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Hal Zemel, CPA, J.D., LL.M.

Hal Zemel, CPA, J.D., LL.M.
Hal Zemel, a Tax Principal at Berdon LLP, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.
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TAX TALK: Avoid the Pitfalls of Buying and Selling Mutual Fund Shares

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 26, 2020 9:20:00 AM

If you invest in mutual funds, be aware of some potential pitfalls involved in buying and selling shares.

Surprise Sales 

You may already have made taxable “sales” of part of your mutual fund investment without knowing it.

One way this can happen is if your mutual fund allows you to write checks against your fund investment. Every time you write a check against your mutual fund account, you’ve made a partial sale of your interest in the fund. Thus, except for funds such as money market funds, for which share value remains constant, you may have taxable gain (or a deductible loss) when you write a check. And each such sale is a separate transaction that must be reported on your tax return.

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TAX TALK: What Tax Records Can You Throw Away?

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 19, 2020 9:20:00 AM

October 15 was the deadline for individual taxpayers who extended their 2019 tax returns. (The original April 15 filing deadline was extended this year to July 15 due to the COVID-19 pandemic.) If you’re finally done filing last year’s return, you might wonder: Which tax records can you toss once you’re done? Now is a good time to go through old tax records and see what you can discard.

The General Rules

At minimum, you should keep tax records for as long as the IRS has the ability to audit your tax return or assess additional taxes, which generally is three years after you file your return. This means you potentially can get rid of most records related to tax returns for 2016 and earlier years.

However, the statute of limitations extends to six years for taxpayers who understate their adjusted gross income (AGI) by more than 25%. What constitutes an understatement may go beyond simply not reporting items of income. So a general rule of thumb is to save tax records for six years from filing, just to be safe.

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Topics: TAX TALK

TAX TALK: To Survive an IRS Audit Get Ready in Advance

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 12, 2020 9:22:48 AM

IRS audit rates are historically low, according to the latest data, but that’s little consolation if your return is among those selected to be examined. But with proper preparation and planning, you should fare well.

In fiscal year 2019, the IRS audited approximately 0.4% of individuals. Businesses, large corporations, and high-income individuals are more likely to be audited but, overall, all types of audits are being conducted less frequently than they were a decade ago.

There’s no guarantee that you won’t be picked for an audit, because some tax returns are chosen randomly. However, the best way to survive an IRS audit is to prepare for one in advance. On an ongoing basis you should systematically maintain documentation — invoices, bills, cancelled checks, receipts, or other proof — for all items to be reported on your tax returns. Keep all your records in one place. And it helps to know what might catch the attention of the IRS.

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TAX TALK: Plan for Income Taxes as Part of Your Estate Plan

Posted by Hal Zemel, CPA, J.D., LL.M. on Oct 5, 2020 9:42:39 AM

As a result of the current estate tax exemption amount ($11.58 million in 2020), many estates no longer need to be concerned with federal estate tax. Before 2011, a much smaller amount resulted in estate plans attempting to avoid it. Now, because many estates won’t be subject to estate tax, more planning can be devoted to saving income taxes for your heirs.

While saving both income and transfer taxes has always been a goal of estate planning, it was more difficult to succeed at both when the estate and gift tax exemption level was much lower. Here are some strategies to consider.

Plan gifts that use the annual gift tax exclusion. One of the benefits of using the gift tax annual exclusion to make transfers during life is to save estate tax. This is because both the transferred assets and any post-transfer appreciation generated by those assets are removed from the donor’s estate.

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Topics: TAX TALK

TAX TALK: If You Manage Your Own Portfolio, Can You Deduct Related Expenses?

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 29, 2020 10:30:00 AM

In some cases, investors have significant related expenses, such as the cost of subscriptions to financial periodicals and clerical expenses. Are they tax deductible? Under the Tax Cut and Jobs Act, these expenses aren’t deductible through 2025 if they’re considered expenses for the production of income. But they are deductible if they’re considered trade or business expenses. (For tax years before 2018, production-of-income expenses were deductible, but were included in miscellaneous itemized deductions, which were subject to a 2%-of-adjusted-gross-income floor.)

In order to deduct investment-related expenses as business expenses, you must figure out if you’re an investor or a trader — and be aware that it’s more advantageous (and difficult) to qualify for trader status.

