Quick Answer: 

Under the SECURE 2.0 beneficiary IRA tax rules, most non-spouse heirs must fully liquidate an inherited IRA within 10 years, with many also facing mandatory annual required minimum distributions (RMDs) if you pass away after age 73. Because the exact tax penalties and withdrawal timelines depend entirely on your beneficiary’s specific legal relationship to you, updating your designation forms today is the only way to shield your family from an unnecessary tax burden.

Key Takeaways

• Under SECURE 2.0, most non-spouse heirs are now legally required to fully liquidate an inherited traditional or Roth IRA within a strict 10-year window.
   
• If you pass away after reaching your Required Beginning Date (currently age 73), your beneficiaries must take mandatory annual withdrawals during years 1 through 9.
   
• The IRS determines the tax penalties and distribution rules your heirs face based on their specific legal relationship to you.
   
• Allowing your IRA to default to your estate or an unrevised pre-SECURE Act trust can trigger accelerated liquidation timelines and maximum compressed tax brackets for your family.
   
• Executing strategic tax planning during your lifetime (such as partial, multi-year Roth conversions) is the most effective way to shield your heirs from the 10-year tax squeeze.

You’ve spent a lifetime working hard and building your retirement savings with a meaningful goal: securing your own future and leaving a legacy for your loved ones. 

But with the SECURE 2.0 beneficiary IRA tax rules for 2026, the IRS has flipped the wealth transfer script.

The tax burden your heirs inherit now depends on their legal relationship to you. 

To safeguard your hard-earned wealth for your family, you need to pull out your estate plan and relationship-audit it. Let’s take it step-by-step.

What are the rules for inherited IRAs in 2026?

The beneficiary IRA tax rules in 2026 dictate that if you leave your account to most non-spouse beneficiaries, they must fully withdraw all funds by December 31 of the 10th anniversary year of your passing. 

And with the IRS transitional grace period now officially over because of the Secure 2.0 Act, your heirs may also be forced to take annual Required Minimum Distributions (RMDs) during years 1 through 9 of that 10-year window. But that all depends on your age when you pass away.

Note: If you leave behind a Roth IRA, your Orange County heirs are exempt from those annual year 1–9 RMDs. They can let the funds ride completely untouched and tax-free until the final year-10 deadline.

What’s the 10-year rule for inherited IRAs?

In 2026, the tax rules split into two distinct pathways based on whether you reached your Required Beginning Date (RBD), which is currently age 73:

• If you pass away BEFORE your RBD, your beneficiaries face no annual RMD requirements. They have flexibility over when to take distributions, as long as they empty the account by December 31 of the 10th year.
   
• If you pass away ON OR AFTER your RBD, your heirs fall into the annual RMD trap. They must take annual distributions in years 1 through 9 based on their own single life expectancy, and then fully liquidate the remaining balance by the end of the 10th year.

What are the 2026 beneficiary categories?

To determine exactly how much tax your loved ones will owe, the IRS divides your potential beneficiaries into three distinct tiers based strictly on their relationship to you:

1. Your Eligible Designated Beneficiaries (EDBs)

This group is legally exempt from the 10-year liquidation rule and can still stretch distributions over their own life expectancy. This includes:

• Your surviving spouse (who also retains the right to roll your IRA into their own).
• Your minor children (under age 21, at which point their 10-year countdown clock triggers).
• A disabled or chronically ill individual.
• Anyone who is not more than 10 years younger than you.

2. Your Designated Beneficiaries (DBs)

These are your most common heirs, including your adult children, grandchildren, and certain family trusts. They are strictly bound to the 10-year rule and will face mandatory annual RMDs if you pass away after age 73, threatening to push them into a much higher tax bracket during their peak earning years.

3. Your Non-Designated Beneficiaries (NDBs)

This includes your estate, charities, or non-qualified trusts. If you pass away before your RBD, they must empty the account within a compressed 5-year window. If you pass away after, they have to use your remaining life expectancy. Leaving your IRA to your estate or an outdated trust can inadvertently trigger top-tier estate tax brackets almost instantly.

SECURE 2.0 Inherited IRA Tier System

Does a will override an IRA beneficiary designation?

You might think your carefully drafted last will and testament or revocable living trust dictates who gets your retirement savings when you pass away. But actually, your IRA beneficiary designation forms override whatever is written in your will. 

The finalized SECURE 2.0 rules dictate tax consequences based on the specific legal relationship between you and your beneficiary. So, conducting a relationship audit of your estate plan in 2026 is the way to ensure your hard-earned wealth doesn’t get consumed by unnecessary taxes.

What happens if you don’t name a beneficiary on a traditional IRA?

Allowing your IRA to default to your estate triggers the worst possible tax treatment. If you pass away before your Required Beginning Date (RBD), your estate must completely empty the traditional IRA within just five years.

Also, estates and trusts reach the highest federal tax bracket incredibly fast. Forcing five years of massive IRA distributions into an estate can wipe out a significant percentage of the account’s value in taxes before your family gets to benefit.

Can a trust be the beneficiary of an IRA under SECURE 2.0?

If your estate plan was created before the SECURE Act, it likely contains a conduit trust or a see-through trust. These trusts were designed to slowly trickle out required distributions over your children’s or grandchildren’s entire lifetimes, protecting the principal from creditors or poor financial decisions.

But because the IRS now forces a full liquidation within 10 years for most non-spouse heirs, a conduit trust will be forced to pass those massive, compressed distributions directly out to your beneficiary within that 10-year window.

This completely defeats the asset protection goals you originally intended. Or, if the trust holds onto the money (an accumulation trust), the funds will be taxed at the draconian top estate/trust tax rates.

How to relationship-audit your estate plan

To protect your legacy, we need to sit down and run through these three vital alignment checks:

1. Look at every individual named on your current IRA forms. Are your primary and contingent choices accurately classified into the correct 2026 IRS categories (Spouse, Minor Child, Adult Child, Charity)?
2. If a trust is listed as your IRA beneficiary, have your Costa Mesa estate attorney or CPA review the exact distribution mechanics to ensure it has been updated for the post-SECURE 2.0 environment.
3. If your primary beneficiary passes away, your contingent beneficiaries take center stage. Make sure your contingent choices don’t accidentally throw your retirement accounts into the 5-year estate liquidation trap.

Taking an hour to perform a relationship audit today means that the wealth you spent a lifetime building actually lands in the hands of the people you love, not the IRS.

How can I protect my heirs from the 10-year rule?

Because you have control over your accounts right now, we can deploy tax planning strategies to lower the total amount your family surrenders to the IRS. Here are a few strategies we can talk through together:

1. The multi-year Roth conversion strategy

A multi-year Roth conversion allows you to systematically transfer funds from your traditional IRA into a Roth IRA during your lifetime.

When you convert traditional retirement funds to a Roth account, you pay the income tax now, filling up your current, lower tax brackets. When your heirs eventually inherit the Roth IRA, they won’t pay federal income tax on their withdrawals.

2. The Charitable Remainder Trust “stretch” alternative

Instead of naming your children as direct beneficiaries on your IRA form, you can name a properly structured Charitable Remainder Trust (CRT). Upon your passing, your traditional IRA transfers directly into the trust. 

Because a CRT is a tax-exempt entity, zero income tax is triggered on the transfer, preserving 100% of the account’s principal.

Your children only pay income tax on the distributions they receive each year, effectively stretching the tax hit over decades. Once the trust term ends, the remaining principal goes to a charity of your choice.

3. Bracket equalization

If one child is a teacher or still in graduate school (lower tax bracket) and another is a corporate executive or Orange County surgeon (top tax bracket), leaving the traditional IRA to the lower-earning child ensures the forced 10-year distributions are taxed at a much lower marginal rate.

For your high-earning children, consider naming them as beneficiaries of your taxable brokerage accounts or real estate. These assets receive a step-up in basis to fair market value upon your death. Which means your high-income heirs can sell the assets and pay virtually nothing in capital gains taxes.

Final thoughts

To protect the wealth you want to pass to your heirs, we need to look at your family’s tax reality holistically. And implementing these strategies requires careful calculation so you don’t accidentally push yourself into a higher bracket today while trying to save your heirs tomorrow.

So let’s sit down together and review your situation. We can go over the specific tax implications of your retirement account designations so your hard-earned wealth is protected for your loved ones.

calendly.com/tom-ameritax/new-meeting

FAQs

“Do beneficiaries pay taxes on IRA distributions?”

Distributions from a traditional inherited IRA are treated as ordinary income and are fully taxable to your beneficiary. However, distributions from an inherited Roth IRA are generally 100% tax-free, as long as the account has been open for at least five years.

“Can I pass an inherited IRA to my child?”

Yes, you can designate your child as the beneficiary of your IRA. Keep in mind that adult children are classified as Designated Beneficiaries under the 2026 rules, meaning they will be bound by the strict 10-year liquidation timeline and potential annual RMD requirements.

“What is the smartest thing to do with an inherited IRA?”

The smartest approach is to strategically map out withdrawals over the mandatory 10-year window instead of waiting until the final year or taking a lump sum. Spreading the distributions out helps level out the income hit so your heirs aren’t accidentally pushed into a much higher tax bracket.

“Is there a way to avoid paying taxes on an inherited IRA?”

Beneficiaries cannot avoid paying taxes on a traditional IRA, but you can eliminate their future tax burden by executing partial Roth conversions during your lifetime. If they’ve already inherited a traditional IRA, the best way to minimize the tax is by timing distributions during years when the beneficiary’s other income is lower.

“Do I have to report an inherited IRA on my tax return?”

Yes, every distribution taken from an inherited retirement account must be reported to the IRS on your tax return. As the beneficiary, you’ll receive a Form 1099-R from the custodian detailing the distribution, which must be filed even if the withdrawal came from a tax-free Roth IRA.

“Can an inherited traditional IRA be converted to a Roth IRA?”

Non-spouse beneficiaries (like your adult children or grandchildren) are legally prohibited from converting an inherited traditional IRA into a Roth IRA to avoid the tax hit. If you want your heirs to enjoy tax-free withdrawals over their mandatory 10-year window, you must execute the Roth conversions yourself during your lifetime.

“Does the 10-year rule apply to grandchildren?”

Grandchildren are fully subject to the strict 10-year liquidation rule under SECURE 2.0. The IRS exception for minor children applies strictly to your own immediate children under the age of 21. Meaning, your grandchildren cannot stretch the tax-deferred growth over their lifetimes, regardless of how young they are when they inherit the account.

The post How the Secure 2.0 Act Changes Beneficiary IRS Tax Rules For Your Orange County Heirs appeared first on Ameritax.

Quick Answer: The American Opportunity Tax Credit (AOTC) must be claimed by whoever legally lists the student as a dependent on their federal tax return. If a parent claims the undergraduate, the parent gets the credit; if the student is independent, they claim it on their own return. To unlock the maximum $2,500 annual credit, the filer’s income must be under $80,000 ($160,000 joint) with at least $4,000 in out-of-pocket tuition and required course materials.

Key Takeaways

• Claiming the American Opportunity Tax Credit belongs to whoever legally claims the student as a dependent on their federal tax return, not necessarily who pays the tuition bills.
   
• You must document $4,000 in qualified out-of-pocket higher education expenses during the tax year to unlock the full $2,500 annual tax credit per student.
   
• The AOTC is partially refundable. So, even if your calculated federal income tax bill drops to zero, you can still receive up to 40% of the credit (up to $1,000) back as a cash refund.
   
• If a May college graduate lands a full-time corporate job this June and pays for more than 50% of their own support for the calendar year, the dependency status shifts, and the graduate must claim the credit instead of the parents.
   
• You can’t use the same tuition expenses for a tax-free 529 plan distribution and the AOTC; you must leave $4,000 in expenses uncovered by 529 funds to max out the tax credit.

If your plans for this summer include helping your teen pick out dorm supplies or watching your recent college graduate start their very first “real” job, congratulations!

You (and notably, your wallet) are going through a big transition. And the IRS actually offers you a hand in it. 

The American Opportunity Tax Credit (AOTC) can put up to $2,500 per year back in your pocket for each eligible student in your Costa Mesa household, and can even land you a refund check if your tax bill is already down to zero.

Let’s dig into exactly how this credit applies to you and your child.

What is the American Opportunity Tax Credit?

The American Opportunity Tax Credit (AOTC) is a federal tax credit that directly reduces your income tax bill by up to $2,500 per eligible student, per year, to help offset higher-education costs. It’s a partially refundable credit. Meaning, that even if your tax liability is reduced to zero, you can still receive up to 40% of the value (up to $1,000) back as a refund.

To unlock the full $2,500 annual credit, you must show $4,000 in qualified education expenses during the tax year. The IRS calculates the credit using a two-tiered formula:

• 100% of the first $2,000 in qualified expenses.
   
• 25% of the next $2,000 in qualified expenses.

