Welcome to the Dr. Friday Radio Show! In this episode, Dr. Friday takes on the latest tax updates, answers the caller’s questions, and talks over the following topics:
- Counties That Have Tax Extension Until May 16
- What To Do If You Haven’t Received Your Tax Refund
- How To Get Back On Track With the IRS
- Real-Estate Tax Benefits You Should Know About
- Why You Shouldn’t Sell Anything Before Accounting the Taxes
- Did I Receive the Child Tax Credit?
- How To Deal With An Estate or Property Sales
- Short Term Capital Gains is Also Ordinary Income Tax Rates
- Payments or File Taxes Extended Until May 17th
- What If I Sell My Primary Property?
- The Importance of Reporting Everything On Your Taxes
and much more!
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or financial woes. She’s the How-To Girl. It’s the Dr. Friday show. If you have a question for Dr. Friday, call her now. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:30
Good day. I’m Dr. Friday and the doctor is in the house. Boy, we made it through the initial tax season, I guess is what we usually like to think of it as. But keep in mind that there are many counties, Davidson Decatur, Dixon, Dyer, Gibson, Henderson, about 22 different counties to be quite honest, that are still actually active until May 16. Even if you did not file an extension, you have an extension because of the disaster victims of the fear storm and straight line winds that fell into those counties.
Dr. Friday 1:03
So if you haven’t filed, there’s still time to go ahead and get them filed. And make sure you have those going on. Even the biggest thing is obviously making those payments. So that’s very important. So if you haven’t done it, you might need to do that. If you want to join the show, you can 615-737-9986. We are taking your calls talking about taxes and things that are going on. I know that for many people, the IRS is still there’s some delays out there.
Dr. Friday 1:38
So just the best advice I can say is if you did send your tax returns in in January or February, and you still have not received your payments or refund, then I would say it’s time to probably contact the IRS unless first thing I would do is probably go to irs.gov, check your refund, find out if the refunds there and then go from there. As far as where, you know, if it says it’s still pending, that may mean that they’re still trying to match information.
Dr. Friday 2:09
I know we had a case that we just had spoke to the person this morning, where the IRS, they did not think about the fact that they were in the marketplace. But they were and or the IRS came back and said we can’t process the return because we’re looking for the 8962, which has to do with insurance from the marketplace. And this individual realized that they did have a couple months before his wife went on to Medicare, that they may have had the marketplace.
Dr. Friday 2:36
So they’re going to be able to go back and look at that. So these kinds of things are what’s happening and how it comes down. So you need to make sure that you are dealing with your issues. I mean, what you hear here or any other situation, not always the same situation. But it is important that you’re able to take the time, make the information and then use it to the best of your ability, everyone’s situation is a little bit different. So just want to make sure that we’re all on the same page, and that we’re able to get your information to the IRS.
Dr. Friday 3:09
If you could not file electronically for some reason. Some people did have some problems. I know I’ve gotten some emails or texts where their children were trying to E file and they weren’t not be accepted. And we told you that the IRS had told us just to put zero in as AGI still didn’t work for some people, then, you know, now’s the time to certify it to the IRS because that is the only way you’re going to get it processed. And I’m not a fan of paper filing.
Dr. Friday 3:37
It’s not usually the most efficient way of getting the information. The IRS is getting caught up. But they are still well, they’re still looking for 5000 people to work. So I’m assuming they’re still behind on a number of employees. And therefore the back load that we had from 2020 and 2021. Now are going to be still slow in getting that information. I did get an email earlier today from someone that said that they had been audited in 20 2019. I guess it was they were audited.
Dr. Friday 4:08
And they turned around and the IRS basically said that they disallowed their income because I guess proof of income was not available. You know, sometimes people don’t realize that if you’re self employed individual and you’re doing everything basically for cash, the money is not showing up in the bank, you’re not receiving 1090 nines. Theoretically, the IRS can say you’re not making earnings.
Dr. Friday 4:36
And then in some of these cases, that earnings happens to fall right between those 20 and $30,000 mark where you then get earned income credit child credits, things like that that may be beneficial to you but if you’re not tracking it, if you don’t have the name of the person that’s paying you and a cash receipt that they signed off and said they gave you the money, those kinds of things.
Dr. Friday 4:57
The IRS can turn around and say you don’t have earnings. In essence, you’re not in business, unless you can prove to them which is kind of the opposite of what most people think about because in many cases, most people think about the IRS changing the return saying, “Oh, you didn’t report all of your income.” But that’s not always the case. There are certain situations where the IRS comes back and says, you over reported your income. And you need to justify to us why you did that.
