Archive for category Boston Tax Attorney

Tax Planning 101

Though many people work or go into business to make a lot of money, when it is tax time, the purpose of tax planning is to arrange financial affairs to pay as little in taxes as possible. The three main ways to reduce your taxes is to reduce your income, increase deductions, and make use of tax credits.

To reduce income, Adjusted Gross Income (AGI) is what determines the amount of taxes a person needs to pay. Many tax calculations go off of the AGI. For instance, what you can deduct for medical expenses in the Schedule A depends if your AGI exceeds a certain amount. The tax rate and various tax credits depend on the AGI. AGI is a metric when it comes to your finances.

What goes into AGI is your income from all sources such as independent contractor work, salary, bank interest, less any adjustments to your income. The higher the total income, the higher the AGI. The more money a person makes, the more taxes you will pay. Reduce taxes by reducing your income. One way to reduce income is to contribute money to a 401(k) plan. Your contribution to a retirement plan reduces your wages. Notice the W-2 you get at the end of the year will show reduced income, and this lowers your tax bill. Another way is to obtain commuter checks if your employer offers this benefit. Rather than pay after tax, you pay before tax for bus, train, and other public transportation fares. If you pay a lot for medical expenses, consider contributing to a flexible spending plan. You pay for medical expenses before tax.

AGI can also be reduced with deductions. You can also buy medical insurance. If you are self-employed, you get to deduct your premiums. If you do not work for an employer that offers a 401(k) plan, you can contribute to an IRA retirement plan, and make income adjustments. If have student loans to pay, you can deduct the interest paid. There are deductions for alimony paid, and for teachers, they can deduct classroom related expenses.

Taxable income is what’s left after you have reduced your AGI by your deductions. Besides the deductions a person does not need to itemize, a person can reduce income even more with itemized deductions. These include expenses for health care such as doctor visits not covered by insurance, state and local taxes, personal property taxes such as vehicle registration fees, mortgage interest, contributions to charity, job-related expenses such as professional license dues, tax preparation fees, and investment expenses. Throughout the year, prepare for tax season by keeping track of your itemized expenses with receipts for meals out with business clients, mileage tracking for job interviews, and other records.

Your personal exemptions can reduce your income after you itemize deductions. The exemptions depend on your filing status and how many dependents you have. You can increase your personal exemptions by getting married or having more dependents such as having a baby.

After calculating the tax amount, use tax credits to reduce your tax. There are tax credits for college expenses, adoption, college expenses, and retirement.

Misclassification of Employees as Independent Contractors

The IRS is cracking down on businesses who classify workers as independent contractors, but who should be employees. In 2011, the IRS created a new program regarding workers misclassified as independent contractors or nonemployees. Businesses classify workers as independent contractors because they want to save on payroll tax.

The Voluntary Classification Settlement Program (VCSP) lets employers voluntarily reclassify workers as employees for future tax periods without an IRS audit context and outside the need to go through usual correction procedures. To keep businesses out of trouble with the Department of Labor (DOL) or state taxing authorities, the IRS advised people interested in the program that it will not share information about VCSP applications with the DOL or the states. This will incentivize people to reclassify because they will worry less about penalties from the DOL or the states, and in the end, the DOL and states win because as workers get reclassified, there are fewer worker complaints to the DOL, and more state tax revenue.

An employer contacted by the IRS about an SS-8 determination letter is eligible for VCSP, but an audit of a parent, subsidiary or member of the employer’s consolidated group is considered an audit of the applicant and would make the employer not eligible for VCSP.

Signing the VCSP closing agreement is not an admission of any liability or wrongdoing for prior years. Rejection of a VCSP application will not automatically trigger an audit. More details on VCSP are found at the IRS website:,,id=246014,00.html.

Recent studies suggest about 10% to 30% of employers misclassify their workers as independent contractors per the Internal Revenue Code 20-factor test. The DOL, the National Labor Relations Board, the Equal Employment Opportunity Commission, and states all use different tests to evaluate if a worker is an employee or an independent contractor. An employer may be able to justify classifying a worker as an employee in one context and at the same time, classify the worker as an independent contractor in another situation.

