Attention New Clients!

Welcome to Charles R Zeugner CPA. Thank you for the opportunity to work with you. My objective is to provide prompt and accurate service and to make sure that you as a client understand your tax filings. I send a tax organizer to clients in late December or early January, and I am prepared to begin accepting documents by the third week of January. The IRS typically begins accepting e-filed returns near the end of January.

I use a secure electronic portal. If you do not already have the link and a password, please let me know. You can use the portal to send documents, and I will send electronic copies of your return through the portal.

I provide all clients with an engagement letter and an organizer. The engagement letter sets out the terms of our agreement, and the organizer is a tool that can be used to help gather tax information. Please click the link below to open a copy of the engagement letter and organizer that you can download.

Engagement Letter/Tax Organizer

Newsletter – November 15, 2023

2023 Year-end Update

As much as many people do not want to think about taxes at the end of the year, it is important to take some time now and review your finances and your taxes. This is especially true if you have investment or brokerage accounts and other assets or if you have a small business. In this note, I will write about:

  • Mutual funds, dividends, and capital gains,
  • IRA Contributions,
  • IRA Required Minimum Distributions (RMD), and
  • Charitable contributions using Qualified Charitable Distributions (QCD) or appreciated assets.

Please keep in mind that without knowing your specific details, I cannot provide professional advice about your situation. It is up to you to use this information and follow up with your advisors. You should be having conversations about these topics with your financial advisor.

Mutual funds, dividends, and capital gains

I recently had a conversation with a financial advisor who asked about whether my clients understood the taxes they pay on reinvested dividends and capital gains in their mutual funds or managed accounts. Unfortunately, most people do not understand that they pay taxes on distributed dividends and capital gains, even though they may not receive a check for the funds. Each year, I explain to clients that even though they did not receive a check from Fidelity or Schwab or Vanguard or Ameriprise or T. Rowe Price or Edward Jones or something similar, they still had dividend and capital gain distributions, and they are reported on a Form 1099. This is important for two reasons. First, that the reinvested income is taxable. Second, the reinvested income reduces your basis in the investment. This is a conversation for another note.

You can contact your investment advisor for information about your dividend and capital gain distributions. If you do not have an investment advisor, you can contact whichever investment company has your mutual fund accounts.

Reinvested mutual fund and capital gain distributions in retirement accounts are not taxable. They will be taxed at distribution.

IRA Contributions

The amount that you can contribute to a Traditional IRA and a Roth IRA changes each year as the IRS adjusts the limits for inflation.

For 2023, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can’t be more than:

  • $6,500 ($7,500 if you’re age 50 or older), or
  • If less, your taxable compensation for the year

IRA Required Minimum Distributions (RMD)

According to the IRS, you must begin withdrawing from your IRAs and Roth IRAs at some point.

You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).

Roth IRAs do not require withdrawals until after the death of the owner; however, beneficiaries of a Roth IRA are subject to the RMD rules. Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts. 2023 RMDs due by April 1, 2024, are still required. 

Your required minimum distribution is the minimum amount you must withdraw from your account each year.

  • You can withdraw more than the minimum required amount.
  • Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).

For detailed information see: Retirement Topics — Required Minimum Distributions (RMDs) | Internal Revenue Service (irs.gov)

Charitable contributions using Qualified Charitable Distributions (QCD) or appreciated assets.

With the increases in the standard deduction, many people are looking for tax advantaged ways to make charitable contributions. The two most common are using Qualified Charitable Contributions or making donations of appreciated assets. The concepts are simple, but as with many things, the details are not. Be sure to talk to your advisor.

A QCD is a type of retirement plan distribution in which the funds are sent directly to a charitable organization by the plan administrator. The account holder does not receive the proceeds from the distribution. Neither the distribution, nor the contribution is reported on the tax return. You can find details in the notice from the IRS. Reminder to IRA owners age 70½ or over: Qualified charitable distributions are great options for making tax-free gifts to charity | Internal Revenue Service (irs.gov) The notice is for 2022, however, the concept remains the same.

Another tax saving approach to charitable contributions is to donate appreciated assets like stocks or real estate. Generally, you can avoid paying tax on capital gains. However, you can deduct the full fair-market value of the contribution. If you use this approach, be sure to talk to your advisors first.

Coronavirus: Important Notice!

As if tax time was not challenging enough . . .

Many of my clients and prospective clients are very concerned about the novel coronavirus or COVID-19. The risks are real, and people should take precautions. However, it also important to act based on good information and to try not to react to rumor or fear mongering.