Dr. Friday 5:24
And do you have any means of proving that you actually received this income. So in her case, obviously, they hadn’t resolved 2019, she filed 2020. Now they’ve got a hold on 2020. And now she can’t file 2021. So at this point, an extension would be required, and then making an appointment to actually talk to someone like myself or getting, even the tax advocate office open is open to their awesome organization within the IRS, I send many people that direction, if you’re trying to deal with something that usually has resolution, but if they’re in the middle of still auditing, that may not apply in this situation.
Dr. Friday 6:02
So you need to make sure that you are going to be on the same page of what you you know what you need to do. So again, if you want to join the show, you can 615-737-9986. Many of you have probably already filed your taxes, or you’re at the point where you’re an extension, which means that theoretically, you have until October, so you probably are sitting there going, “I don’t want to talk about taxes anymore.” Totally can relate to that.
Dr. Friday 6:29
But we do have some unusual situations, especially the May 16 deadlines, because that extended people that may not have made their quarterlies on time, you might be able to qualify. Again, these are for counties that are Cheatham, Davidson, Dixon, Decatur, Dyer, Gibson, Henderson, Henry Lake, Stewart, Sims Simpson weekly. Wilson, I think that’s all the counties that are waived under this disaster COVID. So again, that’s may 16. And it did extend quarterly as well as quarterly tax filings, excise taxes, and of course, filing and paying your regular ordinary 1040 taxes.
Dr. Friday 7:11
So if you are under those, and maybe you didn’t have time to quite get everything done. This is in effect, you receive a late fee or penalty, but the IRS will waive it because of the fact that you lived in these counties. And you know, that kind of situation. So you might want to make sure you understand how that works. Because sometimes this year, especially I don’t know, even in my office, I’ll be honest, we ended up with probably the last 20 days before the end of tax season.
Dr. Friday 7:40
It was crazy. I mean, everybody was like coming in. And you know, it was we normally have a little bit more smoother, you know, people coming in from like February through this time, everybody was waiting until mid to late March and then trying to get it all done by the deadline of April 18th. So we ended up with probably filing more extensions that we any of us would have preferred.
Dr. Friday 8:04
We’re still working on trying to get those tax returns done, obviously trying to meet the needs. But if you have a question, maybe you were unable to file maybe filed an extension, but you do understand. And that’s why I tried to talk to as many people because extensions only extend the paperwork I’m preparing, right? It only really extends the documentation, it does not extend.
Dr. Friday 8:26
If you owed money, if you have a situation where if you owe money, it doesn’t extend that. So you already have a penalty for not filing or not paying on time, excuse me. So it’s something that you need. And if you’re self employed, you could have a penalty for not making quarterly estimates. I know a lot of my clients, many of them think about not doing that kind of thing.
Dr. Friday 8:47
But you know, to be quite honest, paying a quarterly estimate is tax law, it is what we’re supposed to do. Now, if you’re fortunate enough, like myself, I put myself on payroll. So that way, I can put more towards federal withholding on that payroll and eliminate having to make actual quarterly versus the other direction that you’re going.
Dr. Friday 9:07
But either way you’re looking at it, it is something that you can do but making quarterly and it’s so much easier. And once you get going get into practice of doing it. I’ve had quite a few of my clients this last year so said yes, I’ve been putting my 25 or 30% in a tax account. I’m in good shape moving forward, you know, getting things done. So at least if we owe money, the money is actually sitting in an account.
Dr. Friday 9:32
The next step is obviously making those quarterly so that way you are in compliance and it’s so much simpler at the end of the year, you may owe a few dollars because you had a better year you may have a refund because you had a worse year because we always base our estimates on the prior year. So unfortunately 2020 was not a great year for some people.
Dr. Friday 9:52
And then it was really good for others and then so we based estimates on 2020 and then 2021 came along some people obviously they had refunds, because they didn’t make quite as much money as they did in 2020, vice versa had still people that 2020 wasn’t so good, but 2021 was good. And therefore, their estimates were a little shy, and they had to make payments, but there’s no penalty as long as you paid in 100%, of what you owed there. So very, very important on how you’re going to do that.
Dr. Friday 10:20
All right. Let’s go ahead and go to line one. Let’s see what Kim wants to bring to the show. Hey, Kim.
Yes, hello, Dr. Friday, I’m having a little static on my phone and hoping you can hear me but I want to know is the Social Security did not send me a form indicating how much my total social security payments were was only for three months. But I do have that amount of very certain what I got, from my bank statements, do I need to have documentation from the government, like a 1099 or something?
Dr. Friday 10:52
Well, it would be nice to have that can as far as the documentation, because what went into your bank, and depending on your age, you might be on Medicare already. And therefore Medicare is added back in for the tax purpose. So you would have to add back in whatever they’re taking out for Medicare on those three months to get to what you would enter as taxable.
Dr. Friday 11:14
Well, the 100% tax bill, obviously, they can only tax 85% of it. But yes, I would probably try to call them Monday or whatever, and just see if they can provide you. Even if you’ve already pretty much got your taxes done. Not a worries. But I would actually try to have them send you something just so you have that documentation in your folder for later or something comes back as a change.
