President Biden has announced his three-part student loan forgiveness plan that aims to provide relief to student loan borrowers, especially those belonging to low– and mid-income levels.
Part I: Student Loan Forgiveness for Eligible Borrowers
Borrowers with individual incomes less than $125,000, or $250,000 for married couples, are eligible for student loan forgiveness up to $20,000. The Department of Education will cancel up to $20,000 in student loan debt to borrowers who received a Pell Grant and had loans held by the Department of Education. Those who did not receive a Pell Grant will receive up to $10,000 in debt cancellation. Since this plan will not benefit high-income households, the Biden administration has extended the pause on loan repayments once more until January 2023.
Part II: Manageable Loan System for All Borrowers
The Department of Education proposed a new repayment plan that will replace the current income-driven plan in place. It will prevent low-income borrowers from committing to monthly payments of more than 5% of their discretionary income, a drop from the current 10%. This would lead to an average savings of $1,000 per year for both current and future borrowers.
In addition, they will expand on the recent improvements to the Public Service Loan Forgiveness (PSLF) program. More than 175,000 public servants have had $10 billion in student loans canceled and the Department of Education expects these numbers to increase. Public servants include nonprofit workers, military members, and officials working in federal, state, local, or tribe level governments.
Part III: Reduced Cost of College
Earlier this year, President Biden approved the largest increase to Pell Grants since 2009, a bill that doubled the size of the maximum Pell Grant to $6,895. In addition to making tuition costs more manageable, the Biden administration has also taken steps to hold colleges accountable for keeping reasonable tuition costs, as well as ensuring students are receiving the value for their investments in higher education.
Assuming every eligible borrower takes advantage of this plan, it will completely cancel student loans for nearly 20 million borrowers, as well as partially cancel student loan debt for 43 million others.
Tax Debt Relief for Student Loan Borrowers
The debt relief in Biden’s Student Loan Forgiveness Plan will not be treated as taxable income for the federal income tax purposes. However, borrowers should remain mindful of available tax breaks and filing requirements. If you need tax help, give us a call at 800-536-0734 for a free consultation today.
More than half of the $80 billion Inflation Reduction Act will be spent on IRS enforcement. This specifically means collecting back taxes, conducting criminal investigations, monitoring digital assets, obtaining legal support and hiring thousands of new IRS auditors.
How many auditors will the IRS hire?
The IRS is looking to hire nearly 87,000 employees over the next 10 years. This is a major increase from its current 80,000 employees. A majority of the new hires will help bring IRS staffing levels back up to par to maintain efficiency. As of now, it remains to be seen exactly how many of the new hires will be responsible for auditing. The IRS will determine the number of enforcement agents they hire.
Who will be audited?
More auditors mean more audits, so understandably taxpayers are wondering if they will be impacted. The U.S. Treasury Department has said that the low and middle-class, as well as small businesses, will not be the focus of the upcoming increased enforcement activity. The IRS is to focus its auditing efforts on high-income taxpayers and large corporations. Specifically it will focus on those that earn more than $400,000 per year. The bill itself includes language that states the goal of the Inflation Reduction Act is not to increase taxes for any individual or entity earning less than $400,000 per year.
Are you prepared for an audit?
All in all, with increased IRS enforcement activity approaching, it’s important to be prepared. It’s never too late to seek tax relief. Let Optima’s team of experts help you get protected from the stress and burdens that come with IRS enforcement. Affordable Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
Between the inflation, the pandemic, and the Inflation Reduction Act, now is a scary time to owe back taxes. The bill has passed, granting the IRS $80 billion dollars in funds for their activity. Consequently, we’re expecting a massive increase in the agency’s enforcement. Learn how the Inflation Reduction Act will affect IRS spending.
How will the Inflation Reduction Act will affect IRS spending?
Inflation Reduction Act funds will be added on to the annual money the IRS receives from Congress. This will be about $12.6 billion for 2022. Additionally, the 50% increase will be paid across four departments over the next ten years.
More than half of the funds are specifically going toward enforcement activity. IRS enforcement includes collecting back taxes, conducting criminal investigations, legal support, and monitoring digital assets. The other three areas that will also be supported include:
IRS operations- $25 billion for expenses such as rent, printing, postage, and telecommunications.
Customer service- $4.8 billion would be used for updating service technology. A callback service is in the talks.
Taxpayer assistance- $3 billion would go toward filing and account services or other taxpayer needs.
IRS Collections
With a large budget provided by the Inflation Reduction Act, the IRS is expecting to collect roughly $203 billion in federal tax revenue over the span of a decade. The net federal revenue would increase by more than $124 billion.
Government officials are also expecting the tax gap to close. So, the difference between the amount of taxes being collected and what taxpayers actually owe will be closer.
Tax Help for Taxpayers Who Owe
If you haven’t started the process of tax debt relief, it’s not too late. Preparing yourself with a team of professionals that are already working on your compliance could spare you from more penalties, stress, and possibly help you save some money. Affordable Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Renting out your property as an Airbnb can be a good way to secure residual income. While Airbnb may send you a tax form at the end of the year. It’s important to understand your tax responsibilities to check for errors and in the event you aren’t issued a form.
Reporting Airbnb or Vacation Rental Income
The IRS requires that all payment processing companies report gross earnings for all users within the US. Companies like this include Venmo, PayPal, Airbnb, Etsy, and others. Airbnb will issue Form 1099-K if you meet certain income thresholds. Non-US citizens will be provided Form W-8. However, you still must report the income if you do not receive this form.
Withholding taxes from Airbnb payouts
You do have the option to withhold taxes from your Airbnb earnings. This is particularly recommended to avoid a large tax bill at the end of the year. You can also use a tax calculator to get an estimate of your earnings to save money for taxes.
Vacation Home, Rental, or Personal Use
You’ll need to determine whether your Airbnb property falls under the category of a vacation home, rental property, or personal use. This depends on several factors. One is how you use the property. Another is how often you rent it out. Finally, your intentions with the property are also considered.
Vacation Home
If you primarily use the property for personal vacations and occasionally rent it out to cover expenses or generate additional income, it might be considered a vacation home. Typically, vacation homes are used by the owner for personal enjoyment and rented out to others on a short-term basis.
Rental Property
What if your primary purpose for owning the property is to generate rental income? If you rent it out consistently throughout the year, it’s likely considered a rental property. In short, rental properties are typically managed as investment properties with the primary goal of generating rental income.
Personal Use
If you use the property exclusively for personal purposes and do not rent it out to others, it would be considered for personal use only. This could also include using the property as a second home for personal vacations. However, there is something called the Augusta Rule, also known as the “14-day rule.” This is a provision that allows homeowners to rent out their primary residence for up to 14 days each year without having to report the rental income on their tax return. The IRS requires you to pay taxes rental income for 15 days or more out of the year.
Tax Relief and Filing Assistance for Airbnb Hosts
As a host, you may qualify for tax relief. Our tax professionals will review your case to determine the best course of action for your compliance. Affordable Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
CEO David King and Lead Tax Attorney Phil Hwang discuss these circumstances and what you should do if you’re thinking your refund could be at risk for IRS seizure.
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