Category Archives: taxes

MA – Sales Tax on Automobile Sale Recision

In an effort to make deciding on an automobile easy, several manufacturers have set up what they call “a test drive”.  They give the buyer a certain time to return the vehicle for a full refund less a mileage charge and other fee.

In order to determine if it is worthwile taking the “test drive” it is important to know if the sales tax is refundable.  If not, in Massachusetts the “test drive” not only costs the mileage charge and fee, it will also cost 5% of the original purchase price.  That would make the “test drive” an expensive test.

Massachusetts has issued a policy on what effect the recision of an automobile purchase on the sales tax. In MA Directive 06-4 “The purchaser is entitled to an abatement of the sales tax if the vehicle is returned within 180 days of the date of the sale and the entire purchase price is refunded by the dealer, less the dealer’s established handling fee, if any. The handling fee must be reasonable, may be a flat fee or a percentage of the sales price, and may be established by the dealer’s customary policy or by written contract.”

“A mileage charge is not a vendor’s established handling fee. However, the imposition of a reasonable mileage charge will not preclude the return of a vehicle as being treated as a rescission for sales tax purposes, providing the other statutory criteria are met. The mileage charge will be treated as a charge for the rental or lease of the motor vehicle and as a new transaction subject to sales tax. The tax imposed on the mileage charge will be deducted from the amount of tax abated to the purchaser by the Department relating to the rescission.”

If you are not a resident of Massachusetts, you should check with your states sales tax department to determine how your state handles the sales tax on the recision of the automobile sales contract.

QuickBooks – Problems with Internet Explorer 7

One of my client’s One Eighty Business Solutions, LLC, has forwarded to me his November 2006 newsletter. In addition to his consulting information he has included information regarding the effect of Internet Explorer 7 on the QuickBooks software family. Here is an excerpt ftom his Newsletter:

“There is an update from Microsoft for Internet Explorer 7. There is an issue with QuickBooks which is an issue for any of the following versions:

The following QuickBooks financial software products will work with Internet Explorer 7.

  • QuickBooks 2007 and QuickBooks Enterprise Solutions 7.0
  • QuickBooks 2006 and QuickBooks Enterprise Solutions 6.0 when updated to Release 8
  • QuickBooks 2005 in a future update. Please check periodically for updates on a solution.
  • QuickBooks Online Edition
  • QuickBooks Point of Sale versions 4.0, 5.0 and 6.0

Note that unless otherwise noted, when we say “QuickBooks” we are talking about the Windows desktop versions of QuickBooks financial software, including Simple Start, Basic (last produced in 2005), Pro, and Premier. We also identify the corresponding version of Enterprise Solutions.

QuickBooks 2004 and prior versions will not function properly on Internet Explorer 7.

As your QuickBooks ProAdvisor®, I wanted you to know that Microsoft will soon be sending out an automatic update to Internet Explorer, replacing Internet Explorer 6 with Internet Explorer 7. This affects users of QuickBooks®: Simple Start, QuickBooks: Basic, QuickBooks: Pro, QuickBooks: Premier, and QuickBooks Enterprise Solutions.

I am recommending that you decline the Internet Explorer 7 upgrade if you are currently using any version of QuickBooks earlier than QuickBooks 2006 Release 8 or QuickBooks Enterprise Solutions 6, Release 8.

Intuit has posted more information for you at this link:

This approach will make sure that you are able to continue to use QuickBooks without any interruptions of the user experience.”


New Tax Legislation in 2006

Although the Internal Revenue Code of 1986 is tax code we use, the tax code is updated, both by statute and the court. It is only when the tax laws being changed are so dramatic that the year of the code is updated, 1954 was the prior code used.

2006 like every year has some new tax legislation.

On May 17, 2006 the Tax Increase Prevention and Reconciliation Act of 2005 was signed into law by President Bush. (TIPRA)

Some of the changes are as follows:

The Section 179 expensing of small business equipment purchases that increased the $25,000 annual limit to $100,000 adjusted for inflation was extended 2 additional years through 2007. In 2006 the limit adjusted for inflation is $108,000. If total purchases of equipment exceed $430,000 in 2006 the maximum deduction is reduced.
The 15% long-term capital gain and qualifying dividend rate that was to expire in 2008 has been extended through 2010.