All right, that sounds good. One other real quick question, I’ll let you go. I take a lot of cash payments. Everybody that gives me a cash payment, I need to get them to sign a little form. And so have that right?
Dr. Friday 11:48
That’s correct. Yeah, I would carry a receipt book with me. And I would just put in, I mean, depending on what you do, but it could be you know, John Smith, and maybe the address of where you did the work or type of work you did, whatever it might be. But yes, that’s that would be the way you want to do it.
Dr. Friday 12:03
So that way, at the end of the year, you can track your total income because some people say, “Well, I just took what was, well take what was in the bank,” or I have people that drive me crazy. And they say, “Well, here’s all my 1099s,” knowing we all know that very few people get 100% of all their income through a 1099. But yes, that would be the perfect way to do it can that way you can if someone does 1099 you Well, that’s great. But if most of it is cash, and it’s residential people aren’t trollee 1099, then you have proof that the payments came in.
All right, that’s how you run a little receipt book with me.
Dr. Friday 12:38
That’s what I would do. I just go to Office Depot and pick up one of those.
Alright, thank you very much for your advice. I appreciate you.
Dr. Friday 12:46
Thank you for calling. I appreciate you. Alright guys, why don’t we go ahead and take our first break. When we come back, we’ll get to more of your phone calls at 615-737-9986 is a number here at the studio 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 13:17
All righty, we are back here live in studio. This is the Dr. Friday show. I’m an enrolled agent licensed by the Internal Revenue Service, did you taxes and representation that means I have never worked for the IRS. Let me clarify that one just in case, I am licensed, which means I have been tested to represent and learned and taught and, you know did all the things over the last 25 years, this was my 25th year at doing taxes here. And we are able to help represent which basically means guys, you know, it’s never easy to do anything you’re not an expert at. And that’s the one thing I’m good at is dealing with the IRS.
Dr. Friday 13:55
So if you haven’t done taxes, or you haven’t dealt with the IRS, because you know, you just don’t know where to start. That’s where we need to begin, we need to start at the beginning, get everything done the way it needs to be done, take care of what we need to deal with. And then we can back out and go okay, no worries, let’s get this done and figure out what we can do to make the IRS happy.
Dr. Friday 14:17
And also get you back on track. You can’t buy a house, you can’t do anything easily if you don’t have the ability to understand where that’s coming from. So again, very important for you to basically first learn where do I start? I haven’t filed taxes in five years or 10 years.
Dr. Friday 14:34
Do you know if you haven’t filed taxes and 20 years doesn’t mean we have to go back and file 20 years worth of taxes Believe it or not, that’s not the requirement. So we may only have to go back five six. I mean, there are certain times we have to go back because the IRS has assessed you and we need to file and correct that information.
Dr. Friday 14:52
If you don’t have the information we have access to what the IRS is able to come up with so we can start with that information and use had to try to recreate your tax information so that you can do your taxes. Even if you don’t have everything, maybe you’ve lost, that you’ve moved your divorce, all these things happen to everybody.
Dr. Friday 15:11
But you need to make sure that in when you move forward and you’re able to address your tax situation, maybe you’ve got a friend or a family member, and you know that they can’t really move forward. Because every time they think about buying a house, putting money in a 401 K, saving money in a bank account, the IRS can come and take those things.
Dr. Friday 15:31
Because in all honesty, if you pay your mortgage, and you don’t pay the IRS, the IRS to say wait a second, you’re making a choice, not that all of us went consider a roof over our head kind of an important choice, but you’re making the choice to pay them, not us. So any equity that you’re building up in that home is really ours. So only way to get around that is to start dealing with it guys is so important to basically get ahead of the IRS, figure out what needs to be done.
Dr. Friday 16:02
Because keep them they don’t know, they don’t know you you are a number they have no idea. All they know is that somebody turned in a 1099 or turned in W twos are turned in K ones or, you know, you know, 1099 Rs, where you took money out of a retirement account because you needed to survive whatever it might have been. That’s all the IRS knows, they don’t know the story behind it. And to be quite honest, there are times where they don’t really care about the story behind it.
Dr. Friday 16:31
Because it’s not that important. What’s the question is how are you going to pay your taxes? Can you pay your taxes are you maybe you need to be made non collectible, because you won’t be able to pay those taxes. But you know, you still have equity in your home. So making an offer and compromise may not be a viable option for you.
Dr. Friday 16:52
So these are the kinds of questions and I mean, I’ve had two or three cases in the last six months where the taxpayer once we’ve sat down and talked about all the options, they have went in and obtained mortgages, which of course, up until recently, let’s be honest, they were refinancing for a lot less Kisum had a refinance in the last three or four years. So they were going from 6% down to 3%, taking money out and still ending up with a smaller payment, and the IRS was paid off.
