Frequently Asked Questions

With electronic filing, once the return is accepted, your state refund will be delivered in 2-3 business days. For the federal return, it will be the second Friday, if your return is direct deposited. It is the third Friday that the IRS will cut and mail refund checks. Keep in Mind that if you choose to receive a refund check, you need to allow a few extra days for mailing.

Generally speaking, when a return is accepted, the refund is ready to be processed. There are rare occasions when a refund is held up due to back taxes owed, delinquent school loan payments, or an item that needs verification. The following links to the IRS & DOR will let you know the status of your refund. You will need the following: the primary social security number, your filing status* and the amount of the expected refund. It will display the anticipated refund date or instructions if there is a delay.

Filing Status Numbers:
Single= 1
Married Jointly= 2
Married Separate= 3
Head of Household= 4
Qualified Widow= 5

I’m getting audited: That, unfortunately, is everyone’s fear. They are targeting the small businesses, self-employed, and those in a cash business because these items can not be verified by outside sources.

There are three major reasons:

Random – You just happened to fall in the ½ of 1% that got selected regardless of what you do. Those are very quick and usually have no adjustments.
Net profits against total revenue known as the “DIF” score. These audits usually happen because the IRS computer models of average profit in your industry differ from your profit percentage.
Lifestyle – This happens when the income shown on your tax return is not enough to support your lifestyle. With improvements in technology and mandatory reporting by financial institutions, the IRS knows what you’re spending. If your income falls short, this may trigger an audit and both branches could adjust your tax return.
So…What do you do?

You should get representation for the audit. Representation will take the form of negotiations or proving the tax return entries, such as what business expenses are, and what is not taxable income. That is key because the IRS and MA DOR’s mission is to collect revenue for their government. You want someone who’s watching your back. Get your receipts to support your deductions, and group them together by category. Finally, don’t talk to them. After the initial interview, keep quiet and let us do our job. Yes we charge for this, but it is well worth it.

Keys to your audit and tax returns.

Be prepared – keep all your receipts and distinguish their business purpose(s)
Documentation – Track your auto mileage, gas, expenses, tools, and parking. Be as accurate as possible. Don’t say “it’s about so much a month”.
Don’t mix your personal checkbook with business! This is a recipe for disaster as it makes it harder to justify expenses. Believe me, this will cause the audit to be longer and more stressful than it needs to be.
The same principles apply to rental properties where one portion is rental and the other is your residence. Don’t be mixing repairs to your dwelling as a deduction to the rental.
Mostly, be honest. Mistakes can happen and deductions may not be agreed upon but do not create any possibility of fraud.

I owe additional taxes from a past year…so what do I do ?

The first thing to do is to get the letter in front of us as soon as possible, so we can decipher it for you. The form letters are not especially user-friendly, but since we deal with them often, we can get to the heart of the matter. So drop off a copy, fax it (781-233-2484), or send a copy to us in the mail, but get it over here.

USUALLY these occur for one of three reasons.

1) Additional income not reported on the taxpayer’s return.
It can happen to the best of us. For whatever reason, the taxpayer did not have a key document with him at the time of his appointment. It could be a W-2 from a second job, or perhaps a 1099-INT for some bank interest or a 1099-R from an IRA withdrawal. Maybe the issuer of the form failed to send it to the taxpayer. But if it’s real income, and was reported to the IRS, we have to get it onto the return, and if it wasn’t there, and should have been, the taxpayer will be liable for the tax on that income, plus interest and penalties. Even when that is the case, quick action is helpful, as paying off any outstanding balance will turn off the interest & penalties “meter”.

2) Disallowance of a claimed deduction or credit.
Usually this can be overcome with proper documentation. This is why we advocate retaining receipts and/or cancelled checks!

3) Capital Gains from sale of a capital asset.
If a taxpayer sold stocks or mutual funds, and cleared a profit, that profit is taxable. The taxpayer’s broker should have mailed a form 1099-B in January, and given that this is one of the items on our handy preparatory checklist, we hope that the taxpayer would bring the form to his appointment. But it doesn’t always happen. If we aren’t told of such gains, and it didn’t go on the return, the taxpayer will indeed owe the tax on the gain, plus interest and penalties. HOWEVER…. The IRS assumes thee total proceeds as capital gains with you to provide the cost of the sale. Most broker/dealers now have cost basis information and usually report them to the IRS. There may be some securities that the broker/dealer does not have so the burden of the proof falls on the tax payer. Anyway, an amendment must be filed to show the true gain/loss.

