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.

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:

Check the Preparer’s Qualifications.
Check the Preparer’s History
Ask about Service Fees.
Ask to E-File.
Make Sure the Preparer is Available.
Provide Records and Receipts.
Never Sign a Blank Return.
Review Before Signing.
Ensure the Preparer Signs and Includes Their PTIN.
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 2018	Deduction Amount 2017
Single	$12,000	$6,350
Married Filing Jointly	$24,000	$9,350
Head of Household	$18,000	$12,700

Tax Brackets

Rate	Single, Taxable Income Over
10%	$0
12%	$9,525
22%	$38,700
24%	$82,500
32%	$157,500
35%	$200,000
37%	$500,000

Rate	Married Filing Jointly, Taxable Income Over
10%	$0
12%	$19,050
22%	$77,400
24%	$165,000
32%	$315,000
35%	$400,000
37%	$600,000

Rate	Head of Household, Taxable Income Over
10%	$0
12%	$13,600
22%	$51,800
24%	$82,500
32%	$157,500
35%	$200,000
37%	$500,000

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