Alternative Minimum Tax (AMT) – has been a sore issue for many people. The AMT requires that a higher than regular tax may be due because certain items are not deductible for AMT purposes. Taxes and Miscellaneous deductions are 2 that may have a big effect on the AMT. The tax law extends and increases the AMT exemption amount. In 2006 the AMT exemption is increased for individuals to $62,550 from $58,000 and $42,500 from $40,250. These amounts are subject to phaseout based on total Alternative Minimum Taxable Income.

Kiddie Tax – Prior to this year, the Kiddie Tax was for children under the age of 14, effective with 2006 the Kiddie Tax applies to children under the age of 18.

Conversions of Traditional IRA’s to Roth IRA’s:

After 2009, there will be not adjusted gross income (AGI) limit, currently $100,000, to convert a Traditional IRA to a Roth IRA. If converted in 2010, the income is reported 1/2 in 2011 and 1/2 in 2012.

On August 17, 2006, The Pension Protection Act of 2006 was enacted. Although you might not think that a pension law would include income tax laws, it does. Either amendments of tax laws are included on other bills or other laws are included in tax laws. It is a way to get certain items through a bill that might not go through separately. Congress and the President don’t want to appear against certain types of bills; therefore, Congress attaches an amendment, that the President doesn’t want, to a bill he does want.

The savers credit has been made permanent. The credit is for lower income taxpayers who save through retirement plans, 401(k), Traditional or Roth IRA’s, Simple, SEP IRA’S, qualified profit sharing, money purchased pension plans or Keogh plans.

The credit is 50% of the savings up to $2,000 of savings; up to a $1,000 credit. The credit phases out as income hits certain levels. The sliding scale credit is available for married filing jointly and single individuals at Adjusted Gross Income of $50,000 and $25,000, respectively. Savers Credit

Congress has approved that federal overpayments can be deposited directly into IRA accounts; however, the IRA laws have not been changed. If you file your income tax return on April 14th the IRS will not have time to get the IRA contribution paid before April 15th; therefore, your contribution would be late and not be tax deductible if it was for the year you file your return. I’d recommend to see if there are any changes or if there is a cutoff date set up by the IRS relative to getting the funds to the IRA custodian, bank or investment account.

Small not-for-profit organizations not required to file Forms 990 will have to notify the IRS annually that they exist. If they do not file for three years the IRS will terminate their tax exempt status. Without tax-exempt status contributions made will not be deductible by the contributors.

Charitable contributions of clothing and household items can only be deducted if they are in “good used condition or better” also, items with minimal value deductions may be denied by the Secretary of the IRS. Used socks and underwear are out (thanks to Bill Clinton, who put high values on his socks and underwear).

Retirement Plan Required Minimum Distribution

Anyone age 70 1/2 years old or older is required to take distributions from retirement plans. Retirement plans include Individual Retirement Accounts (IRA), profit sharing plans, 401(k) plans, 403(b) plans as well as SEP-IRA’s, Simple-IRA’s, SAR-SEP’s and Keogh Plans.

Roth IRA’s are not subject to the RMD rules.

Do not assume that your bank or investment broker will automatically distribute the required minimum distribution. If you forget to take the required minimum distribution or not enough of a distribution a 50% penalty may be charged.
In the year that a person becomes 70 1/2 years old, the person has a choice to postpone the distribution to April 1, of the next year. If the particpant in the plan postpones the prior years payment he or she will have to take 2 minimum distributions in the year you turn 71.

When deciding whether to postpone from one year to the next, it is important and should be determined on a case by case basis. If your tax bracket is higher in the year you become 71 versus the year you are 70 1/2, you may save more money by taking the distribution in the year you turn 70 1/2.

The Required Minimum Distribution (RMD) is calculated based on the value as of the first day of the year. The balance is divided based on your age on the Uniform Lifetime Table.

Other sites:


NY Life RMD Calculator

Painful Planning

It seems the last thing people want to do is plan for death. In addition to potential estate tax issues, especially in states that don’t follow the federal estate tax exemption, estate planning gives each individual the ability to say where and when his or her assets are to go. Estate tax planning can minimize if not eliminate estate taxes.

