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.

IRS Announces Big Increases To Retirement Savings Limits For 2023

The IRS recently announced the cost of living adjustments applicable to the various retirement plan limitations for 2023, with most of these tax advantaged savings opportunities increasing substantially from 2022 limits.

Most working professionals have access to a 401k plan or 403b plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. For 2023, you can contribute up to $22.5k into a 401(k) or 403(b) plan through salary deferrals, up from $20.5k in 2022. With the Roth option, you forgo a current year tax break in exchange for a promise from the government that those contributions will grow tax-free.

Anyone 50 or older by December 31, 2023 can contribute an extra $7,500 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $30k, up by $3k from the 2022 max.  Please note that you don’t need to actually wait until your 50th birthday to be able to start making these catch-up contributions, so adjust your deferrals as of the first paycheck of that monumental year.

Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE’s work just like 401(k) plans, which means it’s up to each employee to fund the bulk of his or her retirement savings account through salary deferrals. For 2023, the maximum contribution into your SIMPLE as salary deferrals increases to $15.5k, up $1,500 from last year’s limit of $14k.  Anyone 50 or older by December 31st can put away an additional $3.5k in 2023, for a total annual salary deferral of $19k. Your employer will generally make matching contributions into your account of up to 3% of your salary.

And if you are self-employed, you can contribute up to 20% of your net self-employment income into a SEP IRA. The maximum contribution into your SEP IRA for 2023 increases by $5k to $66k. Solo 401k’s allow self-employed individuals to hit the $66k max on less income and also increase the max for people 50 and over to $73.5k.

And lastly, the maximum salary for many retirement plan calculations jumps to $330k for 2023, up by $25k from the 2022 max of $305k.

Increase to IRAs

Don’t forget about IRA’s. The amount you can contribute to an IRA increases by $500 to $6,500 per person for 2023. Even if you’re covered under a retirement plan at work, you and your spouse can each contribute up to $6,500 into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount you both contribute. Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $7,500. You have until April 15, 2023 to contribute to your IRAs for 2022.

There is a bit of good news for people looking to contribute to a Roth IRA in 2023. The amount you can earn and still contribute to a Roth increases by $9k for single individuals and $14k for joint filers as follows:

  • Single Individuals – Phase-out begins $138,000 and ends at $153,000
  • Married Couples – Phase-out begins $218,000 and ends at $228,000

If your income is too high for a Roth, don’t forget that the rules changed more than a decade ago, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA. This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts.  For more information, please check out our article With Stock Markets Down This Year Consider Converting Retirement Accounts to a Roth IRA.

And finally, if you’re married and your spouse isn’t covered under either an employer sponsored or self-employed retirement plan during the year, the phase-out range for your spouse making a deductible IRA contribution has increased to $218k – $228k for 2023, which is identical to the Roth IRA phase-out limits.

Re-Set Your 2023 Retirement Savings Budget

Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2022 winding down, now’s the time to start thinking about resetting your monthly retirement savings goals for 2023.

Is retirement headed your way?

For many taxpayers, retirement choices often include relocating to a warmer year-round climate.  But what about tax considerations?  Currently nine states have no state income tax requirements: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

However, if relocating to a “tax-free” state, do your homework first.  States generate operating revenues somewhere, so it would also be wise to check on the state’s sales tax and property tax rates as well before making any “tax efficient” relocation decisions.

On the other side of the spectrum, the five states with the highest marginal personal income tax rates are: California (12.3%), Hawaii (11.0%), New York (10.9%), New Jersey (10.75%), and Oregon (9.9%).


Review Your Year-to-date Paystubs

Heading into the last quarter of 2022, October is the perfect time of year to review your year-to-date paystubs in order to maximize pre-tax benefits and other withholding items. Examining your year-to-date paystub early in the final quarter of the year gives you a chance to make any needed adjustments before the opportunity passes by if you wait until the end of December.

Are you on target to fund the maximum allowed 401k or 403b salary deferral amount?

For 2022 the maximum salary deferral is $20,500.  Plus, if you are age 50 or older you are eligible to fund an additional “catch-up” amount of $6,500 making your total allowed contribution for 2022 $27,000.  Turning age 50 at any time within the year allows you to fund the “catch up” provision as early as January 1 of the current year.  You don’t need to wait until the actual day of turning 50 to begin funding the additional $6,500.

Did you switch jobs during the year and fund a 403b or 401k at each place of employment within the calendar year?

The 401k/403b max salary deferral is the total allowed salary deferral for employees from all places of employment during the calendar year.  You are not allowed to fund the $20,500/$27,000 max at each separate place of employment.

Does your employer offer either a pre-tax childcare or medical Flexible Spending Account (FSA)?

Don’t forget, FSAs offered by your employer are “use it or lose it”.  If you are funding an FSA for childcare or medical expenses, check the balance available to be sure that the funds are fully used by year-end.  Unless your employer has a grace period feature, your unused funds at year end are forfeited back to the employer and not eligible to be carried over into the following year.  For a medical FSA, the max contribution limit for 2022 is $2,850 per individual.  For a dependent care FSA, the max contribution limit for 2022 is $5,000 per household ($2,500 if married filing separately).

Are you taking advantage of a Health Savings Account (HSA), if offered by your employer?

If your health insurance plan is a “high deductible health plan” you are allowed to fund an HSA.  Funding is made with pre-tax dollars.  For 2022, the max contribution limits are $3,650 for self-only coverage and $7,300 for family coverage.  If you are age 55 or older you can also fund an additional $1,000 per year.  Plus, if your spouse is age 55 or older, he/she can establish a separate HSA and fund an additional $1,000 catch-up contribution to that account making your total family HSA contributions for 2022 $9,300.  The major difference between the medical FSA and an HSA is that the medical FSA is “use it or lose it” at year-end while the HSA works more like an IRA where the unused funds remain in the HSA continuing to grow tax-free and available to be used for qualified medical expenses in future years.

Did you receive a large bonus or have some other significant compensation payout during the year?

The “federal supplemental withholding tax rate” is 22% on special compensation payments to employees.  Typically for bonuses and other special compensation payments paid to you by your employer, federal taxes withheld from the payment are 22% of those taxable wages.  If you are in a higher federal tax bracket than 22% (which is often the case), then federal taxes withheld will be too low and you may find yourself owing taxes next April.  And if you are in a 35% or 37% federal tax bracket and the payout is significant, then your federal tax balance owed the following April tax filing date could be significant as well.  A good idea would be to track down any paystubs reflecting special compensation amounts to see how federal taxes were withheld.


Deadline Oct 17 for 1040 returns on extension

Don’t forget!

Your 2021 tax return needs to be filed by Monday, October 17. With the partnership and S-Corp extension filing date of 9/15 behind us, taxpayers that were waiting on late K-1’s should have received them by now.

Please contact your Tax Preparer soon if you still need to finish up your 2021 personal tax returns.

Are you a Hurricane Ian victim? 

Hurricane Ian victims that have their personal tax returns on extension now have until Feb 15, 2023 to file. IRS extended the deadline from Oct. 17, 2022. More here: * Visit their disaster relief page for more help.