When it comes to reducing your tax burden while preparing for healthcare expenses, Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) can be powerful tools. While both accounts allow you to pay for qualified medical expenses with pre-tax dollars, they operate differently and offer distinct tax advantages depending on your financial situation and health coverage. Understanding how these accounts work can help you make more informed decisions during open enrollment and throughout the year.

A Milford resident was looking to start the year off on the right foot, by utilizing the HSA and FSA accounts offered by her employer. But first she wanted to have a better understanding of the tax advantages of each. For this, she contacted the team at Merrimack Tax Associates.

The Tax Advantages of Health Savings Accounts

An HSA is available to individuals and families enrolled in a high-deductible health plan (HDHP). What makes HSAs especially attractive is their unique “triple tax advantage,” a benefit not found in many other savings vehicles. Contributions to an HSA are tax-deductible or made pre-tax through payroll, reducing your taxable income for the year. Funds in an HSA grow tax-free. Any interest, dividends, or investment gains earned within the account are not taxed, allowing your balance to compound over time. Withdrawals used for qualified medical expenses are also tax-free. This includes costs such as doctor visits, prescriptions, dental care, vision services, and many other healthcare expenses.

Any unused funds roll over from year to year with no expiration. Many people even use HSAs as a long-term savings strategy, allowing balances to grow and be used later in retirement for healthcare costs, which are often a significant expense in later years.

The Tax Advantages of Flexible Spending Accounts

FSAs are typically offered through employers and allow employees to set aside pre-tax dollars for eligible medical expenses. Like HSAs, contributions reduce taxable income, resulting in immediate tax savings. One key benefit of an FSA is that the full annual election is available at the beginning of the plan year, even though contributions are made gradually through payroll deductions.

FSAs can be used for a wide range of out-of-pocket healthcare costs, including copays, deductibles, prescriptions, and certain over-the-counter items. Some employers also offer dependent care FSAs, which allow pre-tax dollars to be used for childcare or elder care expenses.

FSAs come with stricter rules. Most are subject to a “use-it-or-lose-it” provision, meaning unused funds may be forfeited at the end of the plan year. Some plans offer a grace period or allow a limited amount to roll over, but these features vary by employer and plan design.

Choosing the Right Account for You

Both HSAs and FSAs provide valuable tax savings, but the best option depends on your health plan, spending habits, and financial goals. HSAs are often ideal for those who want long-term flexibility and the ability to save for future medical costs, particularly if they are comfortable with a high-deductible plan. FSAs may be better suited for individuals who expect predictable medical expenses within the year and want immediate access to funds.

In some cases, it may even be possible to use both accounts, depending on plan rules and eligibility. Working with a tax professional can help you evaluate how these accounts fit into your overall tax and financial strategy.

This Milford resident now has a better understanding of how each account works and the opportunity to offer plenty of tax advantages for each.

Individual Retirement Accounts (IRAs) are a cornerstone of retirement planning, but not all IRAs are taxed the same. Two of the most common options, Traditional IRAs and Roth IRAs, each offer distinct tax advantages that can significantly impact both your current tax bill and your future retirement income. Understanding the key tax differences between these accounts can help taxpayers make more informed decisions when planning for the long term.

A Manchester resident was just starting off in his career. Understanding the importance of planning for retirement early, he wanted to start off on the right foot but wasn’t sure which account would be the best option. For a better understanding, he reached out for advice from the team at Merrimack Tax Associates.

The Benefits of a Traditional IRA

A Traditional IRA is designed to provide an upfront tax benefit. Contributions may be tax-deductible, depending on your income level and whether you or your spouse are covered by an employer-sponsored retirement plan. When contributions are deductible, they reduce your taxable income in the year they are made, which can result in immediate tax savings. However, the tax advantage of a Traditional IRA is deferred rather than eliminated. Withdrawals in retirement are taxed as ordinary income, regardless of whether the funds come from contributions or earnings. This means the money you take out later will be subject to income tax at your tax rate at the time of withdrawal.

Traditional IRAs are also subject to required minimum distributions (RMDs). Beginning at the age mandated by current tax law, account holders must start withdrawing a minimum amount each year, whether they need the income or not. These required withdrawals can increase taxable income in retirement.

The Benefits of a Roth IRA

A Roth IRA operates in the opposite way from a tax standpoint. Contributions are made with after-tax dollars and are not deductible. While this means there is no immediate tax break, the long-term benefits can be substantial. The primary tax advantage of a Roth IRA is that qualified withdrawals are completely tax-free. This includes both contributions and earnings, provided certain requirements are met, such as holding the account for the required period and reaching the appropriate age. Because withdrawals are not included in taxable income, Roth IRAs can provide significant flexibility in retirement tax planning.

