Frequently Asked Questions

It depends! Every taxpayer’s situation is unique. Generally, these are the key items that you need to submit at your tax appointment:

• W-2 (wages)
  
• 
1099-R (retirement)
• 
1099-INT (interest)
• 
1099-DIV (dividends)
• 
1099-B (brokerage sales)
• 
1099-MISC (rents, etc.)
• 
1099 (any other)
• 
1095-A, 1095-B, 1095-C (health insurance) 
• 1098-T (education)
• 
Schedules K-1 (Forms 1065, 1120S, 1041)
• 
Annual brokerage statements
• 
1098 (mortgage interest)
• 
8886 (reportable transactions)

• Closing Disclosure (real estate sales/purchases) 
• Copies of any tax elections or revocations in effect 
• Other information statements 

In addition, please provide a copy of your (and your spouse’s, if applicable) driver’s license (front and back). This information may be needed to electronically file your tax return.

If we did not prepare your prior year returns, provide a copy of federal and state returns for the three previous years.

For a more complete list of possible items that could affect your taxes, you can use this handy organizer.

No, we can use drop boxes, email, and DocuSign.

We accept cash, check or charge.

Click here for a “2020 Key Numbers” reference guide.

Click here for a “2020 Key Numbers” reference guide.

Click here for a “2020 Key Numbers” reference guide.

It depends. These dates cover the usual situations:

Individual, Form 1040: April 15th

S-Corporation, Form 1120S: 15th day of the 3rd month after the end of the entity’s tax year (March 15th for calendar-year entity)

Partnership, Form 1065: 15th day of the 3rd month after the end of the entity’s tax year (March 15th for calendar-year entity)

C Corporation, Form 1120: April 15th for a calendar-year entity; 15th day of the 4th month after the end of the entity’s tax year, except for a June 30 fiscal-year entity. A June 30 fiscal-year entity is due on the 15th day of the 3rd month (September 15th).

FinCEN, Form 114/FBAR: April 15th 

Please note: If the due date falls on a Saturday, Sunday or legal holiday, the due date is moved to the next business day.

You probably know that Forms W-2 and W-4 are related to income taxes. And chances are you’ve filled out a W-4 form at least once and have received a W-2 form from your employer every year. But do you really understand the purpose each form serves?

Simply put, your employer uses the W-2 form to report to you and the IRS both the wages you earned and the taxes that were withheld during the year. You need to submit this form, along with your tax return, when it’s time to file and pay your taxes. The W-2 form also reports other data, including information on dependent care benefits, retirement plan contributions, and other employee benefit information.

Your employer is required to fill out the W-2 form and give it to you no later than January 31 following the end of each tax year. You should expect to receive three copies of the completed W-2 form from your employer to use for your records as well as federal and state tax filing purposes. Your employer will also send a copy to the Social Security Administration by the end of February annually.

The W-4 form is used to determine the amount of income tax that your employer should withhold from your regular pay. Typically, you complete this form when you start work with a new employer. You will also want to fill out a new W-4 when your personal or financial situation changes to ensure that the proper amount of income tax is withheld from your paycheck.

You can learn more about these tax forms by visiting irs.gov.

Generally, a tax bracket is the income tax rate at which you are taxed for a certain range of income. The income ranges vary, depending on your filing status: single, married filing jointly (or qualifying widow(er)), married filing separately, or head of household. Brackets are expressed by their marginal tax rate, which refers to the rate at which your next dollar of income will be taxed. There are seven marginal tax rates in 2020: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.

Year 2020 federal income tax rates for single taxpayers are as follows:

Capital gains are the profits realized from the sale of capital assets such as stocks, bonds, and property. The capital gains tax is triggered only when an asset is sold, not while the asset is held by an investor. However, mutual fund investors could be charged capital gains on investments in the fund that are sold by the fund during the year.