As a part of estate planning people with children below the age of majority can and should determine who will have custody of their child(ren) to raise them and support them if something happens to one or both parents.

In addition to wills, estate plans often use trusts both living trusts (inter vivos trusts)and trusts arising from wills (testamentary trusts).

Each type of trust has its own pros and cons. Living trusts allow assets to pass after the death of an individual without going through the probate function. However, the living trust can be expensive and the cost occurs at the setup not after death. Also, assets in an inter vivos living trust do not avoid estate taxes.

In addition to wills and or trusts that are set up, people should have both a living will (health care proxy) and a Durable Power of Attorney.

A living will (health care proxy) gives permission to another individual to make medical decisions in case you are unable. Included with a living will (health care proxy), I recommend that the individual include as part of the health care proxy or living will one’s wishes as to what to do under certain medical conditions. By providing an explanation of your desires in case of emergency, the designated individual is not making the decision, the designee is telling the doctors exactly what you want done.

This may also take away any potential guilt the designated individual might have if he or she has to decide your fate without any instructions.

Another important document to have is a Power of Attorney. A power of attorney gives the right of the individual appointed to act in place of the individual giving the powers. Unlike the living will, the power of attorney gives immediate rights to the named individual. The powers take effect immediately even though the individual may only wants you to have control if the grantor of the power is unable to perform his or her acts. One way to mitigate powers is to have a third party hold the power of attorney and give it to the grantee upon the grantors unability to conduct his or her business.

A Durable Power of Attorney is valid until the death of the individual and is in force while the individual is incapacitated where a power of attorney (not durable) is not effective if an individual is incapacitated.

For more information see the attached links:

What is estate planning?

Estate Planning Dictionary

What does a CPA do

A CPA is a public accountant (not someone who works doing his/her employer’s accounting, although larger companies may hire CPA’s as their controllers and CFO’s), and is licensed as a certified public accountant by the State Board of Public Accountancy where the exam is taken. In order to obtain the CPA license an accountant must pass a national examination and have the required accounting courses. A CPA generally must have 3 years of experience working for a certified public accounting firm.
By being certified, an accountant can perform audits on businesses financial statements. In addition, there are other financial statements that are not audited, Compilations and Reviews that CPA’s can perform. Each type of engagement has various requirements promulgated by the American Institute of Certified Public Accountants (AICPA).

Additionally, tax planning, both business and personal is an important part of many CPA’s repertoire. Most CPA’s prepare income tax returns for individuals, small closely held businesses, trusts, partnerships, limited liability companies as well as estates.

Some CPA’s also provide business consulting and negotiating, purchase and sales of a business, estate and financial planning.

For in depth info on what a CPA does and how he/she becomes a CPA see either the wikipedia website for CPA’s, AICPA website or various State Boards of Accountancy.

Charitable Deductions

On the radio you often hear how you can save money by donating car or other property to charity.  To get the deduction for the donation this year you must donate it before December 31, 2006.  Donating it after January 1 makes it a donation for 2007.
Donating a car to a charity may not be the most efficient way to dispose of the vehicle.

Before donating the car I would recommend that you check the used car values with Kelly Blue Book (KBB), National Automobile Dealer’s Association (NADA) or Edmunds. There you may be able to get an estimated value of your car, be realistic when you put in the condition of your car.

Also, since some states have a “Lemon Law” relating to sale of used cars, you may be responsible to pay for repairs even if you sold the car “as is”.  Therefore, you should take careful consideration as to the potential costs you may incur.

Ask a dealer what they will give you for a trade.

If you don’t want the hassle of disposing of your car or giving the dealer a bargain as a trade in, using one of the charities is an easy way to dispose your car and you will get a charitable deduction for the amount the charity receives on the sale of your car.

If the charity does not sell your car and uses it in its organization’s operation then you can use the estimated fair market value based on Kelly Blue Book, NADA or Edmunds.

Just remember that a deduction for a charitable contribution is an itemized deduction. If you don’t itemize deductions on your tax return, you may not save any taxes.

Also, the amount of tax you save will be a portion of the value of the deduction, depending on your tax bracket. If the car is worth $2,000.00 and you are in the 35% federal tax bracket you will save $700.00 in federal income tax. If your state allows you to deduct the contributions, you may save state taxes as well.