Another notable tax advantage is that Roth IRAs are not subject to required minimum distributions during the account owner’s lifetime. This allows funds to remain invested and continue growing tax-free for as long as the account holder chooses. This feature can be particularly valuable for individuals who do not need the funds immediately and want to manage taxable income in retirement more strategically.

Choosing the Right Strategy for Your Retirement Savings

From a tax planning perspective, the decision between a Traditional IRA and a Roth IRA often comes down to when you want to pay taxes. A Traditional IRA generally benefits taxpayers who expect to be in a lower tax bracket in retirement than they are today. In contrast, a Roth IRA may be more attractive for those who anticipate higher tax rates in the future or who value tax-free income later in life. Income limits also play a role. While anyone with earned income can contribute to a Traditional IRA, the deductibility of those contributions may be limited. Roth IRA contributions are subject to income thresholds, which can restrict eligibility for higher earners.

Working with a tax professional can help ensure your retirement contributions align with your overall tax strategy, allowing you to balance current tax savings with future tax efficiency and maximize the benefits available under the tax code.

The Manchester resident was pleased to gain a better understanding of his options for saving for retirement. With the help of Merrimack Tax Associates, he was able to choose the right retirement account for his situation.

Your tax withholdings, the amount your employer deducts from your paycheck for federal and state income taxes, play a big role in whether you owe money or receive a refund at tax time. Many people set their withholdings once and never revisit them, but life changes quickly, and your financial situation often changes with it. Adjusting your withholdings can help you avoid unpleasant surprises when you file your return or prevent the IRS from holding onto your money interest-free all year.

A Nashua couple had received a large tax refund the previous year. Concerned that their tax withholdings were not properly set up, they sought advice from the team at Merrimack Tax Associates.

Top Signs that Your Withholdings Should Be Revisited

You Owed a Big Tax Bill or Got a Large Refund Last Year

If you were surprised by the size of your tax bill or refund last year, that’s a major indicator your withholdings aren’t aligned with your actual tax liability. Owing money to the IRS means too little was withheld, while a large refund means too much was withheld throughout the year. Ideally, your goal should be to break even, getting a small refund or owing a small amount.

You Started a New Job or Changed Employers

Each employer is responsible for withholding taxes based on your W-4 form. If you’ve recently changed jobs, make sure you filled out your new W-4 correctly. If you’re working multiple jobs or your spouse also works, the combined income could push you into a higher tax bracket, meaning your withholdings may need to increase to avoid underpayment penalties.

You Got Married or Divorced

Marital status significantly affects your tax situation. Getting married might move you into a new tax bracket or make you eligible for certain deductions. Conversely, divorce can mean losing credits or dependents that previously lowered your tax bill. In both cases, updating your W-4 with your current filing status ensures that your withholdings accurately reflect your new situation.

You Had a Baby or Can No Longer Claim a Dependent

Having a child typically increases your eligibility for credits like the Child Tax Credit and the Earned Income Tax Credit. On the other hand, if your child turned 18, graduated, or is no longer

a dependent, your tax situation changes in the opposite direction. These shifts directly affect your tax liability, making it essential to adjust your withholdings accordingly.

You Took on a Side Gig or Freelance Work

Side gigs and self-employment income don’t have automatic tax withholdings. If you’re earning extra money outside your regular paycheck, you might need to increase your withholdings on your main job or make estimated quarterly tax payments. Ignoring this step could result in a large balance due at tax time.

When you experience one of these life changes, it is important to revisit your tax withholdings. The IRS W-4 form was designed to make adjusting your withholdings easier. A quick review once or twice a year, especially after big life changes, can help you avoid costly surprises and keep more of your money in your hands. The Nashua couple was able to make the necessary changes to their W-4 with their employers and can expect to have a more accurate amount of taxes withheld in the future.

As the year winds down, many employees look forward to well-deserved bonuses or long-awaited pay raises. While these rewards recognize your hard work, they can also come with some unexpected tax consequences. Before you start spending that extra income, it’s worth understanding how bonuses and salary increases are taxed, and what you can do to keep more of your money in your pocket.

A Hudson, NH resident was anticipating a large bonus from his employer at the end of the year. Before planning what to do with the money, he wisely checked in with Merrimack Tax Associates to get a better understanding of the tax implications.

Understanding How Bonuses Are Taxed

Bonuses are considered supplemental income by the IRS. That means they’re taxed differently than your regular wages. Most employers use one of two methods to calculate taxes on bonuses:

The Percentage Method:

Under this method, your employer withholds a flat 22% federal tax rate on your bonus. This rate applies no matter how large or small the bonus is. Keep in mind that this is just for federal income tax, you will still owe Social Security, Medicare, and state income taxes where applicable.