What qualifies: Tuition, mandatory enrollment fees, and required books, supplies, and equipment (including laptops or software required for class, even if purchased outside the university bookstore) all qualify.

What does NOT qualify: Room and board, meal plans, transportation, parking passes, and medical insurance.

Expenses paid with student loans or credit cards do qualify for the credit. But you have to subtract any tax-free money like Pell grants, scholarships, or employer tuition assistance from your total qualified expenses.

The credit phases out for higher earners. It begins reducing at a Modified Adjusted Gross Income (MAGI) of $80,000 ($160,000 for joint filers) and disappears entirely if your income exceeds $90,000 ($180,000 for joint filers).

You can claim the AOTC for multiple dependents on the same tax return, but you can only claim one tax benefit per student, per year. You can’t use the same child’s expenses for multiple educational credits.

Who can claim the American Opportunity Tax Credit? Parent vs student rules

The right to claim the AOTC belongs to whoever legally claims the student as a dependent on their federal tax return. You and your child can’t both claim the credit for the same academic expenses in the same tax year.

(That is, with the exception of high-income parents who are phased out above $180,000 MFJ and choose not to claim their eligible child as a dependent. This allows the independent student to file their own return and capture the credit against their own income tax liability.)

To determine who can claim the American Opportunity Tax Credit, you have to look at the relationship status on December 31st.

For most traditional Orange County undergraduate households, the parent claims the student as a dependent. Here’s how that plays out in real time:

• If the parent claims the student, the parent gets the tax credit. It doesn’t matter if your child paid for their own tuition using a summer job or student loans; because the parent holds the dependency claim, the credit moves to the parent’s tax return.
   
• If the student pays for more than half of their own support and files as an independent taxpayer, they claim the credit on their own tax return.

How does graduation affect who can claim the American Opportunity Tax Credit?

If you’ve got a college senior graduating this year, you need to watch out for the timing trap: If your child graduated in May and starts a full-time career this June, their new income might affect your next tax return.

The rule is, if a recent graduate earns enough money between June and December to provide more than half of their own total financial support for the calendar year (including housing, food, and insurance), you can no longer legally claim them as a dependent.

If this happens, the dependency status vanishes for you as the parents, and the graduate is the only one who can claim the final AOTC for those spring tuition bills.

The key question is whether your child provided more than half of their own support for the full calendar year. Wages, housing costs, insurance, food, and other support all come into play here. So, before assuming you or your graduate gets the final AOTC, we need to run the dependency test.

What requirements must a student meet for the AOTC?

To qualify for the American Opportunity Tax Credit (AOTC), your child must meet five strict IRS eligibility criteria regarding their enrollment status, academic progress, and legal history. If they fail to meet even one of these parameters, neither the parent nor the student can claim the credit.

1. Your child must be actively pursuing a degree, certificate, or other recognized credential at an eligible educational institution.
    
2. Your child must be enrolled at least half-time for at least one academic period (such as a semester, quarter, or summer term) that begins during the tax year.
    
3. The AOTC is only an undergraduate tax perk. The student cannot have completed their first four years of higher education at the beginning of the tax year. 
    
4. You can only claim the AOTC for four tax years per student, even if they take an extra semester to finish their degree.
    
5. Your child must be entirely free of any federal or state felony convictions for possessing or distributing a controlled substance as of the end of the calendar year.

So, if your high school senior just graduated in May and is heading to campus this coming fall, they’ll trigger their first year of AOTC eligibility during this calendar year.

Because they’ll only be enrolled for one semester (Fall) in the current tax year, they easily clear the “at least half-time for one academic period” hurdle. Which means you can count all those upcoming late-summer purchases (like textbooks and required tech gear) toward your qualified expenses.

Can you claim the AOTC if you paid tuition with a 529 plan?

You can absolutely use both a 529 college savings plan and the American Opportunity Tax Credit (AOTC) in the same calendar year. You just can’t use the exact same educational expenses to justify both benefits.

If you withdraw tax-free earnings from a 529 account to pay for a semester’s tuition, those specific dollars are used up and can’t be counted toward the $4,000 in out-of-pocket expenses required to claim the maximum $2,500 AOTC.

The most effective tax-planning strategy is to intentionally pay $4,000 of your tuition bill using non-529 funds (such as standard cash, current income, or student loans).

That first $4,000 paid out of pocket triggers the full $2,500 AOTC. Then, you can pay the remaining balance tax-free via 529 withdrawal.

A 529 plan is much more permissive about qualified expenses than the AOTC is. You can legally bypass the double-dipping rule by routing your 529 distributions toward expenses that the AOTC doesn’t cover anyway.

Final thoughts

Figuring out the intersection of 529 plans, income limits, and recent graduations gets hairy fast. Instead of guessing your way through the complex rules, let’s map out your college funding strategy together.

Book an appointment on my calendar today so we can optimize your dependency status and secure every dollar your family is legally owed:

calendly.com/tom-ameritax/new-meeting

FAQs

“Do laptop and computer purchases qualify for the AOTC?”

A laptop, computer, or required software qualifies for the AOTC if it is needed as a condition of enrollment or attendance at the educational institution. Unlike other education tax perks, you can buy these tech tools from any retailer (not just the university bookstore) and still count them toward the credit, so be sure to save your summer shopping receipts.

“Can you claim the AOTC for graduate school?”

You can’t claim the AOTC for graduate school, because the credit is strictly limited to the first four years of higher education. Once your child completes their undergraduate degree, they no longer qualify for the AOTC, but they may become eligible for the Lifetime Learning Credit (LLC) instead.

“What are the income limits for the AOTC in 2026?”

The AOTC begins to phase out at a Modified Adjusted Gross Income (MAGI) of $80,000 for single filers and $160,000 for married couples filing jointly. The credit reduces gradually within these brackets and completely disappears once your 2026 MAGI exceeds $90,000 as a single filer or $180,000 if you are married filing jointly.

“Can a student claim the AOTC on their own tax return?”

A student can claim the AOTC on their own tax return if they file as an independent taxpayer and no one else legally claims them as a dependent. If the parents claim the student on their taxes, they become the ones who can claim the American Opportunity Tax Credit, regardless of who physically paid the bills.

“Can I claim the AOTC if my child is taking summer classes?”

You can claim the AOTC for summer classes provided the student is enrolled at least half-time for at least one academic period during the calendar year and is actively pursuing a degree. If the summer session pushes them over that half-time threshold, the tuition and required materials you pay for this summer count toward your $4,000 expense target.

“Can I claim both the AOTC and the Lifetime Learning Credit in the same year?”

Yes, but you can’t claim both for the same student. If you have multiple dependents, you can mix and match by claiming the AOTC for your undergraduate freshman and the Lifetime Learning Credit for your graduate student in the exact same tax year.

The post Who Can Claim the American Opportunity Tax Credit? Guidance for Orange County Parents appeared first on Ameritax.

Key Takeaways

• Most married couples lower their tax liability by choosing the Married Filing Jointly status, which preserves access to deductions that separate filers lose.
   
• When there is a significant income gap between partners, combining earnings on a joint return can pull the higher earner’s income into a lower tax bracket.
   
• The unique Spousal IRA rule allows a non-working spouse to legally contribute to a retirement account using their partner’s earned income.
   
• Dual-income married couples can cross-examine both of their workplace benefit packages to strategically choose the most lucrative mix of tax-free 401(k), HSA, and FSA perks.
   
• High earners and certain low-income families must plan ahead for marriage penalties triggered by shared deduction caps and compressed surtax thresholds.

When you’re planning your wedding, you’ve got a zillion things to think about: Napkin colors. Flower arrangements. Your strategy for keeping the microphone away from Dad before he gives an embarrassing speech. 

Makes sense that you wouldn’t be thinking about your taxes.

But Uncle Sam has some wedding gifts for you in the form of tax perks. Here’s how saying “I do” might actually lower your overall tax bill. 

Do you get better tax breaks for being married?

When you say “I do,” the IRS changes how it views your finances. Which could result in a lighter tax burden for you and your spouse-to-be. Here is a breakdown of the major tax benefits of marriage that every Orange County newlywed couple should know.

1. Flexible filing statuses

Once you’re married, you gain the flexibility to choose between Married Filing Jointly (MFJ) or Married Filing Separately (MFS).

For the vast majority of couples, filing a joint return is the winning strategy because you combine your income, deductions, and credits onto a single tax return, saving time and tax preparation costs.

Also, if you file separately, you can’t claim perks like the Earned Income Credit (EIC), the American Opportunity Tax Credit (for higher education), or the student loan interest deduction.

In specific scenarios, filing separately can work to your advantage. The most common trigger is high out-of-pocket medical expenses.

Medical expenses are only deductible if they exceed 7.5% of your Adjusted Gross Income (AGI). By filing separately, a spouse with high medical bills isolates their lower individual AGI, making it much easier to clear that 7.5% hurdle and claim the deduction.

However, if you choose to file separately and one spouse chooses to itemize deductions (which you must do to claim medical expenses), the other spouse is also required to itemize. 

This means the second spouse forfeits their Standard Deduction, which could offset any savings gained from the medical deduction. Always run the numbers both ways.

2. Lower tax brackets for unequal earners

When one spouse earns significantly more than the other, your combined income can pull the higher earner’s income down into a lower tax bracket when filing jointly.

Let’s look at how this plays out in a scenario where Taxpayer A has a taxable income of $150,000, and Taxpayer B has a taxable income of $20,000.

If they file separate individual returns, their taxes are calculated independently:

• Partner A lands in the 24% top tax bracket and owes a total of $28,598 in federal income tax.
   
• Partner B stays in the 12% top tax bracket and owes $2,152 in federal income tax.
   
• Together, their total household tax burden as single people comes out to $30,750.

But when they combine their income on a single, joint tax return:

• Their combined taxable income is now $170,000 ($150,000 + $20,000).
   
• A joint income of $170,000 tops out in the 22% bracket instead of the 24% bracket.
   
• The total federal tax owed on their combined return drops to $26,824.

3. Higher limits on charitable contribution deductions

Getting married can actually increase the amount of donations you can deduct in a single tax year.

To claim deductions for donations, you must itemize your deductions. The IRS limits your annual cash charity deductions to 60% of your Adjusted Gross Income (AGI) (and 50% for property donations). Any amount above this cap must be carried forward to future tax years.

When you file jointly, the IRS calculates your 60% limit based on your combined joint AGI, creating a much higher deduction ceiling.

4. Unlock or boost the Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is designed to reduce the tax bill for low- to moderate-income workers. To qualify for it, you can’t earn too much money, but you must have some form of earned income (like wages, salaries, or tips).

If you’re single and don’t work, you’re automatically locked out of this credit.

But because your eligibility as a married couple is based on your combined income, a non-working spouse can suddenly become eligible for the credit by marrying someone with a modest earned income.

5. Double your retirement savings with a spousal IRA

If you are single and do not work, you cannot legally contribute to a traditional or Roth Individual Retirement Account (IRA), nor can your annual contributions exceed what you earned that year.

But if you file a joint return, the “Spousal IRA” rule allows a non-working spouse to open and contribute to their own separate IRA using the working spouse’s taxable earned income.

There are a few key rules around this to be aware of:

• You must file a Married Filing Jointly return to utilize this strategy.
   
• The total contributions made to both your IRA and your spouse’s IRA cannot exceed the total taxable earned income reported on your joint return.
   
• You still cannot exceed the combined annual IRS contribution limit set for each individual spouse.

6. Access better perks 

Many of the absolute best tax-saving vehicles, like 401(k) plans, Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs), are only accessible as employee benefits provided through your Costa Mesa workplace. These accounts allow you to shield your income from taxes through tax-free contributions, tax-free growth, or tax-free withdrawals.

When you’re single, you’re limited to the benefit menu your employer offers. However, when you get married and both you and your spouse are employed, you get the ability to “benefit shop.” 

You can strategically review the employee benefits packages at both of your jobs and pick the absolute best mixture to maximize your household tax savings.

Are there tax disadvantages to getting married?

When couples come to me asking, “Do you get better tax breaks for being married?” I have to show them the other side of the coin: Both low-earning and high-earning couples can sometimes find themselves paying more to the IRS as a married unit than they did as two single individuals. 

Here are three distinct tax disadvantages of marriage you need to watch out for.

1. The EITC marriage penalty

The EITC income limits for married joint filers are only slightly higher than those for single filers. A single taxpayer with one qualifying child can earn up to $51,593 before completely losing eligibility for the credit.

But if that same individual marries a partner who also works, their combined income limit for a joint return only moves up to $58,863 for a family with one child.

2. High earners trigger surtaxes

High-earning couples face a steep marriage penalty involving the 3.8% Net Investment Income Tax (NIIT) and the 0.9% Additional Medicare Surtax.

The IRS applies these extra surtaxes to your income once you pass a certain financial threshold. Single taxpayers are not subject to these additional taxes until their income exceeds $200,000. However, the threshold for married couples filing jointly is capped at just $250,000 total.