Dr. Friday 17:20
Now we all know interest rates are going up, it may not work for everybody, we had a great window there for a year or two, where interest rates were really low. So it’s better to borrow against our home than it was to try to make a payment plan. Keep in mind eight and a half percent interest pretty much I think it’s 7.75 or something, and then you got penalties up to 25%.
Dr. Friday 17:41
And then there’s still usually other penalties that seemed to always kick in. But those are high rates of money that you have to pay besides what you’ve already done. So you know, I mean, whatever you owed in the first place. So if you owe $10,000.04 or five years ago, let’s be honest, you’re gonna almost owe 20,000 today. So there is ways of negotiating, but not everybody’s going to get a negotiation.
Dr. Friday 18:05
And I will tell you right now, my firm, we don’t first thing call us and say, “Oh, well, you’re gonna have to pay us $2,500.05 $100 a month to make sure you start paying us and then we’ll start your case,” doesn’t happen that way. We need to know what we can do for you. What’s the ability to even make an offer and compromise? Can we even do some of the tax information?
Dr. Friday 18:26
Well, we have access. First thing we do Power of Attorney pull transcripts, because if we don’t have that information, how do I have any idea what kind of work I can do for you, anybody that wants to collect money up front, before they even have an idea? Because I always remember the one time when one of my clients call them a few years ago, there was a scam going around, right?
Dr. Friday 18:48
Where people were calling up and saying, “Hey, you have IRS that you need to pay us now.” And they were basically wanting you to give credit cards and all this other situation. And one of my clients called one of the people that were on the radio, and they said, “Yes, yeah, we can help you. Absolutely. You know, but you need to give us $1,500. And then, like, I think it was like $200 a month, and we’ll get you squared away. This is going to cost you you know, $5,000,” or whatever.
Dr. Friday 19:16
This gentleman had no tax issues at all. There was nothing wrong, this was a scam, there was nothing out there for him to have to pay. There was nothing out there for them to do. But yet before they even knew if there was anything wrong, or how much or how big or the ability to even deal with this issue. They already were out there. So be very, very careful.
Dr. Friday 19:41
If you’re going to call somebody make sure when you’re calling them get the details don’t just because you think they’re going to protect you because let’s be honest, I’ve had cases where they’ve walked in and been paying some of these people for months years, and nothing has been filed.
Dr. Friday 19:55
Now I’m not gonna say most of those are the older companies, many of those went out of business under the I mean, I’m sure some of the newer ones, that’s not the case, but you don’t want to just pay somebody to start something new. When you don’t know what they’re going to do. You need to have tax returns prepared, then you need to know what tax returns what years, how are they going to prepare them, what’s going to happen to them, all that kind of situation.
Dr. Friday 20:17
So you’re able to move forward and get the resolution you need, versus just just paying money feeling like you’re doing something. And you know, at some point, you still gotta pay the IRS, or make a deal with the IRS or become non collectible. You know, there’s only really three basic options that you’re going to have.
Dr. Friday 20:37
If you’ve got question, you haven’t filed taxes, maybe in a number of years, or, you know, you’re ready to get back on track with the IRS, because let’s be life, life happens, right? I mean, we live, we get divorce, we get married, we have all these different situations, sometimes you have kids in college, and you really are just trying to keep your head above ground.
Dr. Friday 20:58
But at some point, you might want to just deal with it. And if you are you want to get to that point, then you can always give us a call at the office on Monday, and we can try to set something up if you’ve got a question because you haven’t filed taxes in a number of years.
Dr. Friday 21:12
And you want to know how that works. Give us a call here 615-737-9986. Also, you know, maybe you’re starting a new business, and now’s the time, right? Because now you can actually get a hold of a tax person and ask them a little bit about what kind of entity should I be?
Dr. Friday 21:33
What am I going to do as far as being able to do something with these entities? You know, are you going to be a single member LLC, a multi member LLC, should you be a sub s should you be an obligated member LLC? What is the pros and cons to those situations, make sure you talk to an attorney and accountant to make that decision, in my personal opinion, because I can’t tell you how many people walk in. And they’ve been a Sub S Corporation.
Dr. Friday 21:58
But yet they’ve never started payroll, which means you’ve never even lived up to the purpose of a separate A sub S corporation or a C Corp either way, you’re supposed to be on payroll, you cannot just take advantage of not paying self employment tax without paying payroll and paying self employment tax on your actual earnings.
Dr. Friday 22:19
So it isn’t it’s pretty black and white, the IRS can disallow and can make you go back there’s several court cases out there where they went back one was an accounting firm, and they made them go back and actually pay tax on all of the earnings that they had, you have to pay yourself a fair wage. Because sometimes corporations are awesome, they’re fun, they’re great.