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TAX TALK: Tax Implications of Working from Home and Collecting Unemployment

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 21, 2020 9:20:00 AM

COVID-19 has changed our lives in many ways, and some of the changes have tax implications. Here is basic information about two common situations.

Working from Home

Many employees have been told not to come into their workplaces due to the pandemic. If you’re an employee who telecommutes and communicates with your employer mainly by telephone, videoconferencing, and email, you should know about the strict rules that govern whether you can deduct your home office expenses.

Unfortunately, employee home office expenses aren’t currently deductible, even if your employer requires you to work from home. Employee business expense deductions (including the expenses an employee incurs to maintain a home office) are miscellaneous itemized deductions and are disallowed from 2018 through 2025 under the Tax Cuts and Jobs Act.

However, if you’re self-employed and work out of an office in your home, you can be eligible to claim home office deductions for your related expenses if you satisfy the strict rules.

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TAX TALK: Questions and Concerns About Deferring Employees’ Social Security Taxes

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 14, 2020 9:20:00 AM

The IRS has provided guidance to employers regarding the recent presidential action to allow employers to defer the withholding, deposit and payment of certain payroll tax obligations. The three-page guidance in Notice 2020-65 was issued to implement President Trump’s executive memorandum signed on August 8.

Private employers still have questions and concerns about whether, and how, to implement the optional deferral. The President’s action only defers the employee’s share of Social Security taxes; it doesn’t forgive them, meaning employees will still have to pay the taxes later unless Congress acts to eliminate the liability. (The payroll services provider for federal employers announced that federal employees will have their taxes deferred.)

Deferral Basics

President Trump issued the memorandum in light of the COVID-19 crisis. He directed the Secretary of the Treasury to use his authority under the tax code to defer the withholding, deposit and payment of certain payroll tax obligations.

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Topics: TAX TALK

TAX TALK: Back-to-School Tax Breaks

Posted by Hal Zemel, CPA, J.D., LL.M. on Sep 8, 2020 11:27:36 AM

Despite the COVID-19 pandemic, students are going back to school this fall, either remotely, in-person, or under a hybrid schedule. In any event, parents may be eligible for certain tax breaks to help defray the cost of education.

Here is a summary of some of the tax breaks available for education.

  1. Higher Education Tax Credits. Generally, you may be able to claim either one of two tax credits for higher education expenses — but not both.
    • With the American Opportunity Tax Credit (AOTC), you can save a maximum of $2,500 from your tax bill for each full-time college or grad school student. This applies to qualified expenses including tuition, room and board, books and computer equipment and other supplies. But the credit is phased out for moderate-to-upper income taxpayers. No credit is allowed if your modified adjusted gross income (MAGI) is over $90,000 ($180,000 for joint filers).
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Topics: TAX TALK

TAX TALK: Will You Have to Pay Tax on Your Social Security Benefits?

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 31, 2020 9:20:00 AM

If you’re getting close to retirement, you may wonder: Are my Social Security benefits going to be taxed? And if so, how much will you have to pay?

It depends on your other income. If you’re taxed, between 50% and 85% of your benefits could be taxed. (This doesn’t mean you pay 85% of your benefits back to the government in taxes. It merely means that you’d include 85% of them in your income subject to your regular tax rates.)

Crunch the Numbers

To determine how much of your benefits are taxed, first determine your other income, including certain items otherwise excluded for tax purposes (for example, tax-exempt interest). Add to that the income of your spouse, if you file joint tax returns. To this, add half of the Social Security benefits you and your spouse received during the year. The figure you come up with is your total income plus half of your benefits. Now apply the following rules:

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Topics: TAX TALK

TAX TALK: Can’t Pay Taxes? What’s Next?

Posted by Hal Zemel, CPA, J.D., LL.M. on Aug 24, 2020 9:20:25 AM

While you probably don’t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can’t pay taxes on time? Here’s a look at the options.

Most importantly, don’t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes.

Common Penalties

The “failure to file” penalty accrues at 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return shows you owe. The “failure to pay” penalty accrues at only 0.5% per month or part of a month (to 25% maximum) on the amount due on the return. (If both apply, the failure to file penalty drops to 4.5% per month (or part) so the combined penalty remains at 5%.) The maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months. The combined penalties can reach 47.5% over time in addition to any interest.

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Topics: TAX TALK

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