 for the 2022 tax year. In 2021, eligible taxpayers without children received about $1,500 for the EITC but that amount will drop to about $500 for 2022. The Child and Dependent Care Credit is returning to a maximum of $2,100, down from 2021’s maximum of $8,000. These changes can drastically affect tax refunds so taxpayers should plan accordingly.
Check Eligibility for a Clean Vehicle Credit
The Inflation Reduction Act of 2022 amended the Qualified Plug-in Electric Drive Motor Vehicle Credit, also known as the Clean Vehicle Credit. If you purchased a new electric vehicle after August 16, 2022, you may be eligible for a tax credit. To qualify, your purchased vehicle must have finished assembly in North America. You can check the Department of Energy’s list of approved vehicles. If you purchased an electric vehicle before August 16, 2022 but did not take possession of the vehicle until on or after August 16, 2022, you may still claim the credit. In this scenario, the final assembly of your vehicle does not need to be in North America. The credit is worth up to $7,500.
Tax Relief for Taxpayers
Steps can and should be taken to prepare for 2023 tax filing season. These new changes can result in a more stressful tax season. Working with a qualified and dedicated tax professional can help ease the process. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
Filing taxes when you are self-employed can be very complex. One of the ways you can better prepare yourself for the filing season is to ensure you have all the correct and relevant tax forms.
American households have been feeling the full effects of inflation all year with Fed rates at their highest since early 2008. Here’s the latest update on Fed rate hikes.
Many taxpayers are often shocked to learn that their Social Security benefits can be taxed. Here’s a brief overview of how Social Security income is taxed, both at the federal and state level.
Landing at No. 4 on this year’s list, the company was one of only two companies to rank in the “Top 5” over the last five years.
Optima Tax Relief, the nation’s leading tax resolution firm, has been honored as a 2022 Top Workplace winner by the Orange County Register for the eighth consecutive year. This year the company ranked fourth out of the 17 large company honorees, making them one of only two companies to land in the “Top 5” in a five-year span. Orange County Top Workplaces recognizes U.S. employers that have fostered a people-first company culture.
“At Optima, our success is deeply rooted in our company culture,” said Optima CEO David King. “We recognize that employee satisfaction and customer satisfaction not only go hand in hand, but also build each other up. Because of that, we are constantly working to cultivate a culture that is inclusive, nurturing and diverse.”
The list of honorees is based solely on employee feedback gathered through a third-party survey administered by employee engagement technology partner Energage LLC. The confidential survey uniquely measures 15 culture drivers that are critical to the success of any organization, including alignment, execution, and connection, just to name a few.
The Top Workplaces in Orange County award comes just months after Optima Tax Relief was named a Top Workplace USA winner for the second year in a row. The company was also recognized with Culture Excellence Awards in five categories: Leadership, Purpose & Value, Work-Life Flexibility, Innovation, and Compensation & Benefits. Optima was also honored with the “Excellence in Management” award for the last two years.
Optima’s Associate Vice President of Human Resources Kimberly Carson credits the company’s success to their close-knit staff. “Our best quality is our people,” Carson said. “The level of engagement (even in a remote or hybrid environment), teamwork, inclusivity, and drive for excellence every day is exactly why we are such a fun place to work while still delivering the highest quality service to our clients.”
An in-person awards program to celebrate the 2022 Orange County Top Workplaces winners took place on Wednesday, December 7th at the Irvine Improv. A complete list of this year’s winners can be found on the Top Workplaces website.
With sports betting on the ballot this past midterm election, many wonder if sin taxes are healthy for the economy. These taxes have been levied both at the federal and state levels. Here are some examples of sin taxes and what they mean for the economy.
What is a sin tax?
A sin tax is one that is levied on a specific activity or good that society deems harmful or costly. Sin taxes are forms of excise tax and Pigouvian tax. In other words, it is usually charged to businesses that sell the good or service. However, these businesses then pass down the cost to consumers through higher prices. The most commonly taxed goods and services are alcohol, cigarettes, gambling, soft drinks, fast food, lotteries, gasoline, firearms, and airline tickets.
Why do sin taxes exist?
These items are taxed to deter people from purchasing them or from engaging in certain behaviors. However, they also generate a huge amount of revenue both at the federal level and state.
Advantages
Research has shown that sin taxes can help deter certain behaviors. For example, they have helped discourage the consumption of certain substances like tobacco and alcohol. This helps reduce the number of health issues that are associated with the consumption of these substances.