There are two types of capital gains: long term and short term; each is subject to different tax rates. Long-term gains are profits on assets held longer than 12 months before they are sold. Long-term capital gains are generally taxed at special capital gains tax rates of 0%, 15%, and 20% depending on your taxable income. Short-term gains (on assets held for 12 months or less) are taxed as ordinary income at the seller’s marginal income tax rate.

The taxable amount of each gain is generally determined by a “cost basis” — in other words, the original purchase price adjusted for additional improvements or investments, taxes paid on dividends, certain fees, and any depreciation of the assets. (If you received the property by gift or inheritance, different rules apply to determine your starting basis.) In addition, any capital losses incurred in the current tax year or previous years can be used to offset taxes on current-year capital gains. Losses of up to $3,000 a year may be claimed as a tax deduction.

If you have been purchasing shares in a mutual fund over several years and want to sell some holdings, instruct your financial professional to sell shares that you purchased for the highest amount of money, because this will reduce your capital gains. Also, be sure to specify which shares you are selling so that you can take advantage of the lower rate on long-term gains. Otherwise, the IRS may assume that you are selling shares you have held for a shorter time and tax you using short-term rates.

Capital gains distributions for the prior year are reported to you by January 31, and any taxes owed on gains must be paid by the due date for your income tax return.

Higher-income taxpayers should be aware that they may be subject to an additional 3.8% Medicare unearned income tax on net investment income (unearned income includes capital gains) if their adjusted gross income exceeds $200,000 (single filers) or $250,000 (married joint filers).

If you don’t have the cash to pay your taxes and are unable to borrow the money from a relative or friend, you still have a few options. You can pay by credit card, ask for a short-term extension, propose an installment payment agreement or an offer in compromise to the IRS, or declare bankruptcy if you qualify. If you ignore your tax bill entirely, not only will interest and penalties accrue, but the IRS’s tax enforcement and collection powers include the ability to record liens on your property and levy to secure or satisfy such liens.

If you’re short on cash, you can pay your taxes with a credit card. This will allow your tax bill to be paid on time. Therefore, you’ll avoid penalties and interest for late payment of taxes. However, it’s possible that the interest rate that the credit card company charges may be higher than what the IRS charges on late payments. Instructions on how to pay by debit or credit card can be found on the IRS website. A fee may apply.

A short-term extension will give you up to 120 days to pay. No fee is charged, but a late payment penalty plus interest will apply.

An installment agreement is a monthly payment plan with the IRS. You enter into an installment payment agreement by informing the IRS that you are unable to make full payment of taxes. Your tax liability may be spread out over several years, and payments can be made through automatic debit or payroll deduction. You will generally be expected to pay the maximum installment amount that you can afford. You will not avoid interest and penalties with this payment method, but you will avoid more severe collection action. A one-time fee is charged to establish the installment agreement.

An offer in compromise is a negotiated settlement between you and the IRS, whereby the IRS agrees to accept a lesser figure from you in full satisfaction of your tax debt. You must meet certain criteria to qualify for offer-in-compromise treatment. Generally, an offer will not be accepted by the IRS if the IRS believes that the liability can be paid in full or through an installment agreement.

Bankruptcy is a way to resolve your debts when you are unable to pay them. Many taxes cannot be discharged in bankruptcy; however, bankruptcy will suspend most collection activities by the IRS. In addition, reducing your overall debt burden by eliminating unsecured debt (such as credit card balances) through bankruptcy can make more money available to pay your IRS tax bill.

You may be able to deduct all or part of the student loan interest you’ve paid during the year, assuming you meet the requirements. You may be able to deduct up to $2,500 each year from your gross income if you’ve paid interest on a qualified education loan for qualified higher education expenses during the year.

To be eligible for the deduction, your modified adjusted gross income (MAGI) must fall below a threshold figure. For 2020, the deduction begins to phase out as your MAGI exceeds $70,000 if you’re single or $140,000 if you’re married and file jointly. It phases out completely when your MAGI exceeds $85,000 ($170,000 for married persons filing jointly). These amounts are indexed for inflation. No deduction is allowed if your filing status is married filing separately.