Dr. Friday 22:40
And there’s a lot of benefits to them. But the other side of that is you have to know the rules. If you’re not playing the game properly, the IRS can come back and disallow all of it, because you never treated yourself as an employee in the first place. So you know this, this is an important situation because this last year, I saw several people that had voted or elected to be even LLCs electing to be sub S corporations, they’re hybrids, you can certainly do that.
Dr. Friday 23:08
There’s nothing wrong with it. But again, if you’re not putting yourself on payroll, then you’re treating yourself as a Sub S, which means you’re bypassing self employment tax on earnings. And if you’re actually working the business, hmm, not really going to work too well. If you ever get audited, I’ll tell you that much.
Dr. Friday 23:27
Because the IRS is going to turn around and they’re gonna say that’s not the way this game plays. And you’re going to need to, you know, reimagined and now what your pay penalties interest on top of the self employment tax, and, you know, Medicare and Social Security taxes, so not the best plan. I like to sleep at night. So I usually try to file my taxes and my clients taxes to the best of our ability, but we don’t want to push the point where you may end up paying penalties and interest where that’s never going to be a win win situation.
Dr. Friday 23:59
All right. If you want to join the show, you can 615-737-9986. We’ll take your calls, talk more about some of the issues we’re having with taxes when we get back with the Dr. Friday show.
Dr. Friday 24:28
All righty, we are back here live in studio. So if you want to join the show now would be a great time 615-737-9986 taking your calls talking about Well my favorite subjects even though I have to admit, you know, the last few months it’s been a long time. We probably need to get on the subject to something else more fun and exciting, like vacation plans or something you know, might be something more more entertaining because plenty of you guys have already filed algae taxes.
Dr. Friday 25:00
And if you haven’t filed them, you’re pretty much basically saying, “Hey, I don’t want to really talk about it because I don’t want to deal with it.” Keep in mind, the last year or two, I know my firm, this last year, we had more home sales, either be it rental properties, or primary homes, or unfortunately, the loss of a loved one and the sale of their home in this last in 2021, and going into 2022.
Dr. Friday 25:25
So, you know, again, we have some pretty unique real estate situations happening right now, we have, of course, if your primary home is being sold, and you’re single, you can sell it for whatever you paid for it plus 250,000. And then anything above that would become capital gains long term, assuming you live to have the last five years, and you haven’t sold a home in the last two years under that same pretense. Second would be if you’re married, and you have, again, whatever you paid for the home $500,000 Is your exclusion. And the same rule applies.
Dr. Friday 26:02
So you have to live two out of five years and not had an exclusion in the last two years. So if you those things apply to you, and you’re able to do those, those are great, but I have had many, well, I don’t know, I’m a small firm all in all. So I’ve had a number of people that have sold above those numbers.
Dr. Friday 26:20
So capital gains is coming into play. So depending on your income is very, very important that you’re actually understand how much is your capital gains tax, because everyone always thinks capital gains long term when we say capital gains, it has to be long term because short term capital gains is actually ordinary income tax rates.
Dr. Friday 26:41
So when we say capital gains long term, a year plus a day, and and then it starts, right you have 15%, theoretically, we have 0% capital gains for individuals that are single making less than 50, including your gain, or are a married couple making less than 100, including your gain, you’d have zero and then it goes to 15.
Dr. Friday 27:02
But then once you hit that 200, or 200, for single 250,000 for married couples, and this way, they include all incomes, including the capital gains, you’re gonna get hit with the Medicare tax, which is a 3.8. So now we went to 18.8, which is the rate that many people have had a couple even jump into the 23.8 capital gains rates, which is almost 24% people, that’s a pretty hefty tax rate that you have to have there.
Dr. Friday 27:29
So just making sure that when you’re thinking about selling something, you need to take into account all the moving parts, because we’re not even talking about if it’s investment property, and you have depreciation. Why? Because that’s recaptured depreciation at ordinary rates. So when you’re thinking about selling, if you’ve done your own taxes, you might want to consult with a tax person just to find out how much money do you need to have set aside once you have sold it.
Dr. Friday 27:58
If it’s investment property, and we wait, we might not want to pay any taxes, because they’re still on the table a 1031 exchange, you can only do that with investment property, it can’t be primary home to primary home. So again, if you have a piece of rental property, and you’re like, oh, you know what they’re they’re given me a lot of money for this piece of property, and I need to sell it while the market is still strong. But you want to keep some rental properties, maybe you want to go to Florida, that seems to be a very popular place for people to purchase the properties.
Dr. Friday 28:33
You can take the gains, and it’s called the 1031. You roll them into the new house, and then you don’t pay any tax until that house sells or another 1031. So these are all the kinds of things that you can do.
Dr. Friday 28:45
And I want to make sure you have some of these things in your head. Because if you don’t, when it comes time to taxes, and you walk in my door, and you’re like, “Oh my gosh, I didn’t think I was gonna have to pay that much in taxes.” I don’t want to hear those words, I want to say, “You know what, you estimated this much. And I’m only paying this much because Friday overestimates.”
