Listen to this week’s episode of the Dr. Friday Show, broadcast live every Saturday at 2:00pm Central on on 99.7 WTN! For this episode, Dr. Friday tackles on the following topics:
- Tax and Sub S Companies
- The Troubles of Tax and Cryptocurrencies
- Why You Should Work with the Right “Tax Person”
- When Are Delivery Personnels Getting Taxed?
- Offering Compromises
- The Importance of Filing a Schedule D
Announcer: 00:01 No, no, no. She’s not a medical doctor, but she can sure cure your tax problems or your 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. 737-WWTN! That ‘s 737-9986. So here’s your host, financial counselor and tax consultant, Dr Friday!
Dr. Friday: 00:30 Good day! I I’m Dr. Friday and the doctor is in the house. This is going to be a fun Saturday. Let’s talk about one of my favorite subjects, which is taxes. And there’s been a few changes. Some of the things that’s been passed down from the White House and from the Senate and all of them telling us different things that they’re going to be looking at, especially from the Internal Revenue Service. Some new rules and who they might be looking at to push these rules upon. So if you’ve got questions, (615) 737-9986 (615) 737-9986. I’m an enrolled agent license with the Internal Revenue Service to do taxes and representation, which basically means guys, that’s all I do. I do tax preparation for individuals and businesses. Trust me, pretty much any type of tax returns. As long as I do not get into foreign tax returns. And then we also have representation. So if you haven’t filed taxes or maybe you have an issue with the IRS or maybe things have happened and you need to get back on track with the IRS and you’re just not sure where to start.
Dr. Friday: 01:32 That is kind of my expertise. We’re pretty good at getting deals going, but mostly just getting everybody on the same page because most of the time the IRS has no idea what’s happened in your life and you don’t really know what the IRS is looking for. So getting everyone going in the right direction is a huge step. So if you need to do that, keep listening and we’ll be good. Now our phone number and then you can set up a free consultation. Our initial meetings are always free because, let’s be honest, we never know what we’re going to be able to do for each other in any company immediately. One of the biggest pet peeves I have is there are companies that advertise all over the world and basically all they say is, “Well, if you have more than $10,000, we’ll, you know, we can help you.”
Dr. Friday: 02:12 And the first thing you do is to get on the phone with them. And the first thing they want to talk about is how much money you’re going to owe them before they even know if they can do anything. Sure, they can delay, they can communicate, they can put on. But I mean is it really what you need or is it just delays, tactics or even just getting power of attorney with them. So, you need to have a plan, you need to know that. And most of the time it takes getting a power of attorney, pulling transcripts for anyone to really know what the situation is. So if you want to join the show, (615) 737-9986 (615) 737-9986. You can join the show. All right, so let’s talk a little bit about a few of the things that’s coming down the line.
Dr. Friday: 02:54 One of the biggest things going on is sub S corporations. Now, I operate or one of my companies is a sub S comp, a corporation, which basically means small business. It’s a pass-through company. One of the biggest rules that changed in the 2018 tax was that we now have to provide basis on our individual tax returns when reporting K-1s. So why does the government care what our basis is? Well, it comes down to this. For one, a lot of people would take the losses of their company even if they physically did not take a loss. Now in some cases that is allowed because if a loan was taken out in the name of the company, but you had to put your name on it as the co-signer if you want to say or the primary person borrowing the bank because the bank won’t loan it to the company, but you did.
Dr. Friday: 03:46 And so you’ve got all this debt. Even if the company is paying back that debt, you may be entitled to being able to take the business losses because at some point you could get stuck with the loan or the profits will come back to you. So if there is that on the company that you are personally liable for, you may still be able to take losses. But in some cases, that’s not the case. There are losses on the company, but you are not personally held responsible for those losses yet you have been taking a loss on your tax return because box one says loss! And so well I must be able to take it. No, that’s not the way the rules play. And the government has made it a little more difficult or at least people that know what they’re doing, they’re going to have to now put the basis. And if your basis is showing negative on the K-1 and you have a loss, guess what? You will not be allowed to take it.
Dr. Friday: 04:36 And another major thing in that conversation, according to the audit division of the Internal Revenue Service that is going to be on their top three list of going through audits. Looking at individuals that have S corporations and looking at the individuals, not the corporation. They’re looking at the individuals to see if they properly took losses. And so they’re looking at people that have had losses and they have taken them. Cause another rule that passed in 2017 when we passed it basically came in effect in 18 was any one of the huge losses, right? So if a married couple with business losses over $500,000 or a single person with a business loss of $250,000, that is the maximum. If you have more than that, you will have to roll it forward. Those additional losses you cannot take more. Even if you have more income to offset that is the maximum loss you would be able to take at any given point.