The revenue that these taxes generate helps the government to fund programs that address public health. The government may be able to use the gasoline tax revenue to build a new road or subsidize healthcare.
Ultimately, sin taxes are a more viable option of taxation compared to others. In fact, society has shown broad support for taxation on certain items. It is much easier for policymakers to turn to these taxes to generate more revenue than other types, like income taxes. In recent years, many states have even begun viewing sin taxes as solutions to budget issues.
Disadvantages
Policymakers claim that the main reason sin taxes exist is to prevent certain behaviors, but many argue that they are not high enough to actually offset these behaviors. To truly deter these behaviors, states would need to raise the tax on these items.
Many critics already argue that increasing taxation will not only be an overstep by the government, but it will target certain demographic groups. There is evidence that sin taxes heavily affect the poor and uneducated. For example, those who earn less feel the weight of the tax far more than those who earn more.
Tax Help for Taxpayers Who Owe
Whether you are for sin taxes or against them, they exist and will continue to exist as the revenue generated is far too great to reduce or eliminate. Now that legalizing sports betting has become a more popular topic, we can anticipate new goods and services to be taxed. While these taxes are paid upon purchase, others are not and it’s important to always ensure that they are paid on time and in the correct amounts. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
Tax deductions can help lower your tax bill and even increase your tax refund on your return. Here are seven tax deductions you might not know are deductible.
The IRS recently announced that there has been an increase in tax-related scams where taxpayers personal financial information could be at risk of being exposed or stolen. CEO David King and Lead Tax Attorney Philip Hwang provide helpful insight on what tax scams to be on the lookout for and how to avoid them in the future.
You can deduct vehicle expenses if you use your car for business purposes. You can even deduct the vehicle’s entire cost of ownership and operation, with some limitations, if it’s only used for business purposes. Tax implications can vary on this topic, so it’s important to understand the deduction rules when it comes to vehicles for business use.
Sometimes the idea of taking out a second mortgage can be a viable solution to eliminating debt, funding home renovations, or paying off unexpected medical bills. Before taking out a home equity loan, you should know the tax implications that come with it.
American households have been feeling the full effects of inflation all year with rates at their highest since early 2008. To support a healthy U.S. economy, the Federal Reserve, also known as the Fed, has raised its federal funds rate. Put simply, the federal funds rate is a suggested interest rate for banks to use when lending money. The Fed raises and lowers the rate accordingly to control the money supply and help keep inflation under control.
Fed Rate Hikes in 2022
In 2022, the fed funds rate has increased seemingly every other month. So far, the Fed has made the following adjustments:
March 2022: The Fed raised its rate from 0.25% to 0.50%
May 2022: The Fed raised its target rate range between 0.75% and 1% and announced it was reducing its holdings of Treasury and mortgage-backed securities.
June 2022: The Fed raised its target rate range between 1.5% and 1.75%, the largest rate hike in nearly 20 years.
July 2022: The Fed raised its rate to a target range between 2.25% and 2.5%
September 2022: The Fed raised its target rate range between 3% and 3.25% and announced the anticipated rate by the end of 2022 to be 4.4%.
November 2022: The Fed raised its target rate range between 3.75% and 4%, the highest level since 2008.
What’s Next For the Fed?
In October 2022, the Consumer Price Index (CPI), which is used to measure inflation, showed some signs of cooling prices in some areas. While this may sound encouraging, the Fed has announced that it does not view the small change as a victory. The option of raising their rate range in the December policy meeting is very much a possibility that Americans should prepare for. In fact, several financial institutions have predicted a rate of over 5% by March 2023.
What The Fed Rate Hikes Mean for Americans
The Fed rate hikes impact anyone who uses or is seeking financing because of rising interest rates. Home buyers have experienced higher interest rates on mortgages, meaning less buying power. On the flipside, home sellers might see a decrease in demand because it’s more expensive to purchase a home right now. Credit card debt also becomes more expensive since consumer debt interest rates rise after rate hikes. One of the few positives of rate hikes is that rates on savings accounts have increased slowly. Putting money into a high-yield savings account or a CD during inflation can result in greater interest yields.
