Blog Archives - Page 2 of 16 - Merrimack Tax Associates

How is a Pension Taxed During Retirement Amherst, NH Resident Has Questions

Written by Paul Belfiore on June 12, 2025. Posted in Blog, Taxes.

Pensions are a great employer sponsored way to fund retirement. These typically provide monthly payments once you retire, making for an excellent source of income in your golden years in addition to other retirement savings and Social Security benefits. Your pension payments are taxed based on the rules of the state where you live, not where the money was earned. Each state has its own tax rules surrounding pension taxes. The rate of tax that you pay on this money will also vary from state to state, with some states charging taxes on pension income for earners above a set adjusted gross income only. One of the big advantages for residents of New Hampshire, as well as a handful of other states, is that the money from your pension is not taxable.

An Amherst resident was excited to retire from her job with an employer sponsored pension. Not wanting any surprises when it came time to receive the money, she contacted the team at Merrimack Tax Associates regarding questions about how these payments would be taxed.

States with No Retirement Taxes

There are several states that do not tax retirement income, including pensions. In other cases, a state may require a tax on this money only if your income is over a certain level. New Hampshire, a state with no income tax, does not require you to pay taxes on retirement income. This includes Social Security benefits, pensions, IRAs, and 401(k) withdrawals. This is a tremendous advantage to retiring to New Hampshire, and one that can add up to some big tax savings.

In Massachusetts there is a flat rate of 5% tax on retirement income. This does not apply to Social Security benefits, but most pensions are taxable at this rate with the exception of some government and public pensions that may be tax-exempt. IRAs and 401(k) withdrawals are also taxable in Massachusetts.

Other states have their own rules and regulations for taxing retirement income. The Amherst resident was pleased to hear that the IRS would not be taking a chunk of her pension each month for taxes since she was a New Hampshire resident. She can now enjoy the quiet retired life in comfort.

How Non-Cash Winnings are TaxedHudson, NH Resident Learns the Hard Way

Written by Paul Belfiore on June 4, 2025. Posted in Blog, Taxes.

It can be exciting to win anything from a raffle prize to much larger winnings like vehicles and electronics. However, even these non-cash items that you win are taxed by the IRS. These items are taxed at your normal tax rate for the estimated value of the item at the time of winning. In many cases the organization that gives the prize will be reporting your win to the IRS. Then if you fail to report this on your taxes and thus pay your portion in taxes on the prize, you may find yourself being hit with a penalty and audit from the IRS.

A Hudson resident was so excited to win a brand-new car in a local giveaway. However, the shock came when she discovered that she would have to pay taxes on the value of the vehicle. This added up to a significant amount of money that she had not anticipated owing to the IRS.

Reporting Your Winnings on Your Tax Return

Whether a cash windfall or some other item of significant value, you will need to report this win on your taxes using IRS Form 1099-MISC. While cash won is very straightforward, taxed at your regular rate, a non-cash win can be a little bit trickier. The items that you win will be taxed at their estimated value. For larger items, the amount of tax owed can be quite substantial and burdensome when you have to pay the tax money. When you win a high-value non-cash item, you will want to make sure you take the tax implications into consideration.

Ways to Reduce the Tax Burden of Your Non-Cash Winnings

Winning is great, but if it isn’t something that you want or need it can feel more like a detriment when you have to pay taxes than an actual win. If this is the case, you can donate the items to charity. As long as you are itemizing your deductions, this can then be used as a charitable contribution deduction which will offset the taxes owed on the item. You can also refuse the prize. By not taking possession of the item you have won, you will have no tax obligations regarding it.

If you do find yourself on the winning end of a non-cash prize that is of significant value, it is a good idea to consult a tax professional. For the Hudson resident, the team at Merrimack Tax Associates was able to discuss the tax implications of her win and the best way to plan ahead so that there wouldn’t be any surprises from the IRS.

What is Tax Debt Relief and How Can It Help You?

Written by Paul Belfiore on May 30, 2025. Posted in Blog, Taxes.

Brookline, NH Resident Seeks Help from Her Tax Burden

The IRS offers tax debt relief for those that owe money in taxes but cannot afford to pay it all back in one lump sum. One of the most common forms of tax debt relief is an IRS payment plan. This can be a short-term or long-term plan to make it more manageable to pay off your tax debt. Another option is to negotiate the amount you owe, in an effort to bring down the total, by applying for an OIC (offer in compromise). If accepted by the IRS, this can reduce your total debt and lay out a payment plan that works for you.

How Do EV Tax Deductions Work?

Written by Paul Belfiore on May 16, 2025. Posted in Blog, Taxes.