Dr. Friday: 05:31 So that’s important to know. So if you have an investment in a small company or small business, there is some advantages. Don’t get me wrong, but this is really important because they’re putting it on their top three lists of people to be looking at. So you may want to review and say, Hey, have you been taking a lot of losses? Are you really entitled to those losses? What’s your basis in those companies and seeing what that leads you to. So if you’ve got questions, you’re not sure what I’m really talking about. Or maybe you’re confused a little bit about how that’s supposed to be when working on your taxes. You can call the show. We don’t take your name and number. There are no stupid questions. In fact, I think asking the question makes you a pretty smart person cause at least you’ve got the know-how to ask the question to make sure that you’re understanding what you’ve got.
Dr. Friday: 06:18 (615) 737-9986 it’s here in the studio. (615) 737-9986 is the number. All right, so we’ve covered the sub S the next big one. And I know I hit on this a few different times, but we’re going to do it again because I have quite a few clients. I have a person that just cashed out her entire retirement. Now listen all you financial planners, cause you’re gonna have probably as much heart attack as I do. She cashed out all her retirement and she purchased Bitcoin or a version of Bitcoin. I know we say Bitcoin, like we say soft drink and we all say Coca-Cola. Even though I might be drinking a Sprite or Dr Pepper – doesn’t make a difference. She took all of her retirement cause she didn’t feel it was growing well enough and she thinks that is now… I’m going to tell you. I don’t think anyone should put all their eggs in one basket no matter what basket this is. But to take all of your retirement and put it into something that is not regulated, that there is not a black and white way of understanding it.
Dr. Friday: 07:23 I think you can be putting in at risk and here is something more important. The revenue agents are now hunting for those dealing in virtual currency. They’re mailing letters to people they believe have virtual currency accounts is part of the IRS effect to clamp down on unreported income from these types of transactions. To the letters being sent out are not threatening, asking taxpayers to review the records on whether or not their accuracy reported their transactions into a min returns as needed. The more likely warning letters, but if you get one of these it is best not to ignore it because how else do they get your name if they don’t think you don’t have something there. The third letter is a bit dicey, asking recipients assigned petitions to under perjury statements that they have followed all the laws. People who get this letter should contact an enrolled agent or a tax attorney. Because at this point, they already know you’re lying and if you sign that letter, there’s something that they know that you haven’t reported. And it’s a good bet that the IRS got these names from a summons that they had to Coinbase. Back in 2017, the court order Coinbase to turn information over to the US customs who brought and sold Bitcoin through their firm.
Dr. Friday: 08:35 So if you had an account, have a account or, at some point, did do something with Coinbase, it’s a good bet that your information has been shared with the Internal Revenue Service. Therefore, you did not. So get this. So I know a lot of people, it was like, “Well, I’ve never turned the money back into US dollars, therefore I nothing to report.” Wrong! That’s not the way it works, people. You need to look at Bitcoin and all of the subsidiary, different companies within the Bitcoin world. Either mining and all the different things are changing from one type of coin to other. Every time there’s a transaction, every time you take one type of currency and turn it into another type of currency that is a reportable transaction. There was a basis and then you converted it. even if, let’s say, it’s a zero transaction where you brought it and sold it the exact same dollar amount. That still was a transaction in which are required to be sold. [inaudible]
Dr. Friday: 09:37 Report it on your Schedule D. It’s the exact same thing as if you were to go and buy Facebook, sell Facebook, buy Twitter, sell Twitter. It’s the exact same situation where you’re buying and selling stock. When you’re buying and selling currency, it’s the same treatment. So if you’re into virtual currency, and I know many of you are into it because of the fact that you’re hoping to maybe live a little bit more off the grid and live your world in that, that is your choice. But as long as you live here in the United States, at least, I don’t know about other countries, but here in the United States they are taking this extremely seriously and want to make sure. And I want my listeners to understand because if my listeners are made up of many of my clients and people that I hope, you know, are dealing with the same issues my clients are and I have clients that are into Bitcoin and versions of Bitcoin mining and all these different things.
Dr. Friday: 10:31 And so this is something that my clients are into it. I’m assuming a lot of the listeners to this station are also into it or have some money into it or maybe your children. I went to my nephew’s wedding a couple of weeks ago in Dallas. And I found out that and he’s in his mid twenties or whatever and so many of his friends and his brother’s friends, which they’re very close in age are into buying Bitcoins. So there was quite the conversation about it and all that. So it may be that your children are looking into or have invested into this. So making sure that they understand that just because they’ve invested in never converted it back to US dollars, that there could be taxable situations coming about that they need to understand. Just be, you know, just understanding how the federal tax system works is it’s kind of mind boggling.