Dr. Friday 29:05
That’s great. Those are wonderful because that means you’ve put more money in your pocket than you thought, but you were prepared for the worst. And then of course, we still have inherited properties and had a couple cases where they inherited but because of probate and everything, they had delays in when they could sell the property. So the basis has went the basis kind of stays the same right?
Dr. Friday 29:30
Whenever the person passes away. We refer to that as basis what is the home worth at the time of their passing? And then depending on the situation, you know, that you could end up selling it for 50 or $60,000 more if you wait a month or two or sometimes a bidding war happens. real estates very crazy. I’m very glad I’m not an expert in that particular scenario.
Dr. Friday 29:53
All I do know is I’ve had a couple of them where the person passed away the house was appraised for a certain dollar amount you then within 60-90 days or so they put it on the market, they sold it. But then they turned around and ended up in a bidding situation the home sold for more than what they listed it for. And that turned into a capital gain situation for these individuals, because it was outside the 30 or 60 days that the person had passed away.
Dr. Friday 30:20
So it’s very important to understand those things when you’re dealing with either an estate, or dealing with your own property sales. Because again, these last couple of years, we have quite a few people that have been buying and selling, especially selling cars, when you buy, there’s really not a man, I’ve had a couple of people come in and like well, I purchased the home this year.
Dr. Friday 30:43
So I really wanted, you know, a professional to do my taxes. And that’s awesome. I think it’s always nice to have a professional do your taxes. But in all honesty, buying a home is not really a taxable situation. So we have the standard deductions, right. And many of these cases, these individuals are married. So they have like $25,000 standard deduction, and you first purchase your first home and you’ve got only mortgage interest, maybe some taxes paid at the time at closing, possibly even paying your property taxes, you may even have a little extra sales tax, because you brought a ton of furniture when you moved into the house. But none of that adds up to unless you give quite a bit of money to charity, it doesn’t add up to the $25,000 that you automatically get under the current tax law.
Dr. Friday 31:31
So it’s very, very important to understand how and what is going to help you buying a home. I’m not a financial planner, people, I think it’s a good investment personally, but you know, I don’t know what’s good and bad for investing for each individual. That’s why you have financial planners, as a tax person, I can tell you buying a home is not really going to be a great tax advantage to save you taxes, especially under the current tax law, it was for a while.
Dr. Friday 32:02
And if you have a really, I mean only people that really itemize nowadays people with either high mortgages, or people that give a lot of money to charity. And I have to give a call out because we have great clients in my office. I mean, I can’t tell you how many people give some pretty decent dollar amounts away. And you know, they always act like people don’t.
Dr. Friday 32:25
But there are great people here in Tennessee. And they’re always that’s why they call it the Volunteer State, right? Because you guys are always volunteering and helping out. And it’s true, because I know my clients every year, I’m always fascinated with the amount of funds that people have donated to charities to make it work. So again, so if you want to join the show, or you have a question about how you can count charities, because I do know that sometimes people think that if they give money to an individual, I even had one that gave money to his children, and he thought it was a charity. Or some kids children’s could feel like it’s a charity.
Dr. Friday 33:02
But yeah, your kids are not charity. So not 501 C3 is there’s actually a place on the IRS website where you can check to see. And a lot of times there’s the GoFundMe accounts, that’s the ones that are the hardest, because so often people think they’re helping a family out when their child has cancer, or you know, they’ve had a major disaster and so that people will start a GoFundMe account to try to raise enough money to help help these individuals. But that’s not charity. I mean, it’s a great thing to do, if it’s a cause that you want to do.
Dr. Friday 33:34
But it’s not a tax deduction, those individuals are not 501 C threes, therefore, they don’t qualify under the IRS code as a tax deduction. Now, there may be some organizations out there that start GoFundMe accounts as nonprofits and manage the money. But normally, you don’t have the ability to say I want to donate this money to this person, under a normal charity situation, you really don’t have that authority. Normally you give to the church and the church says, Well, this is how we’re going to do.
Dr. Friday 34:02
Or if you give to Red Cross, or any of the you know, whatever organizations you give, they basically tell you where they’re going to put the money or what they’re going to do with it. So again, go fund me accounts, people, individuals, your children, those are not legitimate charities, therefore you cannot deduct those. If they’re 501, C threes, and you’re not too sure, you can go to irs.gov/charities. And you can pull up on the website, type in the name or the EIN number, and you can find the charities that is legitimate that you can use as a tax deduction on your tax returns.
Dr. Friday 34:38
So if you have questions on that, because it’s important that if you’re giving money and you want to do it, because this year they increased it to $600. Above the line, right last year was 300 for both married and individuals this year. It’s 600 for married 300 for individuals, as far as I know, that’s going to be on the books again next year. So if sometimes people will walk in and say, “Oh, I didn’t know I could count it,” because they I forget, you know, tax law is constantly changing.