3. The shared SALT deduction cap 

The State and Local Tax (SALT) deduction allows you to deduct property taxes, along with either state income or sales taxes, from your federal return if you itemize. The maximum amount you can deduct under the SALT cap is $40,000 per household.

The major disadvantage here is that the $40,000 cap applies equally to a single individual and a married couple filing jointly.

And filing separately doesn’t fix this, as the cap is simply split into $20,000 per spouse.

Final thoughts

Your financial picture is entirely unique from any other couple’s. And a single choice, like whether to file jointly or separately, can shift your tax liability by thousands of dollars.

And if you’re currently planning your wedding, you’ve already got too many things to think about. So let me run the numbers for you. Grab a spot on my schedule, and we’ll build a customized tax strategy for your new life together.

calendly.com/tom-ameritax/new-meeting

FAQs

“Does your wedding date affect your taxes for the entire year?”

The IRS determines your marital status based on where you stand on the very last day of the year. If you tie the knot on or before December 31, the IRS considers you married for the entire tax year, meaning you must file your upcoming return using a married status.

“Can you still file as single the year you get married?”

You cannot legally choose to file as single if you are legally married on December 31st of that tax year. Your only two legal tax options under federal law are Married Filing Jointly or Married Filing Separately.

“Is it always better to file Married Filing Jointly?”

While filing a joint return lowers the tax bill for most couples, it is not always the best choice. Filing separately can sometimes save you money if one spouse has exceptionally high out-of-pocket medical bills or if you need to keep separate incomes to lower payments on an Income-Driven Student Loan Repayment plan.

“Do you get better tax breaks for being married?”

For the vast majority of couples, getting married unlocks significantly better tax breaks and a lower overall household tax bill. Filing a joint return triggers a “marriage bonus” by widening your tax brackets, doubling your standard deduction, and allowing a non-working spouse to build retirement wealth through a Spousal IRA. It also creates a higher joint income ceiling, making it much easier to fully deduct large charitable contributions in a single year.

“Do I need to update my W-4 tax form immediately after getting married?”

You should submit a revised Form W-4 to your employer’s payroll department shortly after getting married. Combining your incomes can drastically change your household tax bracket, and adjusting your federal income tax withholding early prevents you from facing a surprise tax bill or penalty at the end of the year.

“How do we change our names with the IRS after marriage?”

You do not actually notify the IRS directly about a name change; instead, you must update your name with the Social Security Administration (SSA). Once the SSA processes your marriage certificate and legal name change, they will automatically update the IRS database, ensuring your tax return isn’t rejected due to a name mismatch.

The post Do You Get Better Tax Breaks For Being Married, Orange County Couples? appeared first on Ameritax.

Key Takeaways

• You do not have to pay federal income tax on rental earnings if you rent your home for 14 days or fewer per year and use it personally for more than 14 days (or 10% of the rental period).
   
• You will only receive a Form 1099-K if you exceed $20,000 in gross payments and 200 transactions. For direct payments, the 1099-NEC threshold has increased to $2,000.
   
• You can deduct 100% of the cost of new furniture, appliances, and certain interior improvements in the very first year, rather than spreading the deduction over several years.
   
• If your average guest stay is 7 days or fewer and you “materially participate” in the management, you may be able to use your rental losses (like depreciation) to directly offset your W-2 salary income.
   
• While you pay income tax on profits, you are also responsible for collecting local occupancy taxes from guests. 

The 2026 FIFA World Cup kicks off (see what I did there) in just a few weeks. 

And if you’ve decided to list your Orange County home or spare room on Airbnb or VRBO to capitalize on the influx of global fans, I want to make sure you’re prepared for the tax side of short-term rental income.

Or, even if you’re just renting out a beach house or lakeside cabin for the season, understanding the tax rules around short-term rentals is the difference between keeping your hard-earned profits and handing an unnecessary chunk over to the IRS. 

Do you have to pay short-term rental income taxes?

In the eyes of the IRS and state taxing authorities, once you begin charging guests to stay in your house, apartment, or even just a spare bedroom, you are officially a landlord. This means the money you earn is considered taxable income.

However, the taxability of your rental depends heavily on how many days the property is occupied by guests versus how many days you use it yourself.

What’s the 14-day rule for short-term rental income taxes?

Commonly known as the “Master’s Exception,” the 14-day rule is the primary way you can avoid paying federal income tax on your rental earnings. But you must meet both of the following criteria:

1. You rent the property out for no more than 14 days total during the tax year.
    
2. You use the property yourself for more than the greater of:
   • 14 days, or
   • 10% of the total days it is rented at a fair market value

If you meet these two conditions, the IRS essentially treats the rental as non-existent for tax purposes. You don’t report the income, but you also can’t deduct any rental-related expenses.

If you rent your space for 15 days or more, you have officially entered the realm of landlord status. At this point:

• Every dollar earned must be reported on your federal and state tax returns.
   
• This income is subject to standard income tax rates.
   
• You become eligible to deduct the ordinary and necessary expenses of managing the rental.

What are occupancy taxes?

Beyond federal and state income taxes, you must also be aware of occupancy taxes. Sometimes referred to as tourist tax, hotel tax, or room or lodging tax.

Unlike income tax (which you pay on your profits), an occupancy tax is a percentage of the rental price paid by the guest and collected by you or the platform.

The rates and registration requirements vary wildly by city and county. Before you list your space, check your local ordinances to ensure you are collecting and remitting the correct amount to your local government. Failure to do so can lead to hefty penalties, regardless of how much you earned.

How to report short-term rental income

If you don’t meet the requirements of the IRS 14-day rule, you must report your rental earnings on your tax return. So, the first thing I look at as a tax pro is how you’re hosting. Because that determines which tax form we use.

There are two primary classifications for reporting this income:

1. Schedule E (Supplemental Income and Loss): This is the most common classification for rental owners. You’ll report here if your rental is a passive activity. Meaning, you provide basic utilities and maintenance, but not “substantial services” during a guest’s stay.
    
2. Schedule C (Profit or Loss from Business): Your rental shifts into this category if you provide substantial services beyond basic upkeep, like daily linen changes, guest meals, or concierge tours. This triggers an extra 15.3% tax hit on your profits and forces you onto Schedule C. (If you’re aiming for maximum margin, it’s usually better to stick to basic maintenance and avoid these substantial services.)

Because of federal reporting laws, rental platforms are required to share your earnings data with the IRS. Depending on your volume, you may receive one of two forms:

• Form 1099-K.  This reports the gross payments you received through the platform. Under current 2026 rules, platforms only issue this form if you earn over $20,000 and have more than 200 transactions.
   
• Form 1099-NEC. This form is for non-employee compensation. The 2026 threshold for 1099-NEC reporting has increased to $2,000. (And don’t forget: this rule applies to you, too. If you pay a cleaner or contractor more than $2,000 directly this year, you’re responsible for issuing that 1099.)

Sometimes, a platform might send a 1099 to the IRS even if you rented your place for fewer than 14 days (especially if you live in a state with lower reporting thresholds).

This is why I tell every client to treat their rental like a business from day one. Keep a meticulous log of:

• Every date the property was rented.
   
• Every date you used the property personally.
   
• Detailed receipts for all related expenses.

Clear records make it easy to prove you meet the 14-day “Master’s Exception” or to accurately divide expenses between personal and business use for longer rentals.

What short-term rental tax deductions can you take?

The tax code allows you to deduct ordinary and necessary expenses to lower your taxable profit. Essentially, you only pay taxes on your net income (what’s left after expenses), not the total amount guests paid.

Here are the most common deductions I look for when reviewing a client’s rental portfolio:

• Cleaning and maintenance: This includes professional cleaning fees, laundry services, and any cleaning supplies (detergent, soaps, vacuums) you purchase yourself.
   
• Insurance: You can deduct premiums for property insurance and Private Mortgage Insurance (PMI).
   
• Utilities: Water, gas, electricity, internet, and TV/streaming services are all deductible for the periods the property is available for rent.
   
• Advertising: Any costs associated with marketing your listing, including professional photography.
   
• Repairs: Fixes like repairing a leaky faucet or replacing a broken window are fully deductible in the year they occur.
   
• Platform fees (like the guest or host-service fees charged by Airbnb or VRBO): Since your 1099 form typically reports the gross amount the guest paid, you must manually deduct these service fees on your return. Because 100% of these fees are directly related to the business of renting, you should deduct the entire amount.

Depreciation also allows you to write off the cost of the property (excluding land) and its furnishings over time.

And because of the OBBBA, 100% bonus depreciation allows you to potentially deduct the entire cost of furniture, appliances, and certain interior improvements in the very first year they are placed in service, rather than spreading the cost over several years.

How do you deduct mixed-use properties?

If you are renting out a spare room or a home you also live in, you can’t deduct the entire house’s expenses. Instead, you must allocate them:

1. By space: If you rent one bedroom in a four-bedroom house, you generally deduct 25% of the shared expenses (like the roof repair or whole-house utilities).
    
2. By time: If you rent the whole house for 60 days a year and live in it for the rest, you can only deduct expenses for that 60-day window.

What is the short-term rental taxes loophole?

Essentially, this strategy allows high-earning W-2 employees or business owners to use losses from their rental property to directly offset their other income, potentially saving a lot in taxes.

Normally, the IRS (under Section 469) classifies all rental income as passive. This is a problem because passive losses can only offset passive income. If your rental shows a loss due to depreciation but you have a $200,000 salary, that loss usually just sits there, suspended for future years. You can’t use it to lower the taxes on your paycheck.

The “loophole” exists because the IRS does not consider a property a rental activity if the average guest stay is 7 days or fewer. In this case, the property is treated as a business. If you materially participate in that business, your losses become non-passive.

Non-passive losses can offset your W-2 wages dollar-for-dollar.

Do I qualify for the short-term rental loophole?

To qualify, you must pass both of these tests:

1. The average stay for all your guests during the year must be 7 days or fewer.
    
2. Material Participation: You must prove your material participation. While there are seven tests, these are the three most common paths:
   • You spent more than 500 hours on the short-term rental during the year.
      
   • You did almost all the work yourself (no property manager, no regular cleaning crew).
      
   • You spent at least 100 hours on the activity and more time than any other individual (including your cleaners or contractors).

Imagine you earn a $150,000 salary. You buy a short-term rental, perform a cost segregation study, and meet the material participation requirements.

Gross W-2 Income: $150,000

STR Depreciation Loss: -$127,000

New Taxable Income: approximately $23,000

By using the loophole, you’ve effectively shielded nearly your entire salary from federal income tax for the year.

However, here’s my obligatory tax pro warning: If you claim this, you must keep a contemporaneous time log. If your log looks like it was written in one sitting with rounded-off numbers, an auditor will treat it as a ballpark estimate and likely disqualify your hours. To protect your W-2 offset, you need a record that was built week-by-week, backed up by receipts and digital timestamps.

Final thoughts

We’re approaching summer. Which means you’re entering the highest-volume period for logging the material participation hours needed to legally offset your W-2 income. 

On top of that, the June 15th Q2 estimated tax deadline is coming up. Your summer bookings may push your income higher than you projected, which could lead to an ugly underpayment penalty next spring.

I’m currently opening spots for mid-year strategy sessions to audit your participation logs and calculate your Q2 payments so there are no surprises in April. Let’s get your session on the calendar:

calendly.com/tom-ameritax/new-meeting

FAQs

“Airbnb says they have collected and remitted some taxes on our behalf, but we can’t find where or to whom those taxes were actually paid?”

Platforms like Airbnb and VRBO often collect state-level sales or occupancy taxes, but they may not collect local city or county-level taxes. To find exactly what was paid, look at your “Gross Earnings” report or your Transaction History on the platform. You’ll see line items for “Occupancy Tax” or “Pass-through Tax.” These are usually paid to the state’s Department of Revenue. If you don’t see a specific local tax listed there, you are likely responsible for filing and paying that yourself to your local municipality.

“Do you have to pay taxes on Airbnb rentals?”

If you rent your Costa Mesa property for more than 14 days in a calendar year, the income is taxable at both the federal and state levels. If you stay under that 14-day limit (the “Master’s Exception”), you typically don’t pay federal income tax on that money, but remember that occupancy taxes (local tourist taxes) still apply from day one.

“Do I need to report my Airbnb income under $20,000?”

For 2026, the OBBBA has restored the 1099-K reporting threshold to $20,000 and 200 transactions. This means if you earned $15,000, you likely won’t receive a tax form from Airbnb, but you are still legally required to report that income. The IRS considers all income taxable, regardless of whether a platform sends you a piece of paper.

“Does hosting on Airbnb or VRBO make you self-employed?”