The Aggregate Method:

In this approach, your employer adds your bonus to your most recent paycheck and withholds taxes as if it were one large payment. This can push your income into a higher bracket temporarily, leading to a higher withholding amount. However, if your overall income for the year doesn’t land in that higher bracket, you may get some of that money back when you file your return.

Other Tax Factors to Consider

Bonuses and raises can have a ripple effect on other parts of your tax situation. Here are a few things to keep in mind:

Retirement Contributions:

A higher income might make you eligible to contribute more to your 401(k) or IRA. Contributing extra before the year ends can help lower your taxable income.

Tax Credits and Deductions:

Some tax credits, like the Child Tax Credit or Earned Income Tax Credit, phase out as your

income increases. If a raise or bonus pushes you above those thresholds, your eligibility could decrease.

Withholding Adjustments:

If you expect to receive a large bonus or have multiple income sources, adjusting your withholdings now can prevent underpayment penalties later.

A year-end bonus or raise is always a reason to celebrate, but it’s also an opportunity to plan wisely. Understanding how these extra earnings are taxed helps you make informed decisions about spending, saving, and withholding. By reviewing your tax situation now, you can turn that reward into a long-term financial advantage.

The Hudson resident now has a better understanding of how his end of year bonus will be taxed, ensuring that there won’t be any surprises when it is time to file his taxes.

The U.S. tax code provides several deductions and tax credits designed to ease the financial burden of hiring, incentivizing employers to expand their workforce. From the Work Opportunity Tax Credit (WOTC) to the Disabled Access Credit, understanding and leveraging these hiring-related tax benefits can improve your business’ bottom line while supporting growth.

A business owner in Hudson was looking to grow his business, bringing on several new employees. Curious if there might be any tax benefits associated with this hiring, he contacted the team at Merrimack Tax Associates for advice.

Tax Credits for Hiring Certain Employees

One of the most well-known hiring incentives is the Work Opportunity Tax Credit (WOTC). This credit is available to employers who hire individuals from specific target groups that traditionally face barriers to employment, such as veterans, long-term unemployment recipients, ex-felons, or individuals receiving government assistance. The WOTC can reduce an employer’s federal tax liability by a substantial amount, sometimes thousands of dollars per qualifying employee, depending on wages paid and the target group category. Employers need to complete IRS Form 8850 and submit it to the state workforce agency to certify eligibility.

Another important credit to consider is the Disabled Access Credit, which indirectly benefits hiring. While it is primarily focused on making workplaces accessible for employees or customers with disabilities, it allows small businesses to claim a tax credit for expenditures that improve accessibility. When hiring employees with disabilities, costs incurred to adapt the workspace may be partially offset by this credit, making inclusive hiring both socially responsible and financially advantageous.

Deductible Hiring Expenses

Beyond tax credits, employers can deduct several hiring-related expenses directly from their taxable income. Costs associated with recruiting new employees such as job advertising, background checks, and recruiter fees are generally deductible as ordinary and necessary business expenses. Training and onboarding expenses are another area where deductions are available. Employers can deduct costs related to new employee orientation programs, training materials, and even certain educational seminars or workshops.

Strategic Planning for Maximum Benefit

To make the most of hiring-related tax deductions, proper documentation and strategic planning are essential. Employers should maintain thorough records of all recruitment, training, and onboarding expenses, along with any forms submitted to claim tax credits like the WOTC. Working with a tax professional like Merrimack Tax Associates can ensure that no eligible deductions or credits are overlooked, and that filings are completed accurately and on time. By proactively tracking expenses and understanding the available credits, businesses can reduce their tax liability while making new hires more affordable.

By understanding and taking advantage of these hiring-related tax incentives, businesses can grow their workforce responsibly, support employee development, and enhance overall financial efficiency. Proper planning, documentation, and consultation with tax professionals ensure that employers maximize every available benefit, turning the cost of hiring into a strategic investment in their future. The business owner in Hudson now has the understanding and information to move forward with his hiring plans, while paying attention to possible tax deductions in the process.

Every year, vehicle owners receive an excise bill often referred to as car tax, road tax, or vehicle excise duty (VED). While many taxpayers treat it as just another bill to pay, vehicle excise documentation is actually an important piece of evidence for tax and financial recordkeeping. For accountants and clients alike, having the vehicle excise bill at tax time ensures compliance, supports accurate deductions where applicable, and provides clarity for both personal and business vehicle expenses.