Generally, a qualified education loan is a debt you incur to pay qualified higher education (undergraduate and graduate) expenses for yourself, your spouse, or a dependent at an eligible educational institution in a program that leads to a degree. The IRS provides specific requirements regarding the definitions of both an eligible educational institution and qualified higher education expenses. To qualify for the deduction, you must have been enrolled in the institution at least half-time at the time of the loan.

If you are claimed as a dependent, you may not take the deduction. If you are a dependent and your parent borrows money to pay for your college tuition, he or she may claim the student loan interest deduction.

For additional details, see IRS Publication 970 and/or consult a tax professional.

Generally, you should keep your tax returns and supporting information (i.e., receipts, W-2 forms, bank statements) for six to seven years. The IRS has three years to audit a return, or two years after you have paid the tax, whichever is later. However, if income was underreported by at least 25 percent, the IRS can look back six years, and there is no time limit for fraudulent tax returns.

Contributions: There is no federal income tax deduction for contributions to a 529 plan. However, states may offer a state income tax deduction (but they may limit the deduction to contributions made to the in-state 529 plan only). Check with your individual 529 plan or your state’s taxing authority to determine the tax treatment in your state.

Withdrawals: If the money is used to pay the beneficiary’s qualified education expenses, then the earnings portion of the withdrawal is free from federal income tax. States typically follow this federal tax treatment.

If the money is used for any purpose besides the beneficiary’s qualified education expenses (called a non-qualified withdrawal), then the earnings portion of the withdrawal will be subject to federal income tax and a 10% penalty; state income taxes and a penalty may also apply. There are a couple of exceptions. The penalty is generally waived if you terminate the account due to the beneficiary’s death or disability, or if you withdraw funds up to the amount of any scholarship the beneficiary has received.
In the case of a non-qualified withdrawal, the person who actually receives the money is the one who is subject to income tax.

In most situations, this will be the account owner. However, some plans may allow the account owner to determine the recipient of a non-qualified withdrawal. Check the rules of your 529 plan for more information.

Note: Before investing in a 529 plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses – which contain this and other information about the investment options, underlying investments, and investment company – can be obtained by contacting your financial professional. You should read these materials carefully before investing. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified higher-education expenses. For withdrawals not used for qualified higher-education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty. The tax implications of a 529 plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors.

It is important that you properly estimate your tax withholding. If an insufficient amount of taxes is withheld, you may end up owing a substantial sum, including penalties and interest, when you file your tax return. Choosing the correct withholding amount for your salary or wages is a matter of completing Form W-4 worksheets, providing an updated Form W-4 when your circumstances change, and perhaps becoming familiar with IRS Publication 505, which deals with withholding and estimated tax.

Two factors determine the amount of income tax your employer withholds from your regular pay: the amount you earn, and the information regarding filing status and withholding allowances that you provide your employer on Form W-4. If you accurately complete all Form W-4 worksheets and you do not have significant nonwage income (e.g., interest and dividends), it is likely that your employer will withhold an amount close to the tax you owe on your return. In the following cases, however, accurate completion of the Form W-4 worksheets alone will not guarantee that you will have the correct amount of tax withheld:

• When you are married and both spouses work
• When you are working more than one job
• When you have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income
• When you will owe other taxes on your return, such as self-employment tax or household employment tax
• When your withholding is based on obsolete W-4 information for a substantial part of the year (e.g., you’ve gotten married, gotten divorced, gained a dependent, experienced income fluctuations)

To ensure that you have the correct amount of tax withheld, obtain a copy of IRS Publication 505. It should help you compare the total tax to be withheld for the year to the tax you anticipate owing on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you are having too much tax withheld.