It depends on the services you provide. If you just provide a space, utilities, and basic cleaning between guests, you are a landlord and report on Schedule E (no self-employment tax). However, if you provide “substantial services” like daily cleaning while guests are there, breakfast, or guided tours, the IRS views you as a business owner. In that case, you report on Schedule C and will owe 15.3% self-employment tax.

“What are the tax deduction categories for short-term rental income?”

Keep receipts for:

• Operating Costs: Cleaning, laundry, and guest supplies.
   
• Utilities: Internet, TV, water, and electricity (prorated if you live there).
   
• Professional Fees: Service fees from Airbnb/VRBO, photography, and tax prep.
   
• Property Costs: Mortgage interest, property taxes, and insurance.
   
• Maintenance: Repairs, landscaping, and pest control.

“Should hosts do their own bookkeeping on QuickBooks or hire someone?”

If you have one property and it’s your first year, a well-organized spreadsheet or QuickBooks Self-Employed is often enough. However, once you have multiple properties or start trying to use the STR Loophole to offset your W-2 income, the complexity skyrockets. At that point, hiring a bookkeeper or a tax pro to oversee your records is an investment that pays for itself by preventing missed deductions and avoiding IRS red flags.

“When can we start claiming depreciation? Does it have to be after we officially list the Airbnb?”

You can start claiming depreciation the moment the property is “placed in service.” This means the property is ready and available to be rented, even if you haven’t secured your first booking yet. If you spent all of May renovating and listed it on June 1, your depreciation clock starts June 1. 

“Will VRBO remit local taxes for me?”

VRBO has agreements with many states to collect statewide taxes, but thousands of small cities and counties require separate registration. Check the “Taxes” section in your VRBO dashboard. It will explicitly tell you which taxes they are collecting and which ones remain your responsibility. If it’s not listed as collected, you must register with your local tax authority and remit those payments yourself.

The post 2026 Guide to Short-Term Rental Taxes for Orange County Airbnb & VRBO Hosts appeared first on Ameritax.

Key Takeaways

• The IRS considers all sports betting payouts as ordinary income, regardless of the amount or whether you received a tax form.
   
• For the 2026 tax year, you can only deduct 90% of your gambling losses against your winnings, even if you ended the year with a net loss.
   
• You must report the full win amount and itemize your deductions on Schedule A to claim any losses.
   
• Sportsbooks are legally required to report wins to the IRS via Form W-2G if you win $600+ at odds of 300:1 or greater.
   
• You are responsible for keeping a contemporaneous gambling diary and receipts to prove losses, as sportsbooks rarely provide IRS-ready loss documentation.

Whether you spent the year chasing longshot parlays or meticulously managing a bankroll, there’s one opponent you eventually have to face…

…The IRS. 

And by understanding the intersection of sports betting and your taxes, you can stop guessing how much of your balance is actually yours and start using the tax code to protect your winnings. 

So let’s talk about how to stay compliant and ensure that your victory doesn’t position you for a loss at tax time.

Do you have to pay taxes on sports betting?

The short answer: Yes, sports betting winnings are taxable income.

The IRS operates on the principle that everything you earn is taxable unless the tax code explicitly states otherwise.

Sports betting is not an exception. Whether it’s a small win on a weekend game that you and your Orange County fantasy football team sunk some money into or a major jackpot from that little trip to Vegas you did for work… your winnings are considered taxable income, just like capital gains on a stock or your annual salary.

It’s a common misconception that you only owe taxes if you receive a specific tax form (like a W-2G) or if you withdraw money from your sportsbook account. 

In reality, you are legally required to report ALL gambling winnings as income on your federal tax return.

This requirement isn’t limited to just the NFL or NBA. It includes:

• Sports betting: Online apps, retail sportsbooks, and prop bets.
• Casino games: Slots, blackjack, and poker.
• Other luck-based wins: Lotteries, bingo, keno, and horse racing.

Does the IRS track sports betting?

Modern sportsbooks (especially digital platforms like DraftKings, FanDuel, and BetMGM) are highly regulated and maintain transparent paper trails for the federal government.

Here is how the tracking system works and what triggers a formal report to the IRS.

When you hit a payout that meets specific IRS criteria, the sportsbook is legally required to generate Form W-2G, Certain Gambling Winnings. One copy goes to you (by January 31, 2027), and the other goes directly to the IRS.

This form includes:

• Your total reportable winnings
• The date of the wager
• The type of gambling activity
• Any federal or state income tax withholding that was taken out upfront

For the 2026 tax year, you should expect to receive a W-2G if your winnings meet any of the following benchmarks:

• You win $600 or more in sports betting, provided the payout is at least 300 times the amount of your wager.
• You win $1,200 or more in slots or bingo (not reduced by the wager).
• Your net Keno winnings are $1,500 or more.
• Your net poker tournament winnings exceed $5,000.

If you’re a high roller and win more than $5,000 on a wager that meets the 300-to-1 odds criteria, the sportsbook is typically required to automatically withhold 24% for federal taxes before they even pay you.

Do I have to report sports betting winnings if I don’t receive a W2-G?

Absolutely. The W-2G is a reporting requirement for the business, not a definition of taxability for you the individual.

Even if you won $400 on a game (below the $600 threshold) or $1,000 on a short-odds bet (not meeting the 300:1 rule), the IRS still considers that income. You won’t get a form, but you’re still legally obligated to self-report those wins on your return.

At the same time, the IRS recognizes that informal gambling exists. Your Costa Mesa coworker running your $20 March Madness bracket pool isn’t going to send you a W-2G.

However, from a strict tax standpoint, those winnings are still technically reportable income. While the IRS may not have a digital trail for a cash-based office pool, being consistent with your reporting is the best way to protect yourself in the event of a broader financial audit.

Can you deduct gambling losses from your winnings?

You can deduct your gambling losses to offset your winnings, but under the new 2026 tax rules, you can no longer wash your wins entirely (even if you broke even). 

Here are three things you need to know about the deduction process.

1. The 90% rule

In previous years, the IRS allowed you to deduct 100% of your gambling losses, provided they didn’t exceed your winnings. But because of the OBBBA, starting with the 2026 tax year, you can now only deduct 90% of your gambling losses against your winnings. 

Imagine you bet $100 on 10 different NFL games throughout the season and lost all of them. (Total Loss: $1,000.) Then, you hit a big $1,000 win on the Super Bowl.

Under the new 2026 rule: $1,000 win – $900 (90% of your loss) = $100 taxable income. Even though you are down $0 for the year, you now owe income tax on that remaining $100.

2. The itemization challenge

To take advantage of this deduction, you must itemize your deductions on your tax return. 

Taxpayers in the middle and lower income tax brackets don’t typically exceed the Standard Deduction limit ($16,100 for individuals in 2026), so itemizing won’t matter there.

However, if you do usually itemize, you cannot deduct any gambling losses. You will be taxed on the gross amount of your winnings, regardless of how much you lost.

3. Sportsbooks track wins

While your online sportsbook sends you a W-2G for a big win, they don’t provide the same level of IRS-ready documentation for your losses.

So, the burden of proof for your gambling losses is on you. You need to maintain a contemporaneous gambling diary that includes:

• The date and type of specific wagers.
• The name and location of the sportsbook or casino.
• Official receipts, tickets, or statements.
• A log of your actual sessions to substantiate the total amounts won and lost.

Final thoughts

The big takeaway here is that under the new 2026 rules, you can no longer assume that a break-even year is a tax-free year. 

Because the OBBBA now limits your loss deductions to 90%, you may face an unexpected tax bill on phantom income even if you didn’t turn a profit.

So grab a time to chat with me. I’ll help you over this new math hurdle and ensure your record-keeping is robust enough to defend every dollar you’re entitled to keep. 

calendly.com/tom-ameritax/new-meeting

FAQs

“How much do you pay in taxes if you win sports bets?”

In the eyes of the IRS, your sports betting winnings are treated as ordinary income. Which means they are taxed at the same marginal rate as the salary from your job. Depending on your total annual income (including your wages and your bets), your federal tax rate will fall into one of the seven tax brackets ranging from 10% to 37%.

“What happens if I win a bet in a state where I don’t live?”

If you place a winning bet while physically located in another state, you may owe non-resident state income taxes to that state. Most sportsbooks will track where the wager was placed, and you may receive a state-specific tax form. I can help you file the necessary non-resident returns and determine if your home state offers a credit to prevent you from being taxed twice on the same win.

“Do you have to pay taxes on sports betting for sportsbook promotions?”

Yes. The IRS generally views Bonus Bets, Site Credits, and promotional prizes as taxable income at their fair market value. For example, if you win a $500 bonus in a Refer-a-Friend promotion, that $500 is technically reportable income, even if you haven’t converted it to cash yet. These promos are often bundled into your year-end 1099 or W-2G totals.

“Do I have to pay self-employment tax on my sports betting winnings?”

For the vast majority of people, sports betting is a recreational activity, so you do not owe self-employment (Social Security and Medicare) taxes. However, if you are a professional gambler who pursues betting as a full-time trade or business, your net profits are subject to self-employment tax. Determining professional status is complex and depends on the frequency and business-like nature of your betting… something we should discuss in a consultation.

“Do you have to pay taxes on sports betting if you win a non-cash prize?”

The IRS requires you to report the Fair Market Value (FMV) of any physical prize as ordinary income. If you win a trip to the Super Bowl valued at $10,000, you must report that $10,000 on your return just as if you had won it in cash. Sportsbooks will typically issue a Form 1099-MISC for these types of high-value prizes.

“Can I use my sports betting losses to lower the taxes I owe on my regular job salary?”

No. Gambling loss deductions are strictly limited to the amount of your gambling winnings. You cannot use a bad year in sports betting to reduce the taxable income from your 9-to-5 paycheck or other investments. Under the 2026 rules, those losses are only useful for offsetting up to 90% of your reported betting wins for that specific tax year.

The post Do You Have to Pay Taxes On Sports Betting? What Orange County Bettors Need To Know appeared first on Ameritax.

Key Takeaways

• A large refund is an interest-free loan to the government, while a big bill suggests you are at risk for IRS underpayment penalties.
   
• Updating your Form W-4 by late April allows you to spread adjustments across the majority of the year, minimizing the impact on your monthly budget.
   
• For standard situations, use the IRS Tax Withholding Estimator to calculate your withholding. 
   
• For complex scenarios (like RSUs, side hustles, or reaching credit caps), use manual calculation to ensure precision.
   
• If you received a large refund, you can increase your deductions in Step 4(b) or claim more credits in Step 3 of your W-4.
   
• If you had a big tax bill, enter the exact dollar amount you want withheld extra per pay period in Step 4(c).

Were you shocked by a massive tax bill or surprised by a huge refund? 

Either way, that probably means your ‘set it and forget it’ withholding strategy has lost touch with your actual income.

Let’s get your withholding right while we still have time to spread the adjustment across the majority of the year, so your monthly budget stays manageable.

When should I adjust my withholding?

It’s important to revisit your Form W-4 after filing your tax return. Because your recent tax results are like a financial physical, highlighting exactly where your withholding stands relative to your actual liability.

Specifically, we should evaluate your withholding if…

1. You had a large tax bill this tax season

If you owed a significant amount this year, you likely under-withheld your paychecks last year. This can lead to underpayment penalties (and interest) if you don’t pay enough tax throughout the year via withholding or estimated payments.

Plus, it also means stress at tax time from scrambling to find the means to pay a large, unexpected bill. 

2. You received a large refund this tax season

A common misconception I hear from my Orange County clients is that a big refund is free money. But really, a refund is just an interest-free loan you gave to the government all year.

Think about it:If you received a $3,000 refund, that’s $250 per month you could have put in a high-yield savings account or your 401(k), or used to pay down high-interest debt.

And in a high-inflation environment, the dollars you overpaid early in the year have less purchasing power by the time you get them back.

3. Lifestyle, family, or income changes happen

Beyond your year-end results, certain life changes drastically alter your tax bracket or the credits you are eligible for. You should update your W-4 if any of the following occur:

• Marriage or divorce. Your filing status significantly changes your standard deduction and tax brackets.
   
• Birth or adoption. Adding a dependent makes you eligible for the Child Tax Credit, which reduces your overall tax liability.
   
• Buying your own Costa Mesa home. If your itemized deductions (like mortgage interest and property taxes) exceed the standard deduction, you may need to withhold less.
   
• Starting a second job. Income from multiple jobs is stacked on top of each other, often pushing you into a higher tax bracket than either employer realizes.
   
• Spouse starting/stopping work. Your household income fluctuates, which impacts your joint filing status.
   
• Significant side hustle income. If you have a 1099 side gig, you can often increase your W-4 withholding at your 9-to-5 job to cover the taxes on your freelance earnings, avoiding the need for quarterly estimated payments.

We’re aiming for a near-zero balance. This means you neither owe a large sum nor are waiting on a massive refund. 

By adjusting your withholding now, early in the second quarter of 2026, you have the maximum number of pay periods remaining to smooth out your payments and keep your money in your own pocket.

