Make year-end item donations

Quick Reminder:

It’s a good time to make year-end donations of clothing & household items to charitable organizations.

Don’t forget to make a list, including each item’s condition, since only items “good or better” qualify for deductions. Photos are helpful too.

How long should you keep copies of your personal tax returns?

As a general “rule of thumb”, 3 years is all you need to keep copies of tax returns and related tax documents.  The IRS has a 3-year statute of limitations – meaning they generally will not go back more than 3 years to audit your tax returns, assuming the tax returns were timely filed, including extensions.


  • if the IRS finds a significant understatement of income being reported by a taxpayer (under reporting income in excess of 25% of the amount reported on the original tax return), then the 3-year statute becomes a 6-year look back period.
  • in the case the IRS finds fraud, there is no time limit.

Although 3 years is generally a “safe bet” for retention of past years tax returns and tax documents, for taxpayers looking to be a bit more cautious, a 6-7 year holding period may be a more conservative time frame.

If storage space available for maintaining paper copies of your tax documents and other records in your residence is an issue, the IRS accepts digitally stored records and tax documents.  As long as your records are accurate and readable, documents stored digitally are permissible by the IRS if ever needed.

For more tips on retaining documents for tax purposes, please look at the MA Society of CPAs Record Retention Guide.

Wondering if you pay taxes on the sale of your house?

With the recent surge in home prices over the past couple of years, many taxpayers are selling their residences for significant capital gains.  Under the current tax rules, when selling a primary residence:

  • a married couple filing a joint tax return is allowed to exclude up to $500K of capital gain income from the house sale.
  • for married filing separate, single or head of household filers, the exclusion amount is $250K.

The capital gain is the difference between your net sale proceeds (gross sales price less selling expenses such as broker commission, legal fees, stamps and other items noted on the Closing Disclosure) less your cost basis (original cost of the house plus renovation and improvement costs).    As long the taxpayers have owned and lived in the house for 2 out of the past 5 years, they will qualify to exclude $500K/$250K of capital gain income from the sale of their primary residence.

A few other tax considerations when selling of your primary residence:

Your mortgage balance doesn’t impact the capital gain.

  • Taxpayers are often confused with regard to how their outstanding mortgage impacts the capital gain calculation from their home sale.  Actually, the outstanding mortgage balance payoff at closing does not impact the capital gain at all.  The gain is simply sale proceeds less cost basis as noted above.

The home sale capital gain exclusion only applies to the sale of a qualifying primary residence and not to a second home.

  • For married filing joint filers, in order to qualify for the full $500K sale exclusion, both spouses must have used the residence as their primary residence for 2 out of 5 years (i.e., if recently married with one spouse living in the house more than 2 years and the second spouse living in the house less than 2 years, then the couple will only qualify for a $250K exclusion and not the full $500K exclusion).  However, only one spouse needs to meet the ownership requirement in order to claim the entire $500K exclusion.

Maintain documentation for renovations and capital improvements on your home as best you can.

  • Keep a folder containing contracts that you had with builders, supply invoices, cancelled checks related to various home improvement projects done, and credit card statements showing amounts paid for renovations and improvements.  As a space saver and if it’s easier for organizing your records, you can scan copies of such documents onto a disk.  If ever audited by the IRS, as long as the information can be provided in a readable format, digital images and copies work as well as the original hard (paper) copies for IRS needs.

At closing, the attorney handling the paperwork will generally provide the seller with a Form 1099-S, Proceeds from Real Estate Transactions, reporting the sale proceeds of the house.

  • Be sure to find this tax form in your packet of signed documents from the closing and provide a copy of the 1099-S to your tax preparer.  Closing attorneys generally do not send out another copy of the Form 1099-S to taxpayers the following January, when most other tax documents are mailed to taxpayers.  If a 1099-S is prepared but not reported on your tax return, you will receive a notice from the IRS showing the discrepancy and “under-reported income”.
  • While the majority of home sales will fall under the $500K/$250K exclusion, we advise reporting the sale whether or not you have a copy of the IRS Form 1099-S in your records or not.  If you cannot locate a copy of the 1099-S, then provide your tax preparer with a copy of the Closing Disclosure statement (CD) or HUD form to provide the sale proceeds in order to report your home sale on your tax return.
  • For divorced couples who sell their jointly owned residence after a divorce is final, special provisions apply to allow both spouses to each qualify for the $250K exclusion on their separate tax returns even if one spouse does not meet the 2 out of 5 years residency requirement.

One final item to be aware of, if your residence was ever used as business property, such as a home office or rental property (including Airbnb), the allowed depreciation claimed while used for business purposes needs to be “recaptured” as income in the year of sale.