Milford, NH Resident Has Questions

The EV tax credit is a federal tax advantage for those that purchase a new or used electric vehicle. New electric vehicles can offer a tax deduction of up to $7,500, while car buyers purchasing a used EV may quality for up to $4,000 in tax deductions. Buyers can opt to claim this credit when filing their taxes or they have the option to transfer the credit to an eligible car dealer and choose an immediate discount on the purchase of the vehicle in lieu of a future tax deduction. There are income limits for taking advantage of this tax deduction. To qualify for a new EV tax deduction, single filters must have an income below $150,000 and below $300,000 for those filing jointly. The used EV tax deduction is only available for single filers with an income below $75,000 and $150,000 for married couples filing jointly.

Common Tax Penalties and How to Avoid Them

Written by Paul Belfiore on April 25, 2025. Posted in Blog, Taxes.

Litchfield, NH Resident Looks for Advice

One of the most common penalties that taxpayers incur from the IRS is the failure-to-file penalty. If taxes, or an extension, are not filed by the tax deadline and there is money owed a penalty totaling 5% of the taxes owed from the return will accrue each month. This dollar amount is capped at 25% of the owed taxes and there is a minimum penalty for tax money paid within 60-days. Failure-to-pay is another common tax penalty that occurs if taxes are filed but owed money is not paid, or an extension filed, by the tax deadline. This penalty is 0.5% of the money owed, also capping at 25%. Regardless of being a day late or 30 days late, both the failure-to-file and failure-to-pay penalties will be charged for a full month minimum.

What to Do If Your Bank Account Number is Incorrect for Your Tax Refund

Written by Paul Belfiore on April 11, 2025. Posted in Blog, Taxes.

Milford, NH Resident Starts to Panic

Most Americans have their tax refund deposited directly into a bank account. This saves time in receiving your money and eliminates the potential of the refund getting lost or further delayed in the mail. But what if you erroneously provide the banking information for your refund to be deposited, or the account number has changed? If the IRS tries to deposit your tax refund into a bank account that does not exist or cannot be validated, a paper refund check will automatically be issued and mailed. This process can delay the refund significantly, oftentimes as much as ten weeks from the date of the attempted deposit.

Reasons Why You May Need to File for a Tax Extension

Written by Paul Belfiore on March 28, 2025. Posted in Blog, Taxes.

Amherst, NH Resident Begins to Worry

In many situations filing for a tax extension is a very smart move, particularly with the April tax deadline looming. It is important that your tax return be complete and error-free. Tax filers that need more time to prepare the documents and gather their numbers may find it advantageous to file an extension rather than scrambling at the last minute to piece everything together, putting themselves at risk for making an error. This is particularly true if you want to seek the advice of a tax professional. Giving yourself, and your tax preparer more time, can make sure your paperwork is filed properly.

Are You Responsible for Incorrect Tax Documents Sent to You?

Written by Paul Belfiore on March 14, 2025. Posted in Blog, Taxes.

Hudson, NH Resident Find a Big Mistake

You should not take for granted that all of the paperwork that you receive for your taxes is correct. This includes a W2 issued by the employer and Form 1099s for those that are self-employed or gig workers. Mistakes made on these forms can happen due to human error. If this isn’t caught, and corrected, prior to filing your taxes you may be hit with an IRS audit. If you receive an incorrect tax form, you will need to contact the issuer of the form regarding the mistake. You can request a corrected form be sent to you, making sure the “corrected” box is checked so that the IRS knows that this is an amended form. Waiting too long or failing to request this correct documentation can put you at risk in the future.

What is a Tax-Advantaged Account?

Written by Paul Belfiore on January 31, 2025. Posted in Blog, Taxes.

Brookline, NH Resident Looks to Understand This Frequently Used Term

A tax-advantaged account refers to any type of investment or savings account that is either exempt from taxes, tax-deferred, or offers some other type of tax savings unique to the type of account. The way these accounts work vary significantly, but all will offer some type of tax advantage. Some of the most common include retirement plans, education plans such as a 529, and health plans like a Health Savings Account (HSA).

What is Tax Loss Harvesting?

Written by Paul Belfiore on January 17, 2025. Posted in Blog, Taxes.

Amherst, NH Resident Looks for Ways to Reduce Capital Gains Tax

Tax loss harvesting is an effective strategy for investing that you can use all year long in an effort to reduce the amount of capital gains taxes owed on your earnings. This practice is offsetting capital gains with capital losses and can make a big difference in the amount of taxes owed each quarter from the sale of your investments. Not all investments are going to perform as well as you like. When you sell one for a profit, while also selling an under-performing investment at a loss, this will help to balance the taxes you owe in capital gains.