How do I calculate my federal tax withholding?

If you’re wondering, “How do I calculate my federal tax withholding?” The good news is (for the most part) there’s an easy answer: Use the IRS Withholding Estimator tool.

The IRS Estimator is the most efficient way to generate a new W-4, because: 

• It accounts for the exact date you’re filing, meaning it can calculate catch-up withholding for the remaining months of 2026.
   
• It’s updated to factor in new OBBBA provisions, like the no tax on tips and overtime rules, and the new car loan interest deduction.
   
• It produces a pre-filled W-4 that you can hand to HR without revealing your side-hustle income or your spouse’s salary to your boss.

However, there are some situations where you should understand the manual logic of calculating your withholding:

1. You’re racking in the tips and overtime. The OBBBA grants a tax exemption on the first $25,000 of tips and the first $12,500 of overtime. You must track your YTD totals because once you hit those limits, your tax liability snaps back to your normal bracket. A calculator won’t know exactly when you’ll hit that threshold.

2. You experience equity and bonus spikes (RSUs/ISOs). Bonuses and stock vests are usually withheld at a flat 22% supplemental rate. If your total income puts you in a higher bracket, you are effectively underpaying on every share that vests. You need manual math to calculate the extra dollar amount to add to your W-4.

3. You have a side hustle. If you have side gig business income, there is no employer withholding on those profits. You’ll need to manually calculate the tax owed on your business profit and add it to your W-2 withholding.

4. You’re heading toward a credit phase-out. Certain credits begin to disappear (phase out) once you cross specific income levels. If a mid-year bonus pushes you over that edge, you lose the credit and owe more tax. Manual logic helps you see the cliff coming so you can increase your 401(k) contributions to stay below it.

How to calculate withholding

Step 1: Estimate your total annual tax liability

The most common mistake I see taxpayers make here is calculating withholding based on just a single paycheck. Instead, start with the full picture:

1. Estimate your total 2026 earnings from all sources (wages, bonuses, side hustles, dividends).

2. Subtract deductions. Factor in:

• The standard deduction ($16,100 for Single filers and $32,200 for Married Filing Jointly in 2026)
   
• Above-the-line deductions like HSA contributions, student loan interest, educator expenses, and deductible IRA contributions.
   
• Schedule 1-A deductions like those for overtime and tips, car loan interest, and the deduction for seniors. 

If you itemize, use your projected total (mortgage interest, property taxes, etc.). 

3. Use the 2026 tax tables to calculate the tax on your remaining taxable income. For example, if you are Single and your taxable income is $100,000, your tax is not a flat percentage. It’s a laddered calculation through the 10%, 12%, 22%, and 24% brackets.

4. Subtract any credits you are eligible for (e.g., $2,200 per child under the Child Tax Credit).

So, the formula is:

Total Tax Liability = (Taxable Income times Tax Rates) – Tax Credits

Step 2: Account for Year-to-Date (YTD) payments

Once you know your total tax liability, look at your most recent pay stub. Find the total federal income tax already sent to the IRS, and include any estimated tax payments you’ve made for side income.

Step 3: Calculate the withholding gap

This is the step that fixes a big bill or a big refund. Subtract your YTD payments from your total tax liability to find out what you still owe for the year.

If the result is positive: You are on track for a tax bill.

If the result is negative: You are overpaying and on track for a refund.

Step 4: Determine your per-paycheck target

To reach a $0 balance by year-end, divide your remaining liability by the number of pay periods left in 2026.

How do I adjust my W-4 withholding?

Once you’ve done the math, either manually or using the IRS Tax Withholding Estimator, the final step is implementation.

Here’s how to adjust your withholding to ensure your 2026 paychecks reflect your true tax liability.

1. Access your 2026 Form W-4

Most Orange County employers no longer use paper forms. You will likely log into your company’s HR or payroll portal. Look for a section titled “Tax Withholding,” “Tax Exemptions,” or “Federal W-4.”

2. Update your filing status and multiple jobs

Ensure your filing status matches what you plan to use on your 2026 return (Single, Married Filing Jointly, or Head of Household). 

And if you have a second job or a working spouse, you must check the box in Step 2(c) or use the Multiple Jobs Worksheet. If you skip this, both employers will apply the full standard deduction to your pay, leading to massive under-withholding.

3. Claim your 2026 credits

By filling this out, your employer will withhold less tax from your paycheck because they know you’ll owe less at the end of the year.

4. Account for new deductions 

Use this line for all deductions, including traditional mortgage interest, large charitable gifts, and OBBBA deductions like exempt tips, overtime, and the car loan interest deduction. 

5. Extra withholding (Step 4(c))

If your manual calculation earlier showed a withholding gap, enter the exact dollar amount you want withheld extra per pay period here. 

(Step 4(c) is only for extra tax. If you had a huge refund and want more cash now, you actually increase the amount in Step 4(b) (Deductions) or Step 3 (Credits). This tells the system your taxable income is lower, so it takes out less.) 

6. Check your paystub

After you submit your new W-4, wait one to two pay cycles. Then, look at your paystub. Is it higher or lower than you expected?

As another way to check accuracy, multiply your new withholding amount by the number of paychecks left in 2026. Add that to what you’ve already paid (YTD).

If that total matches the total tax liability we calculated earlier, you have successfully broken even.

Final thoughts

Whether you’re tired of giving the government an interest-free loan or you’re still reeling from a surprise bill this April, the point is the same: 

Your withholding is the remote control for your cash flow.

Don’t wait until next April to find out if your withholding was correct. Let’s build a proactive strategy that keeps your money with you throughout the year.

calendly.com/tom-ameritax/new-meeting

FAQs

“When is the best time to adjust my tax withholding?”

The best time to adjust your withholding is after you file your tax return (typically in April or May) or whenever you experience a major life event, such as marriage, having a child, or a significant change in income. Adjusting early in the year allows you to spread any necessary changes across more paychecks.

“Is it better to get a large tax refund or owe a small amount?”

Ideally, you should aim for a break-even point where you owe nothing and receive a minimal refund. A large refund is essentially an interest-free loan you gave to the government. By adjusting your withholding to receive that money in your monthly paycheck instead, you can use it to pay down debt or invest.

“Why did I owe a tax bill even though I had taxes withheld?”

You may owe a tax bill if your withholding didn’t cover your total tax liability. Common reasons include having multiple jobs where each employer applied a full standard deduction, receiving significant 1099 or side-hustle income, or having investment gains (dividends/interest) that weren’t subject to withholding.

“How do I change my tax withholding with my employer?”

To change your withholding, you must submit a new Form W-4 to your employer’s HR or payroll department. Most companies now provide an online employee portal where you can update your filing status, claim dependents, or request an additional dollar amount to be withheld each pay period.

“Can I use my W-4 to cover taxes for my side hustle?”

Yes. If you have freelance or gig income, you can avoid making quarterly estimated tax payments by increasing the withholding at your primary W-2 job. Use Step 4(c) on Form W-4 to enter the extra dollar amount you want withheld from each paycheck to cover your side-hustle taxes.

“How long does it take for a W-4 change to take effect?”

Typically, a withholding adjustment takes effect within one to two pay cycles. However, this depends on your employer’s payroll processing schedule. It is important to check your first few pay stubs after the change to verify that the federal tax withheld matches your new calculations.

“Should I use the IRS Tax Withholding Estimator?”

The IRS Tax Withholding Estimator is a great tool for standard tax situations. However, if you have complex investments, equity compensation like RSUs, or own a business, you should use manual logic or consult a tax professional to ensure you are meeting Safe Harbor requirements and avoiding underpayment penalties.

The post The Orange County Taxpayer’s Guide: How Do I Calculate My Federal Tax Withholding? appeared first on Ameritax.

Key Takeaways

• As a W-2 employee, you pay half of Social Security and Medicare tax through withholding. As a self-employed taxpayer, you pay both halves through self-employment tax.
   
• Self-employment tax is 15.3% of your adjusted net earnings, and you also pay regular federal and state income tax.
   
• Being self-employed means taking on more tax responsibility, but you also get business deductions that employees don’t.
   
• The biggest practical change is quarterly estimated tax payments. No employer is withholding for you anymore.

These days, the 9-to-5 (“what a way to make a living,” in Dolly Parton’s famous words) is no longer the default setting for the American career. 

In fact, in a recent survey, 59% of people said they would become entrepreneurs if they had the opportunity.

If quitting your 9-to-5 has been on your mind, I want to help you understand what your new relationship with the IRS would be if you become your own boss. So you can make your dream of entrepreneurship a reality without getting into a tax mess that could end up haunting you. 

How does self-employment tax work?

When you transition from being a W-2 employee to becoming self-employed, instead of your Orange County employer calculating and sending your taxes to the IRS, you become responsible for the timing, math, and documentation of every tax dollar owed.

These are the biggest shifts you’ll experience:

1. The Self-Employment (SE) tax shift

In a traditional job, you pay 7.65% for Social Security and Medicare, and your employer matches it. When you are self-employed, you are both the employer and the employee, meaning you pay the full 15.3%.

The silver lining, though, is that you can typically deduct 50% of your self-employment tax on your Form 1040, which lowers your overall taxable income.

2. Taxed on profit, not revenue

You only pay income and self-employment tax on your net profit (your revenue minus your deductible expenses). So if you earn $100,000 but spend $20,000 on valid business expenses, you’re only taxed on the remaining $80,000.

3. Quarterly estimated tax payments

Since there is no payroll department to withhold taxes from your paycheck, the IRS requires you to make quarterly estimated tax payments. These are typically due in April, June, September, and January.

How much tax do you pay if you’re self-employed?

If you’re self-employed, you pay two layers of federal tax: self-employment tax and federal income tax (state income tax in most cases). How much you pay depends on your net profit, deductions, filing status, and total household income.

Those I talk to who are going off on their own usually just want to know a simple self-employment tax rate. But there are actually a few layers to the cake to consider. 

How much you pay depends on:

• Self-employment tax for Social Security and Medicare
   
• Federal income tax is based on your taxable income and filing status
   
• State income tax, if your state imposes one
   
• In some cases, additional Medicare tax or local tax issues, depending on income and location

The self-employment tax piece is the one that feels most different coming from a W-2 world. It’s made up of a 12.4% Social Security tax and a 2.9% Medicare tax

That gives you the 15.3% figure. Which sits on top of your regular income tax calculation. 

How do I calculate self-employment tax?

You start with net profit (rather than gross income), multiply it by 92.35%, and then apply the Social Security and Medicare rates.

Here’s the process I walk my Costa Mesa clients through:

Step 1: Find your net profit 
Start with your gross business income, then subtract your deductible business expenses. The equation is:

Revenue – Business Expenses = Net Profit

Step 2: Apply the 92.35% adjustment 
Multiply that net profit by 92.35% to reflect the fact that an employer normally deducts its share of payroll taxes.

Net Profit × 0.9235 = Net Earnings Subject to SE Tax

Step 3: Apply the tax rates
Then you apply 12.4% for Social Security, subject to the wage base, and 2.9% for Medicare, generally with no wage cap.

Just to show you an example:

• Net profit: $100,000
   
• Adjusted amount: $100,000 × 0.9235 = $92,350
   
• Self-employment tax: $92,350 × 15.3% = $14,129.55

That’s roughly $14,130 you owe in self-employment tax. 

That does not mean your total federal tax is $14,130. It’s just the self-employment tax portion before you even get into your regular federal income tax.

When do you pay self-employment tax?

You pay self-employment tax during the year through quarterly estimated tax payments, not in one lump sum when you file. If you wait until April to pay everything, you’ll likely owe underpayment penalties even if you can afford the full balance then.

As an employee, you were paying tax all year long. But you weren’t feeling it as a separate event because withholding happened automatically. 

Once that stops, the IRS still expects a pay-as-you-go system. It’s just no longer automated for you.

So, you have to pay quarterly estimated taxes. The 2026 estimated tax deadlines are:

• April 15
   
• June 16
   
• September 15
   
• January 15 of 2027

Which means you’ll need to develop a habit of setting aside cash for taxes every time money comes in. 

A good general rule to follow is reserving 25% to 30% of each payment you receive from a client for taxes. But the right number depends on your profit margins, state taxes, and household income.

This is a planning conversation, not a guessing game. So, if you’re seriously thinking about leaving your 9-to-5, it’s something we should sit down and figure out together.

What deductions are available if you’re self-employed?

When you’re self-employed, you can deduct ordinary and necessary business expenses. On top of that, certain deductions like health insurance, retirement contributions, and half of self-employment tax can reduce your taxable income even further.

This is the part of the conversation my clients tend to enjoy more.