Some of the most reliable information available is from the various states’ departments of health and the US Centers for Disease Control and Prevention. This link to the CDC website has good instructions about how to protect yourself and what to do if you think you are sick, https://www.cdc.gov/coronavirus/2019-ncov/index.html.  There are also resources on https://www.usa.gov/coronavirus. The US Treasury also has information. https://home.treasury.gov/coronavirus

If you are worried about your taxes and have heard that the IRS is going to offer tax relief, the best source of information is the IRS website page on the topic. https://www.irs.gov/coronavirus

But what about getting your taxes done if you don’t want to leave the house?

No problem. I am set up to work with my clients remotely. If you prefer not to come to my office, you can upload your tax documents into a convenient portal or mail them to me. There is also a mail slot in the door to Suite 202. I will be happy to consult with any client over the telephone instead of meeting in person. If these arrangements do not work for you, give me a call, and we can figure something out.

December Newsletter

This is the newsletter for December. In this issue, I’ll go over a few changes affecting credits for dependents, the IRS’ paycheck checkup, and how to choose a tax preparer. If there are topics that you would like me to address, please contact me and let me know.

Do you have children or other dependents? The Tax Cuts and Jobs Act (TCJA) increased the child tax credit and created a new credit for other dependents. The TCJA also increased the income levels for the credits so more taxpayers will qualify. The Child Tax Credit doubled to $2,000. To qualify, a taxpayer must claim the child as a dependent, the child must be younger than 17 at the end of the tax year, the child must live with the taxpayer more than six months of the year, and the child must have a valid Social Security number. Up to $,1400 of the credit is refundable, so eligible taxpayers may receive a refund even if they do not owe any tax. The new Credit for Other Dependents is available for taxpayers that cannot claim the Child Tax Credit. This could include dependent children older than, parents, or other qualifying relatives. If you think you may qualify, you should talk to your tax professional.

Avoid surprises in April! The IRS is encouraging taxpayers to do a paycheck checkup. Changes in the tax code from the TCJA may affect the amount of tax you owe. If you are an employee, you should check out the withholding calculator on the IRS website. www.irs.gov/individuals/irs-withholding-calculator Depending on what you learn, you may want to adjust your withholding by filing a new Form W-4.

How to choose someone to prepare your taxes. If you have a complex tax situation of if you simply prefer the piece of mind that comes from hiring a professional to do your tax returns, please know that there is not a lot of regulation of tax preparers. You want to be careful when you make your choice. The IRS published a list of tips for choosing a tax preparer. Here’s the list:

  1. Check the Preparer’s Qualifications.
  2. Check the Preparer’s History
  3. Ask about Service Fees.
  4. Ask to E-File.
  5. Make Sure the Preparer is Available.
  6. Provide Records and Receipts.
  7. Never Sign a Blank Return.
  8. Review Before Signing.
  9. Ensure the Preparer Signs and Includes Their PTIN.
  10. Report Abusive Tax Preparers to the IRS.

You can read the details directly on the IRS website. The short version of the article is to check the preparer’s qualifications and make sure the preparer will be there after the tax season, ask questions, provide documentation, e-file and don’t sign blank returns. If you do come across a tax preparer that acts unprofessionally or unethically, report him or her to the IRS.

November Newsletter

In this issue of the newsletter, I will write about a few tax-related ideas. I usually plan to send this newsletter out monthly or less. However, there are a lot of things that are useful to know before the tax filing deadlines next year, so I will be sending this out more frequently through March.

It is not too early to start thinking about what you might need to do to file your 2018 tax returns in just a few months.

Get organized! I will be sending my clients an income tax organizer in December. The organizer I send out contains information from last year’s return, and it is a helpful guide for collecting information that will be needed for this year. Some of my clients find completing the organizer to be helpful, and they answer all the questions and fill in all the applicable boxes with the current amounts. Other clients simply use the organizer as a checklist. Whatever works best for you is what you should do. If you are not one of my clients and you would like an organizer, ask your tax professional or contact me.