Dr. Friday 35:02
That’s why I love my job. But it is something that if you, it has to be cash, it cannot be goodwill, clothing, food, any of those kinds of things, it has to be cash given to a 501 C three. So if you’re wanting to get that additional tax deduction, because you’re gonna give anyways, give it in the format that you need, and then track it, make sure it’s something that you have either a check, or some sort of letter from them saying that you did give that money to the charity, so that you can make sure that you have what you need. Alright, guys, we’re gonna take our last break here.
Dr. Friday 35:34
So if you’ve been holding your breath, saying, “Oh, my gosh, I’ve got a question. But I don’t know if I want to call a radio show.” I don’t blame you. It’s not something that a lot of us had ever done before. But if you do 615-737-9986 here in the studio, I’m Dr. Friday, an enrolled agent licensed by the Internal Revenue Service to do taxes and representation.
Dr. Friday 36:00
So if you’ve got a question concerning what you need to do to get straight with the IRS, or maybe the IRS is sending you love letters, and you’re like, “Oh, I’m just gonna throw this in the drawer because I don’t know how to deal with it.” You know, this is the show, or you need to give me a call at my studio, my office. Sorry, I’m in the studio right now at my office, and we can help you get straightened out. All right, we’re gonna take our last break. We’ll be right back with the Dr. Friday show.
Dr. Friday 36:34
job of it is I like that music. All right, we are back here in studio. And if you have a question, you can call us at 615-737-9986. Taking your call talking about my absolute favorite subjects, which is course taxes, people, I mean, come on, that’s what I do. So if you want to join us, you can at 615-737-9986. And then if you want to actually call our office later, we’ll be back in on Monday, and you can give us a call. And we can see what we need to do.
Dr. Friday 37:12
As far as getting everything squared away and trying to get you back up to date. There we go lost all my screens there, guys, for a second, I was talking to myself. All right. So we were talking earlier about things that you need to know about making sure your tax documents because remember, especially for individuals, their small business owners, or business owners period, one of the biggest things we want to talk about a little bit is audit proofing, right?
Dr. Friday 37:38
We want to make sure what kind of documents kind of like the kid who called earlier was saying, What document do I need? So if the IRS comes back and says, Hey, I didn’t earn this money, what do I need to prove? This? Probably the biggest thing that we always find out or we get letter audits on is miles, right?
Dr. Friday 37:59
And so mileage is something that so many people think, hmm, I can just make an educated guess kind of go with the flow and see what we have going on this situation or you know, better yet, you could use something like mileage IQ and actually have your beginning and end miles purpose of every stop why you did it.
Dr. Friday 38:20
Because in theory, the IRS doesn’t require a receipt for eating out if it’s under $75. But it does require to know why you went there the purpose of who you met with, and what was the the basic topic of what you were doing, or the reason behind it, right. So again, you need to kind of have that information out there. So that you know what, how, when, whatever that you’re you’re doing.
Dr. Friday 38:45
So if you’re a real estate agent, and you’re driving around looking at houses, and you’re you know, so often people say, Well, I know I’ve done more miles than this, but you know, it, it’s often shocking that people don’t really keep track of their miles. And then I mean, probably the number one thing that we’ve had audited is miles in our office when I mean knock on wood.
Dr. Friday 39:09
So far, we’ve done a pretty good job, but paper audit, the number one thing people are asked about is how many miles Have you had? And you know, it’s gonna come down to you’re sitting there going? Hmm, not really sure. Yeah, that’s not an answer. You know, I mean, really, it’s not an answer you need to know exactly.
Dr. Friday 39:27
Yeah. And if you’ve used multiple cars, there’s nothing wrong with using multiple cars. Many people, myself included have multiple cars, right? So having multiple cars is not the problem. Having the situation where you basically need to know though how many miles were put on the cars would be ideal. But you know, the IRS is looking at total miles and the purpose of those miles.
Dr. Friday 39:51
You know, if you drove two cars or three cars and your miles isn’t separated properly, I’ve not yet had an auditor come back and say well, you have it under the wrong car. are, what they want to know is your mileage log and mileage IQ or any of those kinds of softwares? I’m not promoting any one particular one. All I’m saying is all of those software’s they give you every time you stop every time you start, because the logic is, first, how do we even know you put 30,000 miles on your call? I mean, do you have a gasoline an oil change?
Dr. Friday 40:21
Or something that would give us that detail? How do we know where the information is coming from? I mean, you know, I mean, at least if I mean, some people have an oil change at the beginning an oil change. At the end, I have people that do their oil changes at the very first day of the year, and at the end of the year, just to make sure that they have something with the true miles on it.