A few of the major deduction categories available to you once you’re self-employed include:

• Home office expenses, if your space is used regularly and exclusively for business
   
• Equipment and software, such as computers, subscriptions, and tools
   
• Mileage and business travel
   
• Marketing and advertising
   
• Professional fees, including legal and tax prep fees connected to the business
   
• Education that maintains or improves your current business skills
   
• The Qualified Business Income deduction can reduce your taxable income by up to 20% of qualified business income, subject to the usual eligibility rules

There are also significant above-the-line deductions that can reduce adjusted gross income:

• Self-employed health insurance premiums, if you qualify
   
• Retirement plan contributions, such as a Solo 401(k) or SEP IRA
   
• Half of your self-employment tax

Of course, a doesn’t mean you’re getting reimbursed for the full expense. It just means you aren’t paying taxes on that dollar.

So don’t spend money just to get a tax break. Focus on expenses that actually grow your business, and then make sure you document them properly so the IRS doesn’t ask questions.

(And if you’re unsure whether a purchase really justifies a deduction, I can help you run the numbers.)

What records do self-employed taxpayers need to keep for tax purposes?

When you are self-employed, the burden of proof for every deduction falls on you. To satisfy the IRS and maximize your tax savings, you need to track expenses as they happen rather than guessing at tax time.

You need to maintain three main categories of records:

1. Core Financial Records

• Keep documents that prove your income, such as 1099-NEC forms, invoices, cash register tapes, and deposit slips.
   
• Save receipts, canceled checks, or electronic account statements that clearly show the amount paid, the payee, and the business purpose for purchases and expenses.
   
• Maintain separate bank accounts for business and personal use, and maintain all bank and credit card statements. This creates a clean audit trail and prevents the commingling of funds.

2. Specialized Deduction Tracking

• Mileage logs if you use a vehicle for business. You must track the date, mileage, and specific business purpose of every trip. (Digital apps are great for this.)
   
• Home office documentation. Keep records of your home’s total square footage versus your dedicated office space, along with utility bills, mortgage interest, or rent payments.
   
• Asset records for equipment like computers or machinery. Keep records of the purchase date, cost, and how much you used it for business versus personal use (to calculate depreciation).

Employment and Tax Returns

• Keep copies of your filed tax returns for at least three years. These help in preparing future returns and calculating estimated tax payments.
   
• Keep copies of any W-9s you collect from any contractors you hire, as you will need these to issue 1099s at year-end.

How does self-employment tax work compared to W-2 taxes?

Ultimately, the W-2 system hides most of the tax process from you. Self-employment puts that process in your hands. You gain flexibility and deductions, but you also take on the responsibility for withholding, recordkeeping, tax deposits, and planning.

As a W-2 employee, you’re largely a passenger in the tax system.

• Your employer withholds federal and state income tax
   
• Your employer splits Social Security and Medicare with you
   
• Payroll deposits the tax
   
• You get a W-2 at year end
   
• You generally file one individual return and reconcile what was already paid in

As a self-employed taxpayer, you’re running the tax side yourself.

• No one withholds taxes for you
   
• You pay both halves of Social Security and Medicare through self-employment tax
   
• You make estimated payments
   
• You track income and expenses
   
• You need records to support deductions
   
• You may need separate systems for bookkeeping, savings, and tax planning

But that heavier responsibility comes with more planning room too.

Final thoughts

If you’ve been considering leaving your 9-to-5 to go out on your own, don’t let all the tax responsibilities intimidate you.

That’s why I’m in your corner.

I want to help make your entrepreneurial vision a reality without the stress of tax obligations weighing on you. 

So, let’s sit down and make a plan. We’ll talk about when your W-2 income will stop, what your new business will realistically earn, and what we should do now so your first year of self-employment doesn’t end with a nasty April surprise.

calendly.com/tom-ameritax/new-meeting

FAQs

“Can I skip quarterly payments if I still have a part-time W-2 job?”

You might be able to skip separate quarterly payments if you increase the withholding at your W-2 job to cover the tax liability of your self-employment income. If your employer withholds enough to meet the safe harbor requirements (90% of your current year’s tax or 100% of last year’s tax), you can avoid underpayment penalties.

“What is the Qualified Business Income (QBI) deduction?”

The QBI deduction (Section 199A) allows many self-employed individuals to deduct up to 20% of their qualified business income from their federal income tax. It reduces your taxable income but doesn’t reduce your self-employment tax. Your eligibility depends on your total taxable income and the type of business you operate.

“How does self-employment tax work if I hire a contractor?”

When you pay an independent contractor $2,000 or more in a calendar year, you’re required to file Form 1099-NEC. To prepare for this, you should have every contractor fill out a Form W-9 before you pay them. While you don’t withhold taxes from their pay, the amount you pay them is a deductible business expense that reduces your own taxable profit.

“Is my health insurance premium fully deductible?”

Yes, if you are self-employed and have a net profit, you can typically claim the self-employed health insurance deduction. Unlike standard medical deductions, you do not need to itemize to claim it. However, you can’t claim this deduction for any month you were eligible to participate in a health plan subsidized by your employer or your spouse’s employer.

“What happens if I miss a quarterly tax deadline?”

If you miss a deadline, you should pay as much as possible as soon as possible. The IRS calculates underpayment penalties based on how much you owed and how late the payment was. Making a partial payment mid-quarter is always better than waiting until the next official deadline to catch up.

“Do I need a separate bank account for my business?”

While not legally required, maintaining a separate business bank account is something I highly recommend. It creates a clean audit trail, prevents the commingling of personal and business funds, and makes it significantly easier to track deductible expenses and prove income if the IRS requests documentation.

The post How Does Self-Employment Tax Work For Orange County Taxpayers Leaving Their 9-to-5? appeared first on Ameritax.

Key Takeaways

• Use your 2025 return as a diagnostic tool to calculate your real tax percentage and identify specific areas for AGI reduction.
• Use the post-tax season window to calibrate your withholding or estimated payments.
• IRS limits have increased for 401(k)s ($24,500), IRAs, and HSAs. Adjust your deferrals to leverage these new ceilings.
• With tax rates at historic lows, evaluate tax-gain harvesting or execute Roth conversions to lock in tax-free growth and eliminate future RMD requirements.
• Reducing financial clutter simplifies filing and strengthens your records against potential IRS audits.

If you’re like most of my Orange County clients, you were ready to put tax season behind you as soon as your return was filed. But this is actually a very good time to step back and look at what your 2025 return is telling us.

It gives us a clear picture of how your income was taxed, where the pressure points were, and which planning opportunities may be worth addressing this year.

Think of it as a “spring cleaning” for your tax reduction strategy: clearing the clutter so you can focus on the moves that will bring real savings next tax season.

Why should you review your tax return after filing?

The primary reason to review your tax return after tax season is to identify missed opportunities and prevent future overpayments. Your tax return is a financial diagnostic tool that reveals exactly where your money went and how the IRS views your income.

By reviewing it now, we can:

1. Calculate your real tax rate

A lot of my Costa Mesa clients focus on their refund or balance due, but those numbers don’t tell the whole story. They just tell you if you overpaid or underpaid your estimated bill throughout the year.

What we really need to look at is your Total Tax (Line 24 on Form 1040) and divide it by your Adjusted Gross Income (Line 11). That gives us a rough federal effective rate to use as a planning benchmark where we can work on lowering it.

2. Calibrate your withholdings

We can use your fresh tax return to update your Form W-4 with your employer. Because rather than getting a huge refund, you actually want to break as close to even as possible. That refund money is much better off in a high-yield savings account or your 401(k), where it can actually grow.

3. Maximize your above-the-line deductions

Reviewing your return shows you exactly where you fell short of tax-advantaged goals.

• If you have a Health Savings Account (HSA), did you max it out? If not, you missed out on some triple-tax-advantaged savings.
• Look at your total retirement contributions. If your earnings are approaching a higher tax bracket, increasing your elective deferrals is a primary strategy for mitigating tax drag.

Do you need to adjust your withholding after tax season?

As I mentioned above, adjusting your tax withholding (or estimated payments) immediately after tax season is one of the best ways to ensure you aren’t overpaying the IRS throughout the year or facing massive underpayment penalties next April.

If your return showed a massive refund or a big balance due, your pay-as-you-go system isn’t working.

Let’s say you got a $3,000 refund this year. That’s $250 a month you didn’t have for your mortgage, your high-yield savings, or your kids’ tuition.

On the flip side, there’s the underpayment penalty to consider.

The IRS expects you to pay at least 90% of your current year’s tax or 100% of last year’s tax (110% if your AGI is over $150,000) through withholding or estimated payments.

If you owe more than $1,000 at the end of the year and have paid less than 90% of your total tax, the IRS charges an underpayment penalty. This interest-based penalty accrues from the date the tax was supposed to be paid.

How to adjust your withholding

• Use the IRS Tax Withholding Estimator to run the numbers. You’ll need your just-filed 2025 return and your most recent pay stubs. (Or, you can have us figure it out for you.)
• Account for non-wage income. If you have dividends, interest, or a side hustle, don’t wait for a 1099 next year. You can actually use your W-4 to have extra tax taken out of your day job check to cover your side business, avoiding the need for quarterly vouchers.
• Submit the change. Most companies use an online portal. Ensure you see the net pay change in your next one or two pay cycles.

When should you do tax planning?

Tax planning is a 12-month cycle, not a 2-week sprint. If you want to keep more of what you earn, you need to audit your strategy now, while your 2025 data is fresh. Here are the high-level moves we should be discussing for your 2026 filing:

1. No Tax on Tips & Overtime Tracking

Most payroll systems are still catching up to the OBBBA’s no tax on qualified tips (up to $25,000) and qualified overtime (up to $12,500) laws. If you aren’t tracking your time-and-a-half segments or tip logs separately from your base pay now, you will struggle to reconstruct those numbers next April.

Set aside time toaudit your paystubs this month and start a manual log of your qualified tips and overtime.

2. The New Itemization Math

With the standard deduction jumping to $16,100 (Single) and $32,200 (MFJ) for tax year 2026, and the SALT (State and Local Tax) cap moving up from $10,000 to $40,400 for 2026, the math on whether you should itemize has changed.

But even with those increases, the floor to itemize is still high. If your combined mortgage interest and state taxes put you at $30,000, you’re still $2,200 short of seeing any benefit from itemizing.

This is where charitable bunching can come in. Instead of giving $5,000 to your favorite cause every year, you could bunch two years of donations ($10,000) into 2026. This would push your total deductions well over the $32,200 standard threshold, allowing you to actually write off those donations. Then in 2027, you’d simply go back to taking the standard deduction.

3. Senior Deduction & Retirement Calibrations

If you or your spouse is 65+, the $6,000 additional senior deduction ($12,000 for couples) might mean you can afford to convert more of your Traditional IRA to a Roth IRA this year without jumping into a higher bracket.

A Roth conversion involves moving money from a traditional IRA or 401(k) into a Roth account, paying the tax now to secure tax-free growth and withdrawals forever.

By executing a Roth conversion now, you can effectively fill that low-tax space with income from your Traditional IRA. You pay a tiny bit of tax today (at the lowest rates you’ll likely ever see) to move that money into a Roth account where it will never be taxed again, and where it won’t be subject to Required Minimum Distributions (RMDs) later.

4. Realizing Gains and Losses 

Don’t wait until December to look at your brokerage account. If you have underperforming assets, sell them to offset your realized capital gains. You can also use up to $3,000 of excess losses to wipe out ordinary income.

Why should I update my retirement contributions after tax season?

Updating after tax season allows you to use your recently filed tax data to determine if you need to lower your taxable income to avoid higher tax brackets or qualify for specific credits. It also ensures you are taking full advantage of the increased 2026 contribution limits.

2026 Retirement Contribution Limits

The IRS has increased the limits for nearly every retirement vehicle this year. If you haven’t adjusted your payroll deferrals, you are likely under-contributing and missing out on valuable tax-deferred growth.

Note: If you’re between the ages of 60 and 63, you qualify for the Super Catch-up. You can contribute a total of $35,750 to your 401(k) this year. Many payroll departments don’t automate this. You have to tell them to do it.

And for higher earners, remember that there are some stipulations for you on the retirement contribution limits above. Reach out to us if you want help sorting through those.

How to update your retirement contributions 

• Log into your HR Portal and ensure your percentage is set to hit the new $24,500 (or $35,750 for seniors) limit by December 31st.
• If you have an HSA-qualified plan, prioritize maxing out that $8,750 (Family) limit before your 401(k) (unless you have an employer match with your 401k). It’s the only account that is tax-deductible going in and tax-free coming out for medical costs.

Financial spring cleaning

Spring cleaning your tax reduction strategy means clearing your financial deck so you can better see the moves that actually matter. Check on:

1. Consolidating your orphan retirement accounts

If you’ve switched jobs in the last few years, you likely have a trail of old 401(k)s or 403(b)s sitting in the metaphorical “account orphanage.”

This is a risk because scattered accounts often have higher fees and unoptimized investment allocations. From a tax perspective, having five different 1099-Rs during tax season is a recipe for a missed entry.