Misclassification can have significant financial consequences for businesses when audited. These consequences can put a company out of business and result in back taxes, penalties and interest. The financial consequences are calculated based on what a business should have paid for taxes had a worker been appropriately classified as an employee rather than an independent contractor.

For individuals or businesses with complex tax questions, contact an experienced Massachusetts tax attorney.

Massachusetts Sales & Use Tax

Since August 1, 2009, the Massachusetts sales tax percentage is 6.25 percent of the sales price or rental charge of tangible personal property or specified telecommunications products and services sold or rented in Massachusetts.

The sales tax generally is paid to the vendor as an addition to the purchase price. The purchaser pays the sales tax to the merchant at the time of purchase; the vendor then remits the tax to the Commonwealth. For automobile and trailer sales, however, the sales tax is paid directly to the Commonwealth by the consumer.

Since August 1, 2009, the Massachusetts use tax is 6.25 percent of the sales price or rental charge on tangible personal property 1 (including mail order goods or products purchased over the Internet) or specific telecommunications services on which no sales tax, or a sales tax rate less than the 6.25 percent MA rate, was paid and which is to be used, stored or consumed in the commonwealth. The use tax, unlike the sales tax, usually is paid specifically to the state by the purchaser.

Case in point: You order household furniture for your MA enterprise or residence from an out-of-state firm and pay no MA or other state sales tax. You are compelled to pay the 6.25 percent Massachusetts use tax. The use tax applies because the items were not exposed to a sales tax in the other state and because it is for use in the commonwealth.

Concrete individual property involves electronically transferred software.Telecommunications services consist of telephone and other transmissions of data (such as beeper services, cellular telephone services and telegram services). Cable television and Internet access are exempt from the sales tax. Usually, the tax on the sale or use of telecommunications services is a tax on the transmission of messages or information by various electronic means, but not on the sale or use of data itself.

The Greater Boston Chamber Releases Its Third Competitiveness Scorecard

The Greater Boston Chamber released its third Competitiveness Scorecard, analyzing cost and competitiveness issues facing the Massachusetts economy. This edition focuses on the state’s corporate tax burden and business climate competition. Here are a couple findings:

“In FY 2009, Massachusetts’ corporate tax burden was the 8th highest in the country. This burden is 39% higher than the national average, and higher than a number of states that compete with the Commonwealth for job growth and business expansion. To cite just a few examples, compared to Massachusetts’ corporate tax burden Colorado’s is 76% lower, Connecticut’s is 63% lower, North Carolina’s is 55% lower, and Maryland’s is 40% lower. More examples are provided in the Scorecard.
In FY 2010, Massachusetts ranked the 4th worst on the Tax Foundation’s corporate tax index. The Tax Foundation, a nonpartisan, nationally-recognized tax research organization, bases its index ranking on a formula that weighs corporate income tax as well as policies governing net operating losses (NOL), credits, deductions and exemptions, and related tax base issues.”

Source: Greater Boston Chamber of Commerce Blog

McLane Law Firm Welcomes Richard M. Stone

April 19, 2010, Manchester, NH and Woburn, Massachusetts – The McLane Law Firm welcomes attorney Richard M. Stone to its TradeCenter 128 office location in Woburn, MA.

About the McLane Law Firm

Founded in 1919, the McLane Law Firm is one of New England’s premier full-service law firms with offices in Manchester, Concord and Portsmouth, New Hampshire, as well as Woburn, Massachusetts. Driven by the firm’s depth of sophisticated legal expertise and an unwavering commitment to client service, McLane has built collaborative and lasting relationships with a broad spectrum of domestic and international clients.

Leaders In Opposition To Proposed Ballot Cutting Massachusetts Sales Tax

Leaders are concerned that a proposal in place to cut the state sales tax to 3% would mean devastating cuts in state and municipal services. If approved, it would cost the state about $2.34 billion in revenues.

Another ballot proposal will get rid of the 6.25 percent sales tax on the retail sale of beer, wine and alcohol. If passed, this would cut $100 million in revenues each year from state government.

The concern is that the loss in revenue by the tax cut would be crippling to local government services.

You can read more about the tax cut proposals here.