Can you prepare your own tax returns? Of course, you can prepare your own tax returns! If your tax situation is simple with only wages or a pension and few deductions, then you should be able to complete your return easily. One of the objectives of the tax reform passed last year was to simplify tax preparation for most taxpayers. However, taxpayers with more complex situations may have more complex tax returns. Keep in mind, however, that your return may not always be simple. Someday you may buy or sell a home, start withdrawing from IRAs, sell investments, or even turn a hobby into a side business. When that happens, it will be helpful for you to have a long-term relationship with your tax professional. Reputable professionals should charge according to a return’s complexity and the time required to do the work, so if you have a simple return, the cost of hiring a professional should be far less than the value of the piece of mind you would be purchasing. If you do prepare your own returns, you can download the federal forms from IRS.gov. You can also find free software on the IRS website. Keep in mind that the IRS forms and free software do not include your state tax return. If you choose to hire a professional, you will want to read the newsletter next month when I will write about how to select a tax preparer.

What can you deduct? The standard deduction has increased greatly in 2018. Some estimates are that 94 percent of taxpayers may be able to take the standard deduction instead of itemizing.

IRAs and required minimum distributions. If you have an IRA, and you are turning 70 ½, you may be facing required minimum distributions (RMDs). The theory is that you could invest and defer taxes until retirement. Once you are retired, it is time to start withdrawing your investment and paying the taxes. That applies even if you don’t need or want the money and even if you are not retired. The amount of the RMD is based on your life expectancy. Your financial advisor or tax professional can help you determine the amount. Alternatively, you can find RMD tables on the IRS website, IRS.gov. Don’t ignore RMDs if you are supposed to take them. The penalties are significant.

IRAs and Charitable Contributions. One option that you have if you have RMDs is to make a Qualified Charitable Contribution (QCD). With a QCD, a taxpayer makes a charitable contribution from an IRA instead of making a withdrawal. This year the new higher standard deduction may prevent some taxpayers from deducting charitable contributions. What typically would happen is a taxpayer would withdraw from an IRA, and then make the deduction for charitable contributions. The advantage to the QCD is that the money is not counted as income. Talk to your tax professional about QCDs and other strategies.

Should you contribute to an IRA? Circumstances vary. However, many people believe that it is worthwhile to contribute to an IRA to reduce current taxable income. If you think this might be a good idea for you, talk to your financial advisor and tax professional.

Welcome to our new newsletter!

Good Afternoon! I’m sending you this email to let you know that I am starting a periodic newsletter for my clients and other people that have contacted me with accounting or tax questions. Many people are concerned about the effect that the tax changes passed at the end of last year will have on their tax filings this year. I’ll use this email newsletter to send out information that I hope you will find useful. If you would prefer not to receive these emails, you can either contact me, and I will remove your name from the list, or you can click on one of the links at the bottom of this page. The most common questions I have received so far this year is about tax brackets and the change to the standard deduction. Here are tables showing the new tax brackets and standard deduction. Keep in mind that while the standard deduction has increased, the personal exemption of $4,050 per person has been eliminated.

Standard Deduction

Filing Status
Deduction Amount 2018Deduction Amount 2017
Married Filing Jointly
Head of Household$18,000$12,700

Tax Brackets

RateSingle, Taxable Income Over
RateMarried Filing Jointly, Taxable Income Over
RateHead of Household, Taxable Income Over
I hope you find this information helpful. If there are specific questions that you want me to address, please feel free to send me an email. Regards, Chuck Zeugner  

Claim Your Federal Tax Refund or Lose It

The IRS reports that unclaimed refunds from 2014 may total about $1.1 billion. An estimated million taxpayers did not file a 2014 tax return and may be due a refund. Are you one of them? You have until Tuesday April 17. The median refund amount is $847.

Taxpayers generally have three years to file and claim a refund.

See your professional tax preparer. For more information, check out this article by the IRS.

Common Tax Myths – Travel, Meals and Entertainment

There are many things that are “common knowledge” about income taxes. Unfortunately, some of them are simply wrong. This short series of blog posts will address some of them. This post examines some myths about travel, meals and entertainment deductions.

Go on and spend the money, it is deductible.

This common refrain covers a lot of territory. It typically only affects business owners, although taxpayers with large amounts of unreimbursed employee business expenses also succumb to this. (Recent changes to tax laws have affected the rules regarding unreimbursed business expenses.) Not all expenses are deductible. You can refer to Publication 463 Travel, Entertainment, Gift, and Car Expenses for specifics.  There is a table listing types of expenses that are deductible if they are incurred for a bona fide business purpose near the end of this post. Keep in mind that even when expenses are deductible, they are still expenses.

Talk about business so your lunch or dinner can be a business expense.

This is an example of an expense that is not deductible. Simply talking about business does not make something a business meeting. While meals and entertainment can be deductible, there must be a bona fide business reason.