Consider a Direct Rollover into your current employer’s plan or a consolidated IRA. It keeps your tax-deferred bucket in one place and makes it significantly easier to track your cost basis.

2. The beneficiary double-check

Your will does not override your retirement account beneficiary designations.

If your 2025 tax return was Married Filing Jointly, but your old IRA still lists your sister or an ex-spouse as the beneficiary, that money will go to them regardless of what your will says.

With the SECURE 2.0 10-year rule for inherited IRAs firmly in place for 2026, the tax consequences for your heirs depend entirely on their relationship to you. Make sure the right people are listed so they aren’t hit with an unnecessary tax burden.

3. Building a one-stop tax vault

Stop saving receipts in your car’s center console. In 2026, digital is the way to stay audit-ready.

And remember, the IRS has three years to audit your return. You need to have every deduction, every charitable gift, and every business expense backed up and easily accessible.

I suggest creating a “2026 Tax” folder in a secure cloud drive today. When you get a receipt for a deductible expense, snap a photo and drop it in immediately.

4. Plugging any financial leaks

• Review your bank statements for the last 90 days. Cancel any unnecessary subscriptions, like the streaming services, that unused membership to your Orange County gym, or “pro” software versions you haven’t touched.
• Are you sitting on $50,000 in a big-bank savings account earning 0.01%? Move your savings into a High-Yield Savings Account (HYSA) or a money market.
• Check the expense ratios on your old 401(k) funds. If you’re paying 1% in fees on a target date fund, you’re losing thousands in growth. Consolidating into a low-cost IRA plugs that hole.
• Are you paying for accidental death or rental car coverage riders on your insurance that your premium credit card already covers? Trim the fat.

Final thoughts

By taking a few moments now to spring clean your tax reduction strategy, you’re actively managing your wealth and ensuring that 2026 is the most tax-efficient it can be.

Whether it’s adjusting your withholding to reclaim your monthly cash flow, consolidating old accounts for better clarity, or rebalancing your portfolio to account for 2026’s new tax brackets, every small adjustment you make today compounds over time.

Let’s start with a review of your 2025 return together and use that to build a customized tax-savings action plan for 2026.

calendly.com/tom-ameritax/new-meeting

FAQs

“How often should I update my tax strategy?” 

Ideally, you should revisit your strategy twice a year: once in the spring (immediately after filing) to set your course, and once in late autumn (October/November) to make any final year-end adjustments before the books close on December 31st.

“How do I rebalance my portfolio without paying taxes?”

The best way to rebalance without paying taxes is to perform the rebalance inside a tax-advantaged account like a 401(k), 403(b), or IRA. Alternatively, you can rebalance in a taxable account by directing new investment capital toward underweighted assets rather than selling overweighted ones.

“Should I roll over my old 401(k) into a new IRA?”

In 2026, rolling over an old 401(k) into a consolidated IRA often makes sense to gain better investment options and lower fees. However, be cautious if you plan on doing a “Backdoor Roth IRA,” as a large Traditional IRA balance can trigger the Pro-Rata Rule, increasing your tax liability.

“Why should I update my retirement contributions after tax season?”

Updating after tax season allows you to use your recently filed tax data to determine if you need to lower your taxable income to avoid higher tax brackets or qualify for specific credits. It also ensures you are taking full advantage of the increased 2026 contribution limits.

“How much capital loss can I use to offset income in 2026?”

In 2026, you can use capital losses to offset 100% of your capital gains. If your losses exceed your gains, you can use up to $3,000 ($1,500 if Married Filing Separately) to offset ordinary income like wages or interest. Any remaining loss can be carried forward to future tax years indefinitely.

“Why should I change my withholding after tax season?”

You should change your withholding to align your tax payments with your actual liability. Adjusting now allows you to spread any necessary increases over many paychecks, rather than facing a large bill or penalty at the end of the year.

The post Your Tax Pro’s Guide To Spring Cleaning Your Tax Reduction Strategy appeared first on Ameritax.

Key Takeaways

• A federal extension provides six extra months to file, but all taxes owed must still be paid by the April 15th deadline to avoid penalties and interest.
   
• For 2026, the IRS assesses a 0.5% monthly failure-to-pay penalty plus 7% annual interest (compounded daily) on any balance remaining after April 15.
   
• To prevent underpayment penalties, ensure your April payment covers at least 90% of your 2026 liability or 100% of your prior year’s total tax (110% if your AGI exceeded over $150,000).
   
• Your federal extension (Form 4868) may not cover your state return. Many states require separate filings or specific electronic payments by the April deadline to grant an extension.
   
• Extension estimates often fail because taxpayers overlook taxable events like 1099-K side-hustle income, crypto/stock capital gains, or high-interest savings account dividends that lack standard withholding.

Filing for a federal tax extension isn’t just a pause button on your tax obligations. 

It’s a bridge to your final return that needs to be crossed strategically. 

And if you treat a tax extension as a way to simply push taxes out of your mind until October, you could end up facing some pretty heavy penalties.

So, to help you use this extra time to your advantage, I’ve outlined the six mistakes I most often see Orange County taxpayers make, and steps you can take to stay compliant.

Mistake #1: Thinking an extension gives you more time to pay

Yes, your return is on extension, but your unpaid tax balance is still due on April 15th. And your balance is exposed to penalties and interest if you miss that deadline.

If you file an extension but fail to pay the full balance due, you’ll be assessed a failure-to-pay penalty of 0.5% of the unpaid amount for each month (or partial month) that tax remains unpaid. Which can accrue up to a max of 25%. 

On top of that, the IRS charges underpayment interest that compounds daily on the remaining balance. For 2026, the rate is 7% annually, compounded daily. 

The extension does protect you from the much harsher 5% monthly failure-to-file penalty. But the combination of the 0.5% penalty and daily interest means your most effective strategy is to pay as much of your estimated balance as possible by the April deadline.

Mistake #2: Not making a partial payment

Even if you can’t pay your balance in full by April 15th, a partial payment can do three useful things:

1. Reduce the unpaid amount subject to ongoing penalties and interest

Every dollar you can pay by the April 15th deadline reduces the amount the IRS uses to calculate your penalties and interest. Since the failure-to-pay penalty and daily compounded interest are percentage-based, lowering the base balance directly shrinks the rate at which your debt grows. 

2. Show that you made a good-faith effort to address the liability

Making a partial payment demonstrates good faith on your part. It shows your intent to comply, which can go a long way when requesting a payment plan or penalty abatement later.

Plus, if you file on time and set up an approved payment plan, the failure to pay rate is typically halved to 0.25% per month.

3. Make the eventual bill payment less painful

Think of it like stopping a leak. You might not be able to fix the pipe entirely right now, but reducing the flow prevents your tax bill from ballooning into a much more unmanageable figure over the coming months.

Mistake #3: Failing to make a reasonable tax estimate

The IRS only grants a penalty-free extension if your payment covers at least 90% of your total tax liability by the April deadline. If your estimate is too low and you underpay beyond that threshold, the failure-to-pay penalty is applied retroactively to the entire unpaid balance from April 15th. 

How to calculate your estimated tax liability

To arrive at a reliable figure without having completed your full return, follow these steps:

1. Collect all forms of income earned throughout the year, including:

• W-2s from employers.
   
• 1099-NEC/MISC for freelance or contract work.
   
• 1099-INT/DIV for interest and dividends.
   
• Realized capital gains from stock or crypto sales.

2. Apply the safe harbor rule. This means paying:

• 90% of the current year’s tax liability, or
   
• 100% of the total tax shown on your prior year’s return (110% of the prior year’s tax if your Adjusted Gross Income (AGI) was over $150,000).

3. Use a tax estimator tool. 

The IRS Tax Withholding Estimator is best if you’re a W-2 employee. And if you’re self-employed, a self-employed tax calculator can help you factor in the 15.3% self-employment tax on top of income tax.

4. Account for deductions and credits.

Subtract above-the-line deductions (such as Student Loan Interest or HSA contributions) to find your Adjusted Gross Income. Then, subtract either the standard deduction or your estimated itemized deductions to find your taxable income.

(There are a lot of factors to balance here, I know. So, if you’d rather someone who does this for a living take the time to figure it out for you, my door is open: calendly.com/tom-ameritax/new-meeting).

Mistake #4: Overlooking hidden taxable events

Most Costa Mesa taxpayers focus on the numbers on their final W-2 of the year. But overlooking off-paycheck taxable events is a big way to trigger a failure-to-pay penalty. 

To make sure your extension payment is accurate, you need to look beyond your primary employer and audit your financial year for these commonly missed events:

1. Capital gains and digital assets

Selling stocks, bonds, or cryptocurrency can create a massive tax spike. For the 2026 tax year, the IRS has expanded reporting requirements for digital assets, meaning these transactions are more visible than ever. Even if you haven’t received the paperwork, you must estimate the gains to avoid an underpayment surprise.

2. Side-hustles and gig work (1099-K & 1099-NEC)

Income from platforms like Uber, Etsy, or freelance consulting often has zero tax withholding. You are responsible for both income tax and the 15.3% self-employment tax. (Forgetting this shadow tax is the number one reason extension estimates fall short.)

3. Interest and dividends (1099-INT & 1099-DIV)

High-yield savings accounts and brokerage dividends might seem small, but in a high-interest rate environment, they can add thousands to your taxable income.

4. Retirement account activity

If you took an early withdrawal from a 401(k) or converted a Traditional IRA to a Roth IRA, you’ve created a taxable event. These actions often carry heavy tax weights that aren’t reflected in your monthly paychecks.

Again, I always tell my Orange County clients to rely on the safe harbor rule here: By paying 100% (or 110%) of what you owed last year, the IRS generally waives the underpayment penalty even if your actual bill for this year ends up being much higher.

Mistake #5: Assuming your state return follows your federal extension automatically

A common and costly mistake I see among taxpayers is assuming that filing a federal tax extension automatically covers their state obligations. In reality, tax laws vary significantly by state. And assuming uniformity can lead to failure-to-file penalties at the state level. 

Some states do grant an automatic extension if you have a valid federal one. But others require a separate state-specific filing or a state-level payment by the original deadline to keep the extension valid. 

If your state is one that requires a separate action and you miss it, you could face state penalties (that are often more aggressive than federal rates).

How do state tax extensions work?

There are three distinct categories of state extension rules. And knowing which category your state falls into is the only way to avoid surprise notices.

1. States with automatic extensions.

Some states (like California or Wisconsin) grant an automatic extension to all residents regardless of whether a federal extension was filed. But you must still estimate and pay your state liability by April 15th.

2. States that mirror federal extensions.

States like New York generally recognize your federal extension, but only if you have no balance due. If you expect to owe state taxes, many of these states require you to file a specific state form and submit your payment simultaneously to avoid late-filing status.

3. States requiring separate filings.

States like Pennsylvania or Tennessee require their own unique forms. If you rely solely on your federal Form 4868, these states will consider your return late the moment the April deadline passes.

How to protect your state filing status when filing a tax extension

To ensure you aren’t blindsided by state-level penalties, follow this three-step verification process:

• Check the payment-vests-extension rule: Many states consider your extension automatically granted only if you pay 100% of the estimated tax due via the state’s online portal by the deadline. No payment often means no extension.
   
• Verify form requirements: Visit your state’s Department of Revenue website to see if they require a copy of your Federal Form 4868 to be attached to your eventual state return.
   
• Don’t forget no-income-tax states: Even if you live in a state with no earned income tax (like Florida or Texas), you may still have state-level filing requirements for business entities or tangible personal property that do not follow federal timelines.

Mistake #6: Waiting until October to file

While a federal extension buys you until October 15th to submit your paperwork, waiting until the final hour is a high-risk strategy that can lead to compounding financial and administrative headaches. Filing too close to the October deadline creates several disadvantages:

• If you made a math error in your April estimate, waiting until October to file means you’re still accruing daily interest on that small discrepancy. 
   
• If you plan on applying for a mortgage, a student loan (FAFSA), or a business line of credit, lenders typically require your most recently filed tax return as proof of income. 
   
• If a life emergency, technical glitch, or missing document prevents you from filing by October 15th, you move immediately into failure to file territory. This triggers the penalty of 5% per month of the unpaid tax.
   
• As your tax pro, I can tell you: I’ll be overbooked during the first two weeks of October. If you wait until then to hand over your records, you might have to pay higher rush fees.

And beyond just avoiding risks, filing early could help you maximize your tax savings. Because you get to secure my full attention as your tax pro during the least stressful months of my year. 

This could benefit you in three key ways:

1. By filing earlier, your preparer has the time to thoroughly dig for complex deductions (like home office expenses, energy-efficient home improvements, or complex business travel) that could apply to your situation.
    
2. Filing early allows us to identify any missing records, giving you weeks to track down the documentation needed to legally claim a credit or deduction.
    