If you wait until after the year ends, there is very little if anything that can be done other than finding expenses that you forgot or never knew were deductible.

Now is the time to see if there are ways to minimize your personal income tax or business taxes for businesses with a calendar year end.  Sometimes minimizing income is not the answer.  If you have losses that cause you not to use all your itemized deductions and you have the ability to accelerate income increasing your income may be the correct answer.

Since medical expense is limited to a percentage of income earned, it may be a benefit to bunch up your medical expenses from the current to next or from next year back to the current.

If you will be buying glasses or contact lenses soon, it might make sense to buy them this year if your income is expected to be lower than next year’s income and you have a large amount of medical expenses this year or postpone the acquisition until next year if next year is when your income may be lower and medical expenses higher.

Also, if you have a windfall of income this year you may want to accelerate your charitable contributions for next year this year.

Certain itemized deductions are disallowed for alternative minimum tax (AMT) purposes.  Itemized deductions that are not deductible to reduce the AMT are taxes: state income or sales tax, real estate, personal property, auto excise and other miscellaneous taxes.  In addition to taxes most other deductions including unreimbursed business expenses, dues, tax preparation costs, investment fees, legal fees, etc.

Over the last several years more and more people have become subject to the alternative minimum tax.

Tax planning is as much an art as it is a science.


It is important to know that the IRS never sends unsolicited e-mails to taxpayers. 

These e-mails may look exactly like it might be coming from the IRS; however, the IRS never requests information over the internet to confirm social security numbers, bank account numbers or credit card information.   Be very suspicious, try to determine if the e-mail is coming from another entity.  When non government or financial institutes purport to be either the government or financial institutes they are phishing.  

If you are not sure if this is a legitimate e-mail check the reply address, if it does not appear to have the government name and .gov, or the financial institute’s name, or you are still not sure you should check with (call) the IRS, the government agency or financial institution that supposedly sent the e-mail.  Do not use the telephone numbers in the e-mail; check the yellow pages yourself.

The IRS telephone number is (800) 829-1040.  This phone number can be found in any telephone book or IRS office.  

Your personal identity is too valuable and every effort should be made to keep it private.

 Other places to look for information relating to Phishing are:

Federal Trade Commission (FTC) How Not to Get Hooked by a ‘Phishing’ Scam

Phishing and Pharming

Recognize phishing scams and fraudulent e-mails -Microsoft report

If you want to learn more about phishing scams, perform a search the web “phishing”.


Although most people think that an accountant’s final product, the tax return, is where all the work happens, the fact is the tax return is just the final product.  Determining how the tax return will look and what will be in it is really where the work occurs.  This occurs by Tax Planning.

 Tax planning is a tool that allows taxpayers to potentially and legally minimize their income taxes. 

The IRS’s mission is not to collect the most taxes from each person (although it tends to appear that way).  The IRS’s mission is to “Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all”. 

Therefore, each taxpayer has the right to use every tax law available to minimize their income taxes.

In some cases there may be no way to change the outcome of the income taxes.  Even in those cases, it is helpful to know how much money will be owed on April 15th.  In a case where there will be overpayments it may be possible to reduce federal and state withholdings or quarterly estimates. 

There is no requirement to give the government an interest free loan; however, there is a requirement to not underpay taxes either.

Taxplanning involves taking the actual year to date tax information and determine the additional tax transactions through the end of the year and prepare a tax calculation, a expected tax return.

From this expected or estimated  tax return, I can advise my client if they have the ability to control certain transactions, whether to accelerate or postpone income, expenses or equipment acquisitions.

Sometimes the tax planning is calculated to determine the tax that will be due if a certain business assets (buildings, equipment or businesses in general) are sold.

One thing I always explain to my clients, taxes should not be the only reason to determine if an investment should be sold.  The economics of the transaction should be the primary reason. 

An example of this if a stock is owned for less than 1 year (the sale of which would create a short term gain subject to regular income tax rates), should the investor wait until the stock becomes a long term capital gain to obtain the reduced tax rates (Tax Facts About Capital Gains and Losses).

If you are not sure if the investment will maintain its value it may make sense to sell it before it becomes a long term capital gain. 

The results of tax planning can provide advise relative to investment strategies.  Should the investor invest in more growth, municipal bonds or other investments.