An Amherst resident, diligent about maintaining her tax paperwork all year, had recently received the excise bill for her vehicle. As she set this documentation aside with her other paperwork, she couldn’t help wondering why this was a necessary part of her tax return. The team at Merrimack Tax Associates was happy to answer her question.

Proof of Compliance and Accurate Recordkeeping

The vehicle excise bill is official proof that road taxes have been paid for a particular vehicle. For businesses that operate company cars or vehicles for work purposes, maintaining these bills is essential for accurate financial reporting. The bill typically shows the vehicle registration number, tax period, amount paid, and the class of vehicle. When filing taxes, accountants use this information to reconcile vehicle-related expenses, ensuring that all payments are accounted for and that the client is compliant with government regulations.

Without the vehicle excise bill, there is no clear record that the duty has been paid. This can be problematic if tax authorities request verification of business vehicle expenses or if an audit occurs. Maintaining organized excise bills helps accountants provide proof quickly, avoiding unnecessary penalties, fines, or questions from regulatory authorities. Even for personal tax purposes, having a record of vehicle excise payments can help establish legitimate expenses for those who use their personal vehicle for work-related travel and may claim mileage or other deductions.

Supporting Business Vehicle Deductions

For businesses, vehicle excise bills also play a role in maximizing eligible deductions. Company-owned vehicles or vehicles used for business purposes often have associated costs that are deductible, including fuel, insurance, and maintenance. In some cases, vehicle excise duty itself can be deductible if the vehicle is exclusively used for business purposes. Having the excise bill ensures that the expense is properly documented, supporting any deductions claimed on tax returns.

Accurate records also help accountants differentiate between personal and business use. For example, a business that provides cars to employees must be able to demonstrate which vehicles are used for work-related travel and the taxes paid for those vehicles. Excise bills serve as part of this documentation, allowing for clear, defensible reporting in case of audits or inquiries. Without them, deductions may be questioned or disallowed, potentially increasing tax liability for the business.

Vehicle excise bills are more than routine payments, they are proof of compliance, a critical piece of documentation for business vehicle deductions, and an important tool for organized financial management. Whether for personal or business purposes, maintaining these bills and providing them to your accountant at tax time ensures accurate reporting, supports potential deductions, and safeguards against regulatory issues. The Amherst resident now has a better understanding about why she is saving this important paperwork, giving the incentive for her to continue her diligence.

Buying a home is one of the biggest financial decisions you’ll ever make. Beyond the excitement of this tremendous purchase, homeownership also makes available important tax deductions that can impact your overall tax bill. The tax advantages of homeownership can go a long way to reducing your overall bill at the end of the year. Mortgage interest deduction, property tax deduction, and points paid at closing can all significantly reduce the amount of money you pay in taxes.

A resident in Amherst had just purchased his first home. He was excited to begin this journey into homeownership and had many questions. One of these was whether there would be any tax implications regarding purchasing a home. Looking for information, he contacted the team at Merrimack Tax Associates.

Tax Deductions Available for Homeowners

One of the biggest tax advantages of homeownership is the mortgage interest deduction. If you itemize your deductions, you may be able to deduct the interest paid on your mortgage over the course of the year. For many homeowners, this can be one of the largest deductions they take each year. The IRS allows homeowners to deduct state and local property taxes, up to a combined limit of $10,000 for joint filers per year or $5,000 for those single filers. This deduction can help offset the cost of owning a home, particularly in areas with high property taxes.

The Importance of Maintaining Good Record to Take Advantage of These Deductions

While these tax breaks can add up, they’re only as valuable as the records you keep. It is important to save your closing documents, mortgage statements, and receipts for home improvements projects (these ongoing projects will reduce your capital gains tax when you sell the property in the future). Having thorough documentation makes it easier to claim deductions and ensures you don’t miss out on potential savings.

It is important to understand the tax deductions that buying a home can offer you. The new homeowner in Amherst was pleased to learn purchasing a home would now make him eligible for even more potential tax deductions. With this information, he will be ready to save when he goes to file his taxes at the end of the year.

There is a lot that goes into running a small business. One area that many small businesses commonly overlook is tax credits that they may be entitled to. Unlike deductions, which reduce taxable income, tax credits directly reduce the amount of tax owed. That means tax credits can provide real savings. Many times, small businesses are not even aware of these potential tax credits, leaving them paying more in taxes than they should.

A small business owner in Nashua was concerned about the amount of her business’ revenue that was going to taxes. Hoping to find ways to reduce her overall tax bill, she contacted the team at Merrimack Tax Associates for recommendations.