So the point here is to bring all documents to the appointment, and if you get a letter, let us help resolve it.

This is done if you can’t pay your tax obligations in full. The process is different between the IRS and the MA DOR. For the IRS, the payments should be completed no further out than 72 months. The Form 9465 is used to apply for the agreement. You state how much per month to pay and the day of the month you wish the payment to be made. If you fill in the banking information, the IRS will draw the payment from your account otherwise, they will bill you. Keep in mind the IRS charges $150 to enter into the payment plan.

For the MA DOR, go to their website at The link is in the “Individual” tab. Fill out the screens and they will establish the plan, which will be drawn from your account. There is no invoicing. The alternative is to call them at 617-887-6367 and wait for a representative, who will set it up for you.

Once the payment plan is established, it is imperative that you stick to it and don’t be late. Being late could terminate the agreement and collection proceedings can begin for the full amount due. If you are in a difficult situation for a payment, notify them immediately. Also, if you are in a payment plan, future tax years’ obligations must be paid in full and on time.

Proper planning could avoid getting into a large liability. Give us a call to see if the coming year may be a problem.

When taking money out of a pension plan there are several questions to ask. First are you retired or will be retiring in the near future. If you are retiring and over 59 ½ (age 50 or 55 if you work with certain government agencies) you will not be subject to the 10% penalty (additional tax). If you are retiring at the end of the tax year in which you and earned a full year or significant salary you may want to delay withdrawing the pension until the next tax year when you will be taxed at a lower rate.

Second is the money being withdrawn from one pension plan and is being rolled over into another plan. There is no effect on your taxes. You do need to be careful about this though. It is best for the rollover to be transferred from your old plan to your new plan directly. If you receive the money, you have 60 days to roll it to another plan or you will be subject to tax and the 10% penalty if you are under 59 ½.

Third, are you withdrawing money from your pension to pay bills? If you are you will want the pension plan administrator to withhold both Federal and State taxes on the money you withdraw to limit your tax liability and penalty when you file your tax return.

In any case whether you are retiring or need to tap into a pension, there is a need to plan for taxes due. We are here to answer any questions.

If we are discussing a rental property, and you are the landlord/landlady, improvements are considered to be part of the cost of operating a business property. Usually structural improvements are capitalized, which means they must be depreciated (applied piecemeal, over the life of the improvement). Most repairs, and any maintenance can be expensed, which means applied directly against the rental income collected.

HOWEVER, if we are discussing improvements to one’s primary residence, tax relief is harder to come by. Documentation regarding the cost of a capital improvement should be saved, as this will be counted as cost-basis when you go to sell. It will help you then. Other repairs made and maintenance performed on a primary residence generally provide no tax relief. Owner-residents usually can deduct only property taxes and mortgage interest.

The exception is that in recent years, there have been some temporary credits for certain home improvements, usually when they are related to energy conservation.

This is a subject that you won’t due often, but most likely you will sell a home in your lifetime. We need to write this, because year after year we get calls about this and/or the taxpayers are misinformed about the taxability of selling property. The most common errors are 1 – the belief that those over 55 gets a 1 time $125,000 exclusion, if another house was bought,* and 2 (which I’ve caught some relators on this) – you sold your rental unit, but bought a single family house, so no taxes are due. Most of the time, the damage is done when it gets time to do your taxes. This article will focus on residential property, so knowing the rules will save you a lot of anguish. IRS Publications 523 & 527 are very clear about the taxability on homes. I will break them out by category. In each case, a form 1099-S will be sent to IRS at closing.