Dr. Friday: 11:27 And you know, as well as I do that it’s never as straightforward as everyone likes to think. In anytime it seems so simple as probably when you either you have an extremely simple situation or it’s not as simple as you think it is. It just seems like, it is turning into that. So people who pay a non-employee compensation over $600 will have new forms to fill out. The revenue service released a draft of a 1099-NEC for 2020 payments may prior to 2020 will continue to be reported online. Seven of a 1099, miss the NEC sees a familiar, it should, a prior version was used until the early 1980s. So whether we changing our reporting of 1099 miscellaneous forms to this 1099-NEC, which is going to probably require us to do a bit more paperwork knowing the government. All right guys. We’re going to take our first break here. If you’ve got questions, you can certainly join the show. If you’ve got a situation where you’re not sure why you need to start, hey, let’s make the phone call. (615) 737-9986 is the number here in the studio. (615) 737-9986. We’ll be right back.
Dr. Friday: 12:49 Alrighty. We are back live in studio. I’m Dr. Friday and I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. So when it comes to doing representation, guys is basically a way of putting a shield between you and the IRS. I’m able to be kind of your, your front person to be able to go in there and take the meetings to provide the documents so that they’re not necessarily knocking on your house door or your business door. We help to stop that before it actually happens or many people basically… It’s very difficult, let me just put it this way. When you’re dealing with the Internal Revenue Service and they’re talking about your personal income and your lifestyle and your money and what you’ve got, it can become very passionate about that sort of thing.
Dr. Friday: 13:37 And it’s a little easier when you have representation. To us as well as to the Internal Revenue Service. It becomes more about the numbers, what the numbers are about. There’s not as much personal invested. Therefore them and myself can get down to the nitty-gritty and get the information out there. And it’s probably a little less stressful for the taxpayer when you have somebody else sitting at the table for you. So if you have a love letter and you’ve received something saying that they’re… And nowadays, I will tell you many, many of the audits we get now is just letters basically saying we have changed your tax return. If you agree, sign here. If not, provide documentations for whatever the following thing, be that mileage or whatever the situation is. And then therefore you have time to just put the documents together, submits the government, and hopefully they’ll understand what it was that you wanted to do.
Dr. Friday: 14:29 I had a couple come in the other day. And I kinda felt sorry for him even though it proves a very important point. They had been going to the same tax person for a number of years and he is a truck driver and he’s not an over-the-road. He’s a local driver and therefore they have been putting a per diem and many other expenses on a 2106, While we all know that 2018 that went away. But in 2017, which is when they got the love letter and the IRS says, Hey, we’ve changed your tax return and we’ve taken you from itemizing because there was over $26,000 worth of itemizing on this 2106. And we’ve taken that down to the $12,000, which is turned around to being about a $15,000 tax change for these particular couple. And they didn’t understand how that could happen, you know?Why would that happen?
Dr. Friday: 15:24 And they said they’d never provided this information to this tax person. And they wanted to know, in as far as this was a just a tax person. There was no enrolled agent involved here or a CPA, someone that might’ve had Arizona mission or had some sort of they were just someone that put numbers. But somewhere in there the conversation got confused and the person put in the wrong information. And this is why it’s so important. If you’re getting an extremely large refund, and this particular year they got a much larger one than they had years before, but every year they were getting a fairly healthy refund as far as I was concerned. And if you’re getting a large refund, you should make sure if it’s a straight out W2, you put it in the system and it kicks it back because of your mortgage interest or property taxes prior to 2018 probably hard to do in 18.
Dr. Friday: 16:15 That’s fine. That’s no worries. But if you’re paying in $17,000 as a married couple making $100,000 and then when they’re done, you’re getting $14,000 back and you’re only showing about $50,000 income because they’re writing off $46,000 on a schedule along with your mortgage and property tax and all these different things. You’ve got to question it guys! You may think that this tax person knows what they’re doing. But I would have to question because if you’d spent that kind of money, this particular gentleman, he made 60-some thousand dollars, let’s say $65,000 and he had $40,000 out-of-pocket, who would work a job where you had $40,000 out-of-pocket if you’re making $65,000? I mean you’re not bringing enough money home to support your family. So it didn’t make sense. And when I had said it to him like that, he’s like, “No, it’s crazy.”
Dr. Friday: 17:07 It is! So even though you may be going to a tax expert or someone that you trusted, but the buck will stop with you, I guess is what I’m trying to say here. In any situation, you signed those tax returns that you agree with that information or you signed an 8879 saying you’ve reviewed it and it’s okay to e-file them. So a tax person, yes, I feel there’s accountability. This person had accountability. But when the IRS gets involved, it really comes down to you being the accountable one. This couple is going to come up with a way of making payments on money. Yes, they got the money. They had a huge refund, but they thought was correct. So I’m ranting a little bit, but it’s so important to make sure the person that is doing your taxes and this person did not charge very much money at all, much less than I charge.