Tax Credits Available for Small Businesses

Many business owners assume the R&D (Research and Development) credit is only for tech companies or large corporations, but that is not the case. If your business develops new products, improves processes, or creates prototypes, you may qualify for this credit. Even activities like testing new software, improving packaging, or streamlining operations could make you eligible for this money-saving credit.

If you have hired employees from certain groups that face barriers to employment, including veterans, long-term unemployment recipients, or individuals receiving government assistance you may qualify for the Work Opportunity Tax Credit. This credit is worth up to $9,600 per employee, depending on the category and hours worked.

If you’ve made your business more accessible to customers with disabilities through improvement projects such as installing ramps, modifying restrooms, or providing accessible technology, you may qualify for the Disabled Access Credit. This credit is designed to help small businesses cover the costs of compliance with the Americans with Disabilities Act.

Starting a retirement plan for your employees doesn’t just benefit them, it can also benefit your business. The IRS offers a tax credit to small businesses that establish retirement plans like a 401(k) or SIMPLE IRA for employees. This credit helps cover the setup fees and administrative costs.

Tax credits can provide significant savings, but many small business owners miss out simply because they don’t know what is available. Each credit comes with specific rules and qualifications, so it is important to review your situation carefully. The Nashua business owner was pleased to learn about these potential tax credits that can reduce her tax bill in the future.

There are plenty of things to think about when selling your home, from where you will go in the future to coordinate the moving of your items and actual closing of the sale. One thing that you may not immediately think about is how selling a home can affect your taxes. Depending on appreciation of your home, you may be required to pay capital gains taxes. The good news is that homeowners are exempt from this tax if the capital gains amount is under $250,000 for single filers and $500,000 for married couples filing jointly. This exemption only applies to homes that are your primary residence and can only be used once every two years.

A homeowner in Hudson had lived in his current residence for many decades. Finally ready to move on, he was concerned about how the increased value of his home would impact his taxes. He contacted the team at Merrimack Tax Associates with this question.

Calculating Capital Gains Tax on the Sale of a Home

Beyond the threshold of $250,000 or $500,000 exemption for joint filers, the increase in the house sale vs. the price it was bought at is taxed as capital gains. In most cases, a home sale is considered long-term capital gains. Depending on your tax rate this can range anywhere from 15% to 28%.

Home Improvement Deductions Can Reduce the Capital Gains Tax on a Home Sale

One useful way to offset some of the capital gains, reducing your tax bill, is by deducting home improvement projects that have been done to the home during your ownership. To qualify for this deduction, this must be home improvement projects as opposed to home repairs. Items that would qualify to reduce the capital gains tax include additions, interior remodeling projects, installing new plumbing or electrical system and many others. In general, when these improvements are lasting more than a year and are not simply repairs, they qualify for this deduction. Keeping track of these home improvements over the duration of your time in the home can significantly decrease, or even eliminate, any necessary capital gains taxes.

The Hudson homeowner was pleased to hear that he had options to reduce his tax bill when selling the home. He has already begun the task of gathering his records of home improvement projects over the years in preparation for selling his home.

The One Big Beautiful Bill Act was just passed in 2025. This has some important tax changes that will affect most people in some way. The standard deduction saw an increase in the bill to $15,750 for single filers and $31,500 for married couples filing jointly. The Child Tax Credit also increased, moving to $2,200. The 2017 Tax Cuts and Jobs Act, which was set to expire this year, was made permanent. There were also a number of temporary deductions included in the One Big Beautiful Bill Act. These include a deduction of up to $25,000 on tip income, no tax on overtime capped at $12,500, and an additional senior deduction of $6,000.

A Nashua resident has been hearing a lot about the recently passed One Big Beautiful Bill Act and how it would affect taxes. However, she was unsure about how this would impact her directly. She reached out to the Merrimack Tax Associates team for advice and a better understanding of how she would be affected.

Other Changes to Tax Benefits Under the One Big Beautiful Bill Act

New car buyers that are taking out a loan can deduct up to $10,000 of qualified interest on the loan. This only applies if the vehicle is a final assembly in the United States and phases out for higher income earners. Clean vehicle credits will be eliminated for any vehicle that is purchased after September 30, 2025. The tax credits for energy efficient home improvements will also be eliminated after 2025 under the One Big Beautiful Bill Act.

Effective in 2026, how you claim charitable contributions on your taxes will be changed also. For those filers taxing the standard deduction, charitable deduction will be capped at $1,000 for single filers and $2,000 for married couples filing jointly. When itemizing your deductions for charitable contributions, you will be required to reduce your deduction by 0.5% of your contribution base, which is generally your adjusted gross income.

After speaking with Merrimack Tax Associates, the Nashua resident now has a better understanding of how the One Big Beautiful Bill Act will affect her personally.