Dr. Friday 40:41
So at least then they can justify the miles as long as they’ve got the log then because you have to know when, where, why, and who that’s what has to be answered every single time, you don’t have that. And you know, a lot of people get a bit angry because the IRS removed a form called a 2106. And on that form, individuals that were employees could ride off miles.
Dr. Friday 41:06
But what no one seems to remember or follow or whatever. Of course, people don’t usually follow tax law as much as I do. But what they don’t seem to remember is that they did a bunch of these audits for the 2106. And statistically, it was something ridiculous, like only 10% of the people could justify the employee risk expenses that was claimed that means 90% of people lied or took things that they shouldn’t have taken on their tax return, they probably took commuting, which we all know is not a tax deduction, but a lot of times people think that they should be able to take it.
Dr. Friday 41:41
Now I had, it does hurt a lot of my people that are legitimately using their car going from location to location or doing different things. But all in all, it was taken off of the tax law, because there were so many people that had used the 2106 and was audited and was unable to justify those audits.
Dr. Friday 42:01
So that’s where we lose certain things. And that’s the kind of thing the IRS does, I actually, we have a client that ended up being audited by Tennessee Department of Revenue. And in all fairness, or honesty, the auditor we’re dealing with, there’s two of them, but they are very good, very communicative, explaining, making sure the documentation is there.
Dr. Friday 42:24
And dealing with them. This is my first time in 25 years of actually having an actual audit with the Tennessee Department of Revenue. And, again, it was a it was a good experience. There were things that I mean, learned always I mean, that’s what I think people always surprised but you know, you always are learning something, because what you might assume prime example in this audit, what I assumed was that if a person was an out of state sale, that they would not report that sale on the business license, because it was out of state, there should be a place where you can write it off, we do it on the sales tax, right?
Dr. Friday 43:01
There’s a place where if it’s an out of state sale, you would write it off but um business tax, all sales 100% of your sales are taxable. Now there are certain things that would be excludable, possibly trade ins and, and repos, things like that. But all in all, I thought that was interesting, because I would have assumed just like on sales tax, that they would be consistent.
Dr. Friday 43:21
And this is the kind of thing you learn about with taxes all the time, right is the consistency of it. Sometimes what you might assume is consistent on one side is not always running down the line consistently. With others I know more than once people will come up and say is that really the tax law in it is because somewhere along the line, someone decided to put it on the books like that, and then we have to learn to deal with it under those pretenses.
Dr. Friday 43:44
So again, these are the kinds of things that you really need to understand. And in the situation this one is he had actually taken a course with, with some Tennessee, Tennessee Department of Revenue person had helped walk them through some of this. And I don’t think that person even knew the proper tax law in all honesty, but keep in mind, IRS, same as Tennessee Department of Revenue, I’m sure is that if you get something from if you call in the IRS, and they say, “Hey, no, this is what you need to do.” If you need to defend that you doesn’t make a difference.
Dr. Friday 44:19
If you’ve got their badge number, the time of day, anything else the IRS says tax advice from an IRS revenue officer or from the phone services. They’re mostly not revenue officers, but from the IRS is not allowable or reasonable excuse for doing it wrong. I mean, that’s just crazy, isn’t it? I mean, the one place you’re supposed to be calling to be able to get help.
Dr. Friday 44:42
They turn around and say, Well, we’re sorry. But that advice is just basically supposed to be kind of, I guess, user friendly. I don’t really know how to explain that to my clients because it’s happened to more than one of my clients and in the big picture, that’s kind of thing that makes it work for you.
Dr. Friday 44:57
So alright, so we’re gonna be winding down on the show. It’s been a quiet phone call day. It’s because it’s so freakin beautiful outside. I know it was up on my roof wash pressure washing my house prior to this, and I will be returning out there it’s so pretty outside. So I don’t blame you guys because it’s just one of those days where you want to be outside getting some vitamin D and maybe the first for a while that we’ve actually had some great sunshine and get some outdoor work done.
Dr. Friday 45:22
So if you want to join, you can also give me a call at my office Monday morning 615-367-0819. Again, my name is Dr. Friday Burke. I’m an enrolled bridge agent, enrolled agent licensed by the Internal Revenue Service to do taxes and representation to what I’ve been doing for the last 25 years here in the Nashville area, actually in Brentwood. I should be probably more specific, but you know, I cover big territory.
Dr. Friday 45:52
And if you have questions or need help doing taxes or you have a tax situation, you should be able to reach us at 615-367-0819. You can also check us out on the web. That is drfriday.com or you can email me firstname.lastname@example.org.
Dr. Friday 46:16
And yes, my first name is Friday. You can blame my papa on that one because that was where that one came from. But again email@example.com I hope you guys are enjoying this Saturday. It is absolutely beautiful and I think you guys will enjoy yourself. And I’ll look forward to talking to you again next Saturday. Call you later.