You can also use the Tax Withholding Estimator on irs.gov   

In general, you must file a federal income tax return if you are a U.S. citizen or resident alien and your gross income equals or exceeds a specified figure. The applicable gross income figure depends on several factors, including your filing status and age. There are also special filing requirements for dependents.

For tax years 2019 and 2020, you probably need to file a federal income tax return if your gross income equals or exceeds the following figures:

Federal income taxation of disability insurance benefits depends on what type of benefits you receive, whether the premiums were paid with pretax or after-tax dollars, and who paid the premiums (you or your employer).

The disability proceeds are taxable to you if your employer paid all of the disability premiums for you and did not include the amount in your gross income, or if your employer paid you directly while you were disabled. If you paid all of the premiums with after-tax income, or if your employer made the contributions and included the amounts in your gross income, any disability insurance benefits paid to you are exempt from tax.

If your employer pays part of each premium and you pay the balance with after-tax dollars, you won’t owe income tax on any disability benefit that can be attributed to your portion of the premium. However, you will owe taxes on the portion that can be attributed to your employer’s contribution.

For example, Mike contributes $30 per month (after tax) to a disability plan. His employer also contributes $30 per month to the same plan. Mike becomes disabled. Under the terms of the disability insurance contract, Mike receives $3,000 per month for each month he is disabled. Since Mike’s employer paid 50 percent of the disability premiums, 50 percent of the benefits will be subject to tax, and $1,500 per month will be subject to income tax.

Different rules may apply if you receive disability benefits through a government disability program, such as Social Security, Veterans Administration, or the military. In addition, different rules apply to workers’ compensation. For more information, consult a tax professional.

You may be. There are two education tax credits — the American Opportunity credit, worth up to $2,500, and the Lifetime Learning credit, worth up to $2,000. To claim either credit in a given year, you must list your child as a dependent on your tax return. In addition, you must meet income limits.

For 2020, the maximum American Opportunity credit is available to single filers with a modified adjusted gross income (MAGI) below $80,000 and joint filers with a MAGI below $160,000. A partial credit is available to single filers with a MAGI between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000. For 2020, the maximum Lifetime Learning credit is available to single filers with a MAGI below $59,000 and joint filers with a MAGI below $118,000. A partial credit is available to single filers with a MAGI between $59,000 and $69,000 and joint filers with a MAGI between $118,000 and $138,000.

Now, what credit might you be eligible for? The American Opportunity credit applies to the first four years of undergraduate education and is worth a maximum of $2,500. It is calculated as 100% of the first $2,000 of your child’s annual tuition and related expenses, plus 25% of the next $2,000 of such expenses. To qualify for the credit, your child must be attending college on at least a half-time basis.

The Lifetime Learning credit is worth a maximum of $2,000 per year. It is calculated as 20% of the first $10,000 of your child’s annual tuition and related expenses. Unlike the American Opportunity credit, the Lifetime Learning credit is available even if your child is enrolled on less than a half-time basis.

One important rule to know is that you cannot claim both credits in the same year for the same student. As a result, you will need to determine which credit offers you the most benefit in a given year. In this analysis, there is an important distinction between the two credits. The American Opportunity credit can be taken for more than one child in a given year, provided each child qualifies independently. For example, if you have two children in college, one a freshman and the other a sophomore, you can take a $5,000 credit on your tax return. By contrast, the Lifetime Learning credit is limited to $2,000 per tax return, even if you have multiple children who would qualify independently in the same year.

When a separation or divorce occurs and the couple involved has one or more children, the noncustodial parent is usually ordered to pay some child support to the custodial parent. The child’s expenses over and above this sum are generally borne by the custodial parent. Whether you are paying or receiving child support, you should be aware of the federal income tax consequences. You are not taxed on child support that you receive, and you cannot deduct child support that you pay.