  • Depreciation, for accounting and tax purposes, is defined as expensing the cost of property over a useful life when the property is used in business. When you have a home office or your residence was previously used as a rental property, you depreciate the property for tax purposes, claiming an annual business deduction for the allowed depreciation expense.  When the residence is later sold, the amount of annual accumulated depreciation expense claimed on the business use portion of the house during the years of business use is considered income and is not allowed to be included as part of the $500K/$250K exclusion rule.

Foreign Account Reporting Basics

Below is a brief summary of reporting foreign accounts, gifts and inheritances. Please note that the penalties for non-compliance can be onerous.

If you inherit or receive a gift from a foreign person of more than $100k:

If you have a foreign account open at any time during the calendar year, no matter how low the balance:

  • Complete the questions at the bottom of the Schedule B attached to your personal return
  • Check the boxes stating that you have a foreign account open, no matter how low the value

If you have foreign accounts open that exceed $10k in any calendar year:

If you are married filing jointly and have foreign accounts with a combined value of more than $150k during the year or more than $100k at 12/31, or any other taxpayer with a combined value of more than $75k during the year or more than $50k at 12/31:

Social Security Max Jumps To $160,200 For 2023

Most years, the government bumps up the maximum Social Security taxes that you can pay.  For 2023, the maximum wage base jumps to $160,200, an increase of $13,200, or 9.0%, over the max of $147,000 that was in place for 2022.

At a rate of 6.2%, the maximum Social Security taxes that your employer will withhold from your salary is $9,932. This is $818 higher than the 2022 max of $9,114. Employers then match any Social Security taxes withheld from their staff’s salaries.

Higher Medicare Taxes Due To The Affordable Care Act Passed In 2012:

Starting back in 2013, the employee portion of the Medicare tax jumps from the current rate of 1.45% to 2.35% on earned income in excess of $200k for single individuals and $250k for married couples filing a joint tax return. As of now, the employer will continue to match their employees’ Medicare taxes at a rate of 1.45%, which means the total marginal Medicare tax will be 3.8% for high-income taxpayers. This tax is reported on the Form 8959.

For example, if you’re single, and earn wages of $500k from your job, expect to pay $2,700 in additional Medicare taxes (($500k – $200k) * .9%) for 2013 and beyond.

To increase taxes for high-income individuals even more, the Medicare tax continues to apply to unearned income. Anyone with income over the $200k or $250k threshold should expect to pay Medicare taxes at a rate of 3.8% on interest, dividends, capital gains, and net rental income (except for when you rent office space you own to your practice) in addition to any federal and state income taxes due on this income. This tax is reported on the Form 8960.

Calculating the Self-employment Tax:

If you’re self-employed and earn more than $400 in net profit from your business, you’re subject to Social Security and Medicare taxes as well. Known as the “self-employment tax”, you’ll need to complete a Schedule SE to calculate this tax, and then report the amount due on your Form 1040 in additional to your federal income taxes due.

The self-employment tax is based on a Social Security tax rate of 12.4% and a Medicare tax rate of 2.9%. These rates are double those paid by employees, since a self-employed person must pay both the employee’s portion and the employer’s portion of both taxes. Remember, when you work as an employee, your employer matches the Social Security and Medicare taxes withheld from your pay.

Unlike most other taxes, when dealing with self-employment taxes, the more you earn, the less you pay in taxes.

3/31/23 Deadline Set For Many Provider Relief Fund Recipients To Self-Report

If your practice received a Provider Relief Fund Grant of more than $10k from HRSA, you are required to self-report that you utilized those funds properly.  On 10/22/22, the Health Resources and Services Administration (HRSA) issued guidance available at:

For those practices that received PRFs of more than $10k in aggregate between 7/1/21 and 12/31/21, your self-reporting period starts 1/1/23 and ends 3/31/23.  HRSA has already emailed PRF recipients who might be required to self-report during the upcoming Reporting Period of 1/1/23 – 3/31/23. Early in January we will be reaching out to our practice clients who received more than $10k in Provider Relief Funds during the second half of 2021 to help them fulfill this filing requirement.

And don’t forget that the self-reporting period for practices receiving PRFs in excess of $10k between 1/1/22 and 6/30/22 commences on 7/1/23 and ends on 9/30/23.

You can access the Provider Relief Fund Reporting Portal at:  The first step is to register to set up your account if you haven’t already done so. Please register using your email address as the username, but then use as the contact email if you will be having us help you out with this self-reporting application. Our fee is $750 to assist with the self-reporting application.