In plain terms, expenses for business should be ordinary and necessary. The IRS defines these terms in Publication 535 Business Expenses.

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

Even a casual reading of this definition makes it clear that meeting a client or prospective client for dinner may be a deductible expense. So too might be a lunch meeting with a coworker or employee if the purpose is directly related to business. However, it is not appropriate to deduct the expense for routine meals. You may be able to expense regular meals for employees in some circumstances. Deductibility may also depend on the nature of your business. You should consult with your tax advisor for the details.

Two common myths have to do with the cost of meals.

  1. Go on and go to the fancy place, its deductible.
  2. Don’t try to deduct very expensive meals.

As usual, the truth is something else. Pub 463 addresses the topic of lavish or extravagant meals.

You can’t deduct expenses for meals that are lavish or extravagant. An expense isn’t considered lavish or extravagant if it is reasonable based on the facts and circumstances. Expenses won’t be disallowed merely because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs, or resorts.

In other words, cost by itself will not affect whether you can deduct an expense. Remember the definition of ordinary and necessary described earlier. Keep in mind that even though the expense may be deductible, meal and entertainment expenses are limited to 50 percent of the actual expense or standard meal allowance amount.

If you go on a business trip, you can stay a few extra days and write off the expense. If you take along a companion, that is deductible also.

Bad idea.  IRS Publication 535 Business Expenses explains,

Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

Using this as a guide, you would be able to deduct the business portion of your trip. However, expenses for extra days or for companions are personal expenses and are not deductible as business expenses.

Another variation on this theme is:

If your small business has annual meetings, hold them in places that are also resort or vacation destinations, so you can write off the trip.

This may be  partly true depending on the circumstances, but like many myths, it starts with truth and then distorts into falsehood. The expenses associated with your businesses meetings are deductible if they have a business purpose. Once you go beyond the bona fide business purpose, then the expenses are no longer deductible. Be very careful about trying to deduct that wintertime company meeting at a beach resort. The details about what are likely to be acceptable may depend on the nature of your business. You should consult with your tax professional.

The table below lists the types of travel expenses that you can deduct. Remember to keep receipts and documentation.

Travel Expenses You Can Deduct

IF you have expenses for... THEN you can deduct the cost of...
transportationtravel by airplane, train, bus, or car between your home and your business destination. If you were provided with a free ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If you travel by ship, see Luxury Water Travel and Cruise Ships , under Conventions, earlier, for additional rules and limits.
taxi, commuter bus, and airport limousinefares for these and other types of transportation that take you between:
The airport or station and your hotel; and
The hotel and the work location of your customers or clients, your business meeting place, or your temporary work location.
baggage and shippingsending baggage and sample or display material between your regular and temporary work locations.
caroperating and maintaining your car when traveling away from home on business. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses.
lodging and mealsyour lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meals include amounts spent for food, beverages, taxes, and related tips. See Meals , later, for additional rules and limits.
cleaningdry cleaning and laundry.
telephonebusiness calls while on your business trip. This includes business communication by fax machine or other communication devices.
tipstips you pay for any expenses in this chart.
otherother similar ordinary and necessary expenses related to your business travel. These expenses might include transportation to or from a business meal, public stenographer's fees, computer rental fees, and operating and maintaining a house trailer.
Excerpted from Publication 463 Travel, Entertainment, Gift, and Car Expenses

Don’t become a victim of tax myths. “Everybody does it” is not a good defense if your deductions are questioned. If you have travel or meals and entertainment expenses for your business, be sure to deduct them. However, make sure that they are for a legitimate business purpose and that you can substantiate them.

Common Tax Myths – Home Office Deductions

The Home Office Deduction is another area that is confusing to taxpayers. According to the IRS

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.

However, there are two popular myths surrounding business use of a home.

  • 1.       Never take the home office deduction, it will trigger an audit.
  • 2.      If you do any work out of your home, you can take a deduction.

As with many things that are “common knowledge,” these two myths are almost true. Unfortunately, almost true is just enough to get you into trouble. It is always best to rely on authoritative resources. Tax professionals such as CPAs, tax attorneys, and enrolled agents refer to IRS publications and they keep abreast or IRS rulings and court decisions. They also take continuing education. This is much more dependable than relying on, “a friend who knows someone who . . .”

Let’s look at the first myth. The IRS does not publicize its audit selection criteria. However, there is no evidence to suggest that simply claiming a home office will increase the chance that you will be audited. Many taxpayers operate businesses out of home offices. The tax code specifically allows deductions for business use of a home, and the IRS provides instructions in Publication 535 Business Expenses and in Publication 587 Business Use of Your Home.