Tax Relief for Those Affected by Fed Rate Hikes
Just about everyone in the U.S. has been affected by fed rate hikes, either directly or indirectly. On the tax side of things, the IRS has increased their interest rates for overpayments and underpayments to 6% per year, compounded daily. This rate is up from July’s rate of 5%. Higher rates make it a worse time to fall behind on tax payments, so staying compliant is even more crucial during this time. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Generally speaking, most income sources are taxable. However, there are some income types that are exempt from taxes. CEO David King and Lead Tax Attorney Philip Hwang discuss different kinds of income that may or may not get taxed and provide insight on how you can find out if your income is taxable or not. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
Filing taxes after a divorce can be complicated, especially when sorting out the tax liability that the parties are legally responsible for. CEO David King and Lead Tax Attorney Philip Hwang discuss how married couples should file their taxes, as well as how they can end up with a tax balance after a divorce – and what they can do about it. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
Whether you’re a frequent or seasonal giver, you should know how giving affects taxes. Giving can affect taxes in several ways, primarily through deductions and credits. Here are some frequently asked questions on how to maximize tax benefits of gifts.
What is a tax-deductible donation?
The IRS considers a tax-deductible donation to be any contribution of money or goods to a qualified tax-exempt organization. In order to deduct these contributions during tax season, you must itemize your deductions by filing Schedule A.
How much can I deduct?
Typically, you can deduct up to 60% of your adjusted gross income (AGI) if you are donating to a charitable organization. If you are donating to another type of organization like a private foundation or fraternal society, the limit is much smaller. These can range from 20% to 50%. If you exceed the limit for the year, you can carry over the excess contributions over the next five tax years.
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.
What are qualified organizations?
A qualified organization is one that you make a charitable donation to that can be deducted during tax time. Some of these organizations include religious organizations, governments, nonprofit schools and hospitals, war veterans’ organizations, and others. Some that do not qualify for tax-deductible donations are social or sports clubs, most foreign organizations, lobbyist groups, homeowners’ associations, individuals, political groups and more. More common forms of donations like blood, time and services, and raffle tickets may not be deducted. However, you may deduct out-of-pocket expenses that related to volunteering if they were not reimbursed. These can include mileage, gas, and supplies.
Tax Relief for Gift Givers
Before you give, it’s important to learn how to maximize tax benefits of gifts. Whenever you donate, it’s important to keep records, no matter how big or small the contribution amount. Bank statements or charity receipts will suffice for monetary donations. If you make donations automatically through paycheck deductions, the contribution amounts will show on your W-2 or pay stubs. If you donate goods, you are allowed to deduct the fair market value of the items. In other words, you may deduct the price a willing buyer would pay for them. The rules surrounding tax-deductible donations can be tricky. However, Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
Certain business owners, including sole proprietors, businesses and rental property owners, can deduct expenses related to maintenance and repairs. The deductions must apply to their property and equipment or vehicles. However, once the repair becomes classified as a betterment, restoration, or adaptation to the property or asset, other rules will apply. Here’s a quick overview of how to expense business repairs.
Routine Repairs & Maintenance
According to the IRS, routine maintenance to a property or business helps increase the value and prolongs its usefulness. Because routine maintenance keeps the property or asset in normal working order, these expenses can be deducted in full during tax time. For example, repairing a leak in the roof of your rental property would be considered a fully deductible repair, while renovating the kitchen would be considered a capital improvement, which has other tax implications.
Capitalization
Capitalization, on the other hand, is considered to be a betterment, restoration, or adaptation to the property. In this case, you must capitalize and depreciate the expense over several years. Betterments are repairs that improve a property or business asset. This can include expanding a property or fixing a defect that existed before you purchased the property. Restorations are repairs that restore an asset to its normal condition, like replacing a roof. Adaptations are repairs that change how the property or asset is used. For example, converting a garage into additional office space would be considered an adaptation and would need to be capitalized. Generally, when depreciating these expenses, it is done over a 27.5-year period.
Home Offices
For smaller business owners or remote workers, there are home office deductions you can take advantage of during tax time. The IRS divides home office expenses into a couple categories: direct and indirect expenses. Direct expenses benefit your home office only while indirect expenses benefit both your office and your home as a whole. The rules of repairs and improvements also apply to home office expenses. Repairs are entirely deductible while improvements must be depreciated. You can determine if the expense needs to be depreciated if it fits the standards of being a betterment, restoration, or adaptation.
Tax Relief for Business Owners
The rules for expensing business repairs and improvements can become tricky. The most basic rule to remember is to deduct the expense when it is a repair that doesn’t qualify as an improvement to your property or business asset. You must capitalize and depreciate expenses that are considered a betterment, restoration or adaptation to your property or business asset. There are some exceptions to these guidelines, referred to as “safe harbors.” You should always check with a knowledgeable tax professional to ensure you remain compliant when capitalizing and depreciating expenses. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