Personal Residence

If its your personal residence, most likely no. Gains are determined by taking the selling price less commissions and closing costs against the cost of your home plus improvements. The current law gives you a tax break if your home is your primary residence for at least two (2) years in a 5 year period. Each taxpayer is allowed a $250,000 exclusion, so a married couple can make a $500,000 profit selling their home before taxable gains starts. (Example: The Smith’s (married) purchased a house that was their residence in 2014 for $300,000 and added $30,000 in renovations. The cost is $330,000. They sold it in 2017 for $650,000. Their gain on the home was $320,000 because each spouse gets a $250K exemption of $500K, there is no tax. If the situation was that Smith was a single person, then Smith’s taxable gain is $70K ($320K less $250K single exclusion). Note – the residence must be owned for 2 years, but there are exceptions such as disability, divorce, widowed, house destroyed and military duty are most common ones.

Vacation or Second Home

If is a second or vacation home, the exclusion is disallowed. Therefore, there will be a tax if the proceeds are more than your cost basis. The maximum is 20% depending on your bracket for the federal and 5% for Mass, if you owned it more than 1 year. Estimated tax for Smith (from previous example) – single or married – in the gain listed above could be as high as $64,000 federal and $16,000 Mass.

Rental Property

In this instance, it does get tricky. After the cost basis is established, the IRS treats this as a business asset. IRS law states that the home plus improvements (appliances also) are to be written off over several years as a depreciation deduction. This gives you a short term benefit, but it also reduces your cost basis. The tax is now calculated at up to 20% for the property and up to 25% for the total depreciation written off. It is still a straight 5% for Mass.

Take the above situation for Smith single that it was a rental. Cost basis is $330,000 in Jan. 1, 2014. $330K rental real estate gets written off over 27.5 years (IRS pub 946), so it is $12,000 per year. It was sold July 1, 2017 for $650K. The gain is as follows: $650K less $320K, plus depreciation written off for 2.5 years at $12K per year or another $30K. Total gain is $320K long term capital gain plus $30K depreciation taken.

Smith would pay $64,000 LT Gain tax plus $7500 tax on depreciation as well as $17,500 Mass Gain tax (Tax is 5% on both $320K gain and $30K depreciation).

Shared Residence – Rental

In the case of a multi-family home where one apartment is your residence and the other is rented, it is treated as two separate transactions. (Single homes where rooms are rented to Exchange students or by AirBnB also fall into this category). Your residence is treated as a personal residence, so any gain can be offset by the $250K exclusion per person. The rental portion of the home is viewed as rental income and is subject to capital gain tax plus depreciation. Let’s assume that this 2-family home was half residence and half rental. Then Smith’s situation would look like this:

Residence Portion Rental Portion
Bought Jan 1, 2014 – $300K $150,000 $150,000
Improvements – $30K $15,000 $15,000
Cost Basis – $330K $165,000 $165,000
Sold July 1, 2017 – $650K $325,000 $325,000
Depreciation taken – only 1/2 of $30,000 to rental unit None/0 $15,000
Gain of property $160,000 $160,000 plus $15,000 depreciation taken or $175,000
Residence Exclusion $250,000 None/0
Tax Due None. If $160K gain is less than the $250K exclusion, so no tax. $32,000 capital gain tax on $160,000 plus $3750 tax on depreciation taken.
Before you sell, call your tax advisor to find out what your situation may be. They can calculate an estimated tax and possibly delay paying the tax. There are ways that taxes can be delayed such as a 1031 exchange where the proceeds are put into an escrow account until another real estate investment is bought. That is very complex and involves an attorney before the sale is closed. Again, consult your tax advisor before you sell your property, “An ounce of prevention is worth a pound of cure.”

*That was the old rule for tax exclusion on primary residences. That was changed under the Clinton administration, adjusted under Bush and again under Obama where it still exists. The new tax law under Trump did not affect this.

* In 2008, the Bush administration passed an incentive for first time home buyers. Those who bought then received a first-time home buyers credit of $7,500. This was to be repaid over the next 15 years at a rate of $500 per year with the balance die if you sold your home.

When purchasing a home you can only deduct the closing costs for home mortgage interest and real estate taxes, if you itemize deductions (file Schedule A).

Otherwise, closing costs are added to the cost-basis of buying your home which you will use when you sell your home. Costs you can add to your cost-basis are:

Abstract of title fees
Legal fees
Recording fees
Transfer stamps / taxes
Owner’s title insurance
Costs agree to pay that the seller owes
– Back taxes / interest
– Recording/mortgage fees
– Cost of improvements / repairs
– Sales commissions

When you come in to have your tax returns prepare please bring your settlement sheet from the purchase of your home.