If there is an increased risk of audit, then it would have to do with improperly claiming a home office deduction. It may seem inconsistent to believe that claiming the deductions will not trigger an audit, while improperly claiming the deduction could increase the chances of being selected for an audit. However, consider that the IRS processes large numbers of tax returns from many different business types. This means that the service has a pretty good idea what typical taxpayers do. If you operate a business out of your home, then your home office deduction should look pretty much like the returns of similar businesses. In other words, reporting what you do and can document should not cause you any problems. Making something up might.

This leads us to myth number two. It is not true that simply working at home is sufficient to claim a home office deduction. The Business Use of Your Home section of Publication 535 Business Expenses explains:

To qualify to claim expenses for the business use of your home, you must meet both of the following tests.

  1. The business part of your home must be used exclusively and regularly for your trade or business.
  2. The business part of your home must be
    • Your principal place of business; or
    • A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business; or
    • A separate structure (not attached to your home) used in connection with your trade or business.

Do you run your business from your kitchen table? Is your home office a desk in your guest room? If so, you may not be meeting the first criteria. The only exceptions to exclusive use are for storage or inventory or for daycare facilities.

The second test has three parts. The first two essentially say that this is where you do your work, and you have no other fixed location where you work. If you do work in other fixed locations, then you should determine your principal place of business based on the importance of the work done or time spent at each location. Refer to Publication 535 and Publication 587 for the specifics. It is also always a good idea to consult with your trained tax professional.

There are two methods for claiming business use of your home on your Form 1040. The first is to report all your expenses. These expenses could include mortgage interest, insurance, utilities, repairs, and depreciation. The second method is called the safe harbor method, and it basically allow up to five dollars per square foot up for up to 300 square feet.

What’s the true story?

There is no reason to believe that claiming a deduction for business use of a home will trigger an audit. If you legitimately set aside a part of your home and use it exclusively as your principal place of business, you should claim the deduction. If you claim the deduction, you can either claim your actual expenses or use the optional safe harbor method.

Common Tax Myths – Requesting an Extension

There are many things that are “common knowledge” about income taxes. Unfortunately, some of them are simply wrong. This short series of blog posts will address some of them. This post will examine a couple of myths relating to filing requests for extensions.

Request an extension. An extension will give you more time to pay your taxes.

Not only is this untrue, it will cost you. Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return is used to request an extension of time to file not an extension of the payment due date. In fact, the instructions for the form caution:

Although you aren’t required to make a payment of the tax you estimate as due, Form 4868 doesn’t extend the time to pay taxes. If you don’t pay the amount due by the regular due date, you’ll owe interest. You may also be charged penalties.

Another part of this myth is the belief that requesting an extension also means that it is not necessary to do anything with your taxes by the normal due date. However, to qualify for an extension, you must attempt to estimate your tax liability. The instructions for the form say:

  1. Properly estimate your 2017 tax liability using the information available to you.
  2. Enter your total tax liability on line 4 of Form 4868, and
  3. File Form 4868 by the regular due date of your return

Never request an extension. Doing so will increase your chances of being audited.

This one is also untrue. The specific criteria that the IRS uses to select returns for audit is a secret. However, there is no reason to believe that requesting an extension of time to file your return will increase the likelihood that you will be audited. In fact, if you think about the reasons that people frequently request extensions, it may be possible that filing an extension request could reduce your chance of being audited. If this sounds confusing, consider that the reason that many people find themselves answering questions from the IRS include errors and missing information. Many taxpayers simply cannot meet the filing deadline because they do not have all their tax documentation. Filing without waiting for documents such as W-2s, 1099s, K-1s, or other documents is a good way to make mistakes. If you have a business, you may also need extra time to prepare your books.

If asking for extra time helps you prepare a complete and accurate return, then you should ask for extra time. On the other hand, if you can complete your return on time, you should make every effort to do so. If you are due a refund, all you are doing is postponing the return of your money, and if you have tax due, it is better to know the exact amount and arrange to pay even if you do not have the cash on hand.

How do you request an extension?

The IRS makes it easy. There are three ways to request an extension of time to file your individual income taxes.

  1. Use the IRS payment system available through the IRS website. The IRS will process and extension when you pay your estimated tax electronically.
  2. E-file using tax software or ask your tax professional to e-file an extension for you. You can e-file for free using the IRS website.
  3. File a paper Form 4868.