3. When you finish your taxes early, we can pivot to tax planning strategies while you still have half the year left to take action. 

Final thoughts

Filing for a federal tax extension is a strategy for accuracy and control. Not a way to push your return out of your mind even longer.

Your estimate matters, your payment matters, your state filing matters, and your follow-through definitely matters.

But you don’t have to figure all of that out solo. Grab a time to talk to me, and I can help you wherever you’re at: whether you’re not sure how much to pay, you know you can’t afford your balance, or you just want to get filed early so you can secure the most savings. 

calendly.com/tom-ameritax/new-meeting

FAQs

“How can I confirm the IRS received my tax extension?”

If you filed electronically, you should receive a confirmation email from your software provider or a Submission ID within 24–48 hours. If you are unsure, the most reliable method is to log in to your IRS Online Account at IRS.gov. Once logged in, check your tax records or transcript to see if Form 4868 has been processed.

“Can I get an extension without filing Form 4868?”

Yes. If you make a full or partial tax payment electronically using IRS Direct Pay, the Electronic Federal Tax Payment System, or a debit/credit card, you can select “Extension” as the reason for payment. The IRS will automatically grant you an extension to file without requiring a separate Form 4868.

“What should I do if my tax extension is denied?”

Extension denials are rare and usually caused by a typo in your Social Security Number or a name mismatch. If the IRS rejects your extension, you generally have a five-day grace period from the date of the rejection to correct the errors and resubmit it. If you miss this window, you must file your full return as soon as possible to minimize late-filing penalties.

“If I overpaid my extension estimate, how do I get my refund?”

You’ll claim the amount you paid with your extension as a payment on your final tax return. If that payment, combined with your withholdings, exceeds your actual tax liability, the IRS will issue the excess as a refund or allow you to apply it toward next year’s estimated taxes.

“Can I get tax penalties removed if I missed the April deadline?”

Yes, you may qualify for the IRS First-Time Abate (FTA) program. If you have a clean compliance history for the past three years (meaning no penalties) and have filed all currently required returns, you can request a one-time administrative waiver of the failure-to-file and failure-to-pay penalties.

“I live in a disaster area. Do I still need to file an extension?”

If the IRS has declared a federal disaster area for your location, you’ll receive an automatic extension to file and pay without filing for a federal tax extension using Form 4868. But you should always check the Tax Relief in Disaster Situations page on the IRS website to see if your specific county and the 2026 deadlines have been officially postponed.

The post Mistakes Orange County Taxpayers Should Avoid When Filing For a Federal Tax Extension appeared first on Ameritax.

Key Takeaways

• Today’s tax scams look professional, sound convincing, and are built to get your Social Security number, filing credentials, or signature on a bad return.
   
• A big refund promise is one of the clearest warning signs of a scam.
   
• You are responsible for what goes on your tax return, even if someone else prepared it. 
   
• Before you file or sign, have your return reviewed by a qualified tax professional.

To avoid tax scams, I used to be able to tell my Orange County clients: “Look for typos and suspicious attachments. And don’t believe the “IRS agent” threatening arrest over the phone.”

But the era of the obvious scam is over. Now, fraudsters are using tactics like AI voice cloning and polished marketing to trick you into sharing sensitive information or claiming credits you don’t qualify for. 

Staying safe in 2026 requires a new set of habits. Here’s a look at the specific warning signs to watch out for this tax season and beyond.

What are AI tax scams?

AI-driven tax scams use more believable emails, websites, phone calls, and text messages to make bad tax advice or identity theft look legitimate. 

These AI tax scams show up in 4 main ways:

• Deepfake and voice-cloned impersonation. A scammer can imitate the voice of a tax professional, employer, or family member and create pressure to act quickly.
   
• Hyper-realistic phishing emails. These may look like messages from your CPA firm, payroll provider, or the IRS and push you to click a link or upload documents.
   
• Fake tax preparer websites and AI “advisors.” Some are built to collect your personal data. Others are built to push fraudulent refund schemes.
   
• Automated text scams. Texts about a frozen refund, tax lien, or urgent verification issue are designed to get you to tap first and think later.

These scams don’t look sloppy anymore. They look polished and modern. 

Which is why I always tell clients to verify the person and the process. If a message asks for sensitive tax information, pause and confirm through a known phone number or client portal. Don’t use the link or number that came in the message itself.

Is the Self-Employment Tax Credit real?

The “Self-Employment Tax Credit” is mostly marketing language. What promoters are usually pointing to is a much narrower COVID-era sick leave and family leave credit. The vast majority of people being pitched this don’t actually qualify.

The sales pitch is simple: If you were self-employed or did gig work, you may be owed a large payment, sometimes framed as up to $32,000.

The underlying provision is a technical credit tied to limited pandemic-related circumstances in 2020 and 2021. It was meant for self-employed individuals who couldn’t work for specific reasons, like quarantine-related issues or caring for someone affected under the rules in place at that time.

As of April 2026, the three-year statute of limitations for amending 2021 returns has largely closed. Any promoter promising these credits now is likely skirting federal filing deadlines.

A few red flags you can usually spot with the Self-Employment Tax Credit scam:

• The promoter uses the catchy phrase “Self-Employment Tax Credit” as though it were an established stand-alone program
   
• The claim is pushed for years where the credit is not available
   
• Wage income is treated as though it were self-employment income
   
• Form 7202 is used without a real factual basis

If somebody is advertising this credit like a coupon code rather than evaluating the real details of your situation, that’s a strong signal to back away.

How can you spot a ghost preparer?

Ghost preparers are a problem because they prepare your return, collect the fee, and then disappear so you’re left holding all the risk. If the return is false, inflated, or incomplete, the IRS sees your name on it. Not theirs.

It works because these preparers draw you in with the temptation of a bigger refund.

A ghost preparer may tell you they have a way to “maximize” your return. They may claim credits you don’t qualify for or manipulate the numbers to make the refund look much larger than it should be. 

And oftentimes they charge based on the size of that refund, so they’re motivated to make the number as big as possible.

Here are some ghost preparer warning signs to look out for:

• The preparer won’t sign the return
   
• The preparer won’t include a PTIN
   
• You’re asked to sign a blank or incomplete return
   
• The fee is based on a percentage of your refund
   
• The refund seems unusually large

There’s a second layer of risk here: You gave this person your tax records, identity information, and probably your banking details. So, even apart from the bad return, you may have handed over all the key ingredients for identity theft.

What are noncash charitable contribution schemes?

Noncash charitable contribution schemes rely on inflated appraisals to create deductions that don’t reflect real fair market value. The donation may be real, but the tax benefit is built on a valuation the IRS may challenge, deny, and penalize.

Noncash charitable giving is a legitimate tax planning strategy. But when a promoter starts talking about buying an asset cheaply and then donating it shortly afterward at a value five or ten times higher, you are moving into dangerous territory.

The main red flags with noncash charitable contribution schemes are:

• The appraisal isn’t grounded in actual comparable sales
   
• The promoter seems more focused on the deduction than the asset
   
• Multiple investors are brought into a shared or syndicated arrangement to split tax benefits

Valuation work has to be defensible and reflect substance. And if the IRS decides the appraisal is a gross valuation misstatement, the fallout can be expensive: denied deductions, interest, and significant penalties.

What’s the overstated withholding scam?

The overstated withholding scam involves filing a return that claims false income and fake withholding amounts in order to trigger a refund that isn’t actually supported by real tax payments. 

It may be pitched as a loophole, but it’s a false return, plain and simple.

Because the IRS does not simply accept withholding claims in a vacuum. It cross-checks them against information returns and payroll records.

So when a taxpayer files a return showing large withholding, but there’s no matching W-2, 1099, employer report, or payer data behind it, the return gets flagged.

Here’s how the scam usually works:

1. You’re told to report income and withholding that didn’t actually happen.
    
2. Your return is filed electronically with the expectation of a large refund.
    
3. IRS matching systems don’t find the corresponding records.
    
4. Your refund is frozen, and you have to substantiate the claim.

The consequences of overstated withholding can include:

• Refund delays or freezes
   
• IRS letters requesting documentation
   
• Accuracy-related penalties
   
• Amended return issues
   
• Potential audit exposure
   
• In more serious cases, possible criminal consequences

How to avoid OIC mills

Offer in Compromise (OIC) mills take a real IRS program, the Offer in Compromise, and market it as though almost anyone can use it to wipe out tax debt cheaply and quickly. The trap? Many taxpayers don’t qualify. But they still pay these fraudsters large fees for little or no real help.

In the right case, an OIC can be a valuable resolution tool. But it’s not a magic eraser, and it’s not available to everyone who owes back taxes.

The IRS calculates an OIC based on a specific equation:

 (Assets + [Monthly Disposable Income × 12 or 24 months]). 

If your net equity and future income exceed your tax debt, you are formulaically disqualified.

​​OIC mills ignore this math. They rely on aggressive “pennies on the dollar” advertising to collect large upfront fees from taxpayers who, based on their asset disclosures, have little to no chance of approval.

The warning signs of a predatory OIC operation are:

• They promise a specific result before reviewing your income, assets, and monthly expenses.
• They demand thousands in “retention fees” before verifying your basic eligibility.
• They do not discuss “Currently Not Collectible” status or Installment Agreements, even when the math suggests an OIC will be rejected.
• They make exaggerated claims about how fast or easy the process is

When I perform a real OIC analysis, it’s fact-driven. I look at your income, assets, allowable living expenses, and ability to pay over time. 

Sometimes the right answer is actually an installment agreement or currently not collectible status. 

What should you do if you see a tax scam?

You should stop before filing, signing, or paying anyone, and have the strategy reviewed by a qualified Costa Mesa tax professional who will evaluate the actual law and your real-life situation. 

A lot of tax scams are effective because they are framed as “what they don’t want you to know” or “the credit nobody told you about.” That kind of language works because taxes are technical. Most people (understandably) assume there are hidden opportunities buried in the rules.

Sometimes there are overlooked opportunities. But legitimate tax planning can always be explained clearly, documented properly, and tied back to a real statute.

And it usually has nothing to do with speed or pressure.

To avoid getting scammed, adopt these habits:

• Be skeptical of oversized refund promises
   
• Do not sign incomplete returns
   
• Verify the credentials of anyone preparing your return
   
• Keep copies of everything filed in your name
   
• Ask a trusted professional to explain why you qualify, not just how much you may get

Final thoughts

Legitimate tax strategy that brings real savings is never a quick fix. 

It’s a nuanced process that I work year-round to optimize for my Orange County clients.

So, if you want the peace of mind that comes with a professionally prepared and signed return (plus a continually optimized tax standing), I’m here to help.

calendly.com/tom-ameritax/new-meeting

FAQs

“Is the $32,000 Self-Employment Tax Credit (SETC) legitimate?”

The “Self-Employment Tax Credit” is often a misleading marketing term for the COVID-era FFCRA credits. While the underlying tax credit for sick and family leave is real, it only applies to specific dates in 2020 and 2021 for those unable to work due to quarantine or caregiving. Many viral ads promising $32,000 refunds are scams that ignore eligibility requirements.

“What are the red flags of a ghost tax preparer?”

A ghost preparer is someone who gets paid to prepare your tax return but refuses to sign it or provide a Preparer Tax Identification Number (PTIN). Other red flags include charging fees based on a percentage of your refund, asking you to sign a blank return, or promising an unusually large refund without reviewing your financial records.

“Can the IRS detect fake withholding claims on a tax return?”

Yes. The IRS uses automated matching systems to cross-check the withholding you claim against W-2 and 1099 data reported by employers and payers. If you file a return with overstated withholding that doesn’t match third-party records, the IRS will freeze your refund, send a verification letter, and potentially issue frivolous return penalties.

“How can I tell if a tax relief company is an OIC mill?”

OIC mills often use aggressive “pennies on the dollar” advertising and demand large upfront fees before conducting a thorough financial analysis. A legitimate tax professional will tell you that an Offer in Compromise (OIC) is a strict, formula-based program. If a company guarantees a settlement before seeing your income and asset details, they are likely an OIC mill.

“Are noncash charitable contribution tax schemes illegal?”

While donating noncash assets is legal, schemes involve using artificially inflated appraisals to claim deductions far above the asset’s fair market value. The IRS aggressively audits syndicated arrangements and donations where the tax deduction is significantly higher than the purchase price. If you participate, you may face denied deductions and gross valuation misstatement penalties.

“What should I do if I accidentally clicked a link in a tax scam email?”

If you clicked a suspicious link or provided information to a fake tax site, immediately change your passwords for financial accounts and your tax software. You should also contact the IRS to request an Identity Protection PIN (IP PIN) and monitor your credit report for unauthorized activity. Report the scam to the Treasury Inspector General for Tax Administration (TIGTA).

The post s the Self-Employment Tax Credit Real? And Other Tax Scams Orange County Taxpayers Should Watch For appeared first on Ameritax.