It can be. It’s two separate transactions.

The purchase of stock or other capital assets is not by itself a taxable event, although dividends from stocks and interest on bonds* are usually taxable income.

The key is when an investment is sold.
If you made a profit, it is usually taxable. Conversely, if you lost money, it could help you. The tax code looks at profits as taxable events. These are called capital gains.

It matters how long you held the asset. If it was exactly one year, or any less, the gain is considered short term, and is taxed at ordinary income rates, which means the same rate as your other incomes, which can be to a maximum of 37%. If you owned the asset for more than a year, it is considered long term, and a maximum rate of 20% applies. Note: This 20% rate was a result of the new Tax Reform Act which expires in 2024.

So capital gains are taxable. Capital losses actually work like a deduction, in that they are applied against your other taxable incomes, thus reducing your overall taxability. Nobody sets out to lose money, but if you do, at least you get some tax relief.

Remember that in the real world we want to earn as much income and amass as many gains as we can, but in the tax world, we want to declare only as much income or gains as we must.

All of your losses for the tax year are netted, and depending on circumstances, your losses might partially offset your gains, or you may have a net loss, If you have a net loss, you can use up to $3000 of it to reduce your overall incomes. If the net loss was greater than $3000, claim the $3000, and the balance is saved (“carried over”) for future tax years, at which time it will be applied against that year’s gains (if any) and up to a $3000 net loss can again be taken, and so on, until the entire loss is applied.

Massachusetts handles this differently. All gains are taxed at 5.1% regardless of being long term or short term. Net losses are applied against interest and dividends, but no net loss is applied by itself as a deduction. Any remaining net loss is rolled forward to be applied against future gains and/or dividends and interest, until it is fully applied.

The sale of a house can generate a capital gain or loss, but special rules apply, and outcomes can be drastically different. If you intend to sell any real estate, be sure to contact us by the time of your closing.

*Unless the bonds are specifically tax-exempt.

Congratulations and hope you do enjoy it! The answer is “yes – plenty!”

There are a number of factors to be considered when retiring, and that conversation should be held on a case-by-case basis. With retirement, there are a myriad of considerations because there are now several income streams especially in the first year. Usually those incomes are employment, pensions, benefit cash outs, options, while you may already be collecting social security benefits.

You need to understand what your retirement income will consist of. Here are some examples.

How much will you collect from social security?
Is your pension plan a monthly stream, from your 401(k) plan or other deferred plan?
Are you allowed to keep your corporate plan or do you roll it into an IRA?
Do you have stock option plans to exercise?
Will you get a lump sum check for unused vacation, sick or bonus?
Will your benefit payments shift to you and how much?
Proper planning will not only prepare you for the coming tax year but also for future years. You also must prepare for your estate and your beneficiaries.

There are a number of factors to be considered when applying for social security, and that conversation should be held on a case-by-case basis. As for taxation, social security benefits are not taxed by the state, but they can be taxable on the federal level, and the degree to which they are taxed varies.

The portion of a taxpayer’s social security that gets taxed depends on how much other income the taxpayer has. If the taxpayer has no other income, social security is not taxed at all. If the taxpayer has more than $90,000 in other income(s), 85% of the social security benefits are considered taxable, at whatever rate that taxpayer’s bracket dictates.

Most people are somewhere in between, and a sliding scale applies. The more other incomes, the more of the social security benefits get taxed. This is why changes in income from year to year alter how much of the social security benefits get taxed, and the total tax bill gets adjusted up or down noticeably.

If you expect to receive social security benefits, we can estimate how that will affect your taxation. Ask us!

Unemployment compensation is added to your taxable income for the tax year. When you go to file a claim to collect unemployment compensation you will be asked if you want Federal (10%) and State (5%) taxes withheld. There are a couple of ways to have taxes withheld. You can have taxes withheld from your weekly unemployment check. The other way is to make quarterly estimated tax payments.

At the end of the year you will receive a form 1099-G showing the amounts paid for unemployment compensation and taxes.