Payments will be classified as child support for federal income tax purposes if the divorce decree or separation agreement:

• Fixes a sum that is payable for the support of a child (this can be either a dollar amount or a specific fraction of a payment), or
• Provides that the amount payable by the payor-spouse to the receiving spouse will be reduced when a contingency relating to a child actually happens, or at a time that can clearly be associated with a contingency relating to a child

For example, John agrees to pay his ex-wife, Carol, $2,500 per month until she dies. (Note that the words child support are not specifically mentioned.) Carol has custody of their child, Justin. The divorce agreement states that upon a certain date, John’s required payment to Carol will decrease by $800. Because Justin will turn 18 within six months of the date on which the payment is scheduled to decrease, the payment reduction is assumed to be related to Justin’s reaching 18 years old. Therefore, the $800 per month reduction is treated as child support, regardless of the parties’ intent.

From a tax perspective, being a custodial parent can be advantageous in terms of claiming the child-care credit. In addition, the custodial parent can potentially qualify for head of household filing status.

The child and dependent care credit is a tax credit for up to 35 percent of certain expenses you paid to provide care for your dependent child, your disabled spouse, or a disabled dependent while you worked or looked for work. To be eligible for the credit, you must care for a qualifying person, incur work-related expenses, and have earned income.

A qualifying person is:

• Your dependent who was under the age of 13 when the care was provided and for whom you can claim an exemption, or
• Your dependent who was physically or mentally unable to care for himself or herself and for whom you can claim an exemption (or for whom you could have claimed an exemption but for the income test), or
• Your spouse who is physically or mentally unable to care for himself or herself, or
• In certain cases, a dependent claimed by a divorced spouse

Child and dependent care expenses must be work related to qualify for the credit. That is, the expenses must allow you to work or look for work. If you are married, you must file a joint tax return and both you and your spouse must generally work or look for work. (Your spouse is treated as working during any month he or she is employed, or is a full-time student, or is physically or mentally unable to care for himself or herself.)

Your child and dependent care credit is a percentage of a portion of your work-related expenses. The qualifying expenses on which the tax credit is based are limited to $3,000 for one qualifying dependent, and $6,000 for more than one qualifying individual. The percentage used in calculating the credit is gradually reduced as adjusted gross income (AGI) exceeds $15,000. If your AGI exceeds $43,000, your credit is limited to the minimum allowed by this law–20 percent of qualifying work-related expenses.

For additional details, consult a tax professional.

Alimony is a support payment made to a former (or separated) spouse under a divorce decree or separation instrument in an attempt to maintain the predivorce lifestyle. Alimony is sometimes called maintenance. Simply stated, for pre-2019 divorces, alimony is taxable income to the one who receives it and tax deductible to the one who pays it. However, the divorce agreement can designate alimony as nontaxable and nondeductible. For post-2018 divorces, alimony is no longer taxable income to the one who receives it or tax deductible to the one who pays it.

To be considered alimony under present tax rules, however, the payments must meet several requirements. These requirements include (but are not limited to) the following:

• All payments must be made in cash, check, or money order
• A written court order or separation agreement must exist regarding the alimony
• The order or agreement must not designate the payment as not being alimony (i.e., it cannot be designated as child support)
• The couple generally cannot live in the same household while alimony is being paid (although an exception applies in the case of payments to a separated spouse living in the same household if the payments are made under a written separation agreement, support decree, or other court order)
• The obligation to pay alimony cannot continue past the death of the payor-spouse
• The former spouses cannot file a joint tax return

You should also be aware of the alimony recapture rules. Because alimony may be tax deductible, some spouses are tempted to disguise property settlement payments as alimony. They might accomplish this by front-loading alimony during the first couple of years. That is, one spouse might agree to pay high sums of alimony during the first two years after the divorce, and to continue with normal payments thereafter. According to the alimony recapture rules (which are fairly complex), deductible alimony payments will be recharacterized as nondeductible property settlement payments to the extent that payments made during the first two years are excessively front-loaded.

For more information, consult a tax professional.