If you do not have taxes withheld you run the risk of paying more taxes with your tax return and you may have a penalty applied for not paying enough taxes during the year.

If it is received from workers compensation, the answer is no.
If it is received from Social Security Disability see the question of Social Security taxability to find out because it can be.
If it is through your employment, more than likely it is taxable. The employer subsidized most of the disability premiums so therefore disability payments are taxable. Either the employer or insurance company will send you a year end W-2 or form 1099 which will determine the amount taxable.

No. You must either file married joint (filing status 2) or married filing separate (filing status 3). It does not matter when during the year you got married, it is your status at year end that determines how you will file.

When you get married and are changing your last name, you need to notify social security of the change. If you do not file a name change with social security you will have to file your tax returns with your maiden name. You should also notify your employer of the name change.

If you move to a new address you should file Form 8822 (Federal) and “Taxpayer Change of Address” with the State.

You should add your incomes together to see if your combined married income is going to increase your tax bracket. A new W-4 (Federal), M-4 (State) may need to be filed with your employer payroll department.

Links to:
• W-4 (Federal):
• M-4 (State):

New address:
• Link over to Form 8822:
• State change of address:

Your status will remain married-filing-jointly for the year of death. After that tax year, the widow(er) will file as single if there are no dependents, or as a qualifying widow(er) for 2 years, then head of household, if applicable. Qualifying widow still implies the married joint tax rate tables and is more advantageous.

NOTE: If a refund is due in the year of death, electronic filing is NOT permitted for that year. A separate form 1310 along with a copy of the death certificate is required to be mailed in with the return.

No and we don’t think that doing so is ethical. It is also very expensive.

Why not? Because of the hidden strings…
There are tax preparers who will offer same day refunds, expedited refunds, rapid refunds, etc., but in exchange for moving up the receipt of your refund, they take a cut. A pretty big cut!

The process involves a loan. The generic term for same day refunds, rapid refunds, etc. is a Refund Anticipation Loan (RAL). That means a bank is involved loaning the money to you, then gets reimbursed by the IRS. The bank passes that time period cost onto you – the taxpayer. The taxpayer actually signs over the right to the refund (later) in exchange for some money today. We say “some money” because the “same day refund” is actually the refund minus the cut and minus the loan cost.

Example: Taxpayer has a $1000 refund and it cost you $150 to prepare the return.
Preparer offers expedited refund. Taxpayer signs over the rights to his refund in exchange to receive approximately $700 today. What happened to the $300 difference?

Amount of Refund $1,000
Less: Preparer Fee -150 Bank sends the fee directly to the preparer
Less: Loan Fee -150 Bank keeps. It’s your charge for the bank waiting for IRS.
Your Check Is: $700
Bank wins/you lose. End of story.

But that’s a 15% cut… And that’s not an annual interest rate. We already offer electronic filing (which speeds up refunds immensely) and direct deposit (which shaves off another week)….all for free. Waiting times for federal refunds when using e-filing and direct deposit are as little as 7-14 days. So that 15% cut was in exchange for saving seven days. That cut was 15% in a week. Annually, that’s 780% on a simple basis, and on a compound basis, over 100,000%! Not much of a deal for the taxpayer.

Please don’t fall for this. Electronic Filing and Direct Deposit are the way to go, and we offer these services at no charge.

Massachusetts has been frequently sending out “Notice to Assess” letters to taxpayers usually requesting dditional information. The most common letter is verification. Most common are:

  • Social Security card
  • W-2’s or 1099’s pension, misc.
  • Schedule C proof for the self-employed
  • Real estate taxes, water bills or rent receipts for renters

This letter is merely the Department of revenue asking to provide financial sources. The IRS receives financial information from the social security for W-2’s, financial information from banks and brokers and 1099 information from subcontractors and data processors such as PayPal.

This data information is set to the IRS around June which then downloads to the states. Therefore, for verification – Mass DOR asks for it in advance.

The dept. is aggressive to close these issues so the letter will state that state tax paid will be disallowed if the information is not received timely, usually in 30 days.

Do not wait! Send in a copy of what’s requested immediately, and the issue will be resolved.

Questions? We’ll be happy to answer them for you!

Call us at (781) 233-2003

Call for assistance today!