Dr. Friday: 17:59 And there wasn’t, like, whenever I go to these conferences, they always talk about tax preparers that ask for a percentage of what they get back for the people. This gentleman did not do any of that. So I’m not too sure what the purpose of making such an exaggerated number was for. And it’s always possible that there was just a miscommunication, but it’s very, very important to understand that when you file those taxes as the taxpayer, that you are the responsible person. So if there’s something on that tax return, you don’t understand, if the refund seems too good to be true, or normally even the opposite, you feel like the amount of money you owe is way too much, least have the explanation. Have someone work out the numbers, show you where the difference is.
Dr. Friday: 18:51 Maybe someone’s claiming married and one and you’re actually just married with no children. Well, if you’re married with no children, there is no one. Married and one means two people and a child or a dependent of some sort. And if you’re a married couple with zero children, you should be married and zero. That’s the kind of thing.. I know my brother was reading off where we were talking about a gentleman that was claiming that he was married with 14 on his W4 handling the payroll. And I asked him how in the heck did it happen? So he was reeling off because it said, enter this number on this, how many times or whatever. Gentleman misunderstood the top section. But the fact was, you know, he was still kinda coming up with like married and eight and his two children. But because of his income bracket, because his two kids we’re not in school or we’re 17 yet, etc. It’s kind of important that you understand also what is truly your right number. Your tax person, the person preparing your taxes should be able to always help you with completing your W4. If for some reason your owing money every year that needs to be adjusted. Okay, let’s hit Jerry. Hey Jerry!
Caller 1: 20:07 Hey, how are you?
Dr. Friday: 20:07 I am awesome. Thank you for calling.
Caller 1: 20:10 Good deal. So okay. My question is I work for a part-time grocery shopping company, it’s called Shipt, S-H-I-P-T. So one of the people that’s been doing it for a long time in Nashville, they tell me to get every in. And I did. And they explained to me that what they do, cause you don’t have a particular job site that you go to, you’ll just do 6 or 8.or 10 orders in a day. But you know, you don’t know exactly which store they’re going to be at. Have those multiple stores in each zone. So she was telling me that it’s okay to claim the mileage from your [inaudible]
Caller 1: 20:50 And then also from the store to the customer that. Also, and there’s a heartbeat to them. She said that if you’re going to do another city to work that is over 50 miles, you can claim those miles to that city, too. So what I do is I have a friend at Knoxville, I live in Nashville by the way, but I have a friend in Knoxville and I traveled there often. And it’s like 175 miles and I do ship orders. So when I do that, am I allowed to claim those miles up there? And then back to Nashville as far as business goes.
Dr. Friday: 21:24 Well, in at least start with the first one. So basically, the way this tax law is written, if you are a delivery person, which is what it sounds like you’re doing, you’re doing deliveries for this company, right? Okay. So the way the law is written, just like Amazon delivers or anything else, when you go to the store to pick up, that’s where your mile starts. When you go to the home, you drop off. That’s where the miles and repeat back to the store. Or if you’re going, that would be the round trip. Going to your house, you do not have anything. Your Business starts at the moment, you pick up a load, just like a truck driver or anyone else. I know that there’s a lot of people that don’t believe that, but if you get into an audit, I guarantee you will then believe it. So now the one to Knoxville, you’re picking up a load, you’re going up to Knoxville to pick up a load and deliver to people in Knoxville? Or are you picking up a load here in Tennessee and drive it to Knoxville?
Caller 1: 22:22 No, it’ll be like stores in Knoxville. I just switched that zone within my Shipt app. So when I get to Knoxville, I’ll switch there. And I’ll do work up there for 3 or 4 days and then I will come back to Nashville
Dr. Friday: 22:34 Then the trip from Nashville to Knoxville would not be a tax. That’s a choice you’re making, not a business requirement.
Caller 1: 22:42 Okay. Alright, well that’s all I was needing to know.
Dr. Friday: 22:45 I appreciate it. That’s a great question. Thank you Jerry. Appreciate it. Bye Bye. I am so glad that Jerry actually asked those questions because I can’t tell you how many times, probably almost every week, we have somebody that gets a love letter from the IRS that they’ve done their own tax return and put the miles in and the IRS is questioning those miles. And when you actually put together your mileage log, the IRS requires a mileage log. And so in this particular gentleman situation, he would say, Ookay, I started from home, I drove to store one, I did this delivery, I went to store two, I did this delivery, I went to store three, I did this delivery, etc.” Up to five different deliveries possibly. Or maybe he picks up five deliveries from store one and goes to house one, two, three, four, five. And then that would be the end of his delivery back to the distance to the store.
Dr. Friday: 23:39 Not the distance to his home because they consider that commuting. If I am a business the engineer or people that work here in this office here, when they’re here, they can’t take the miles from their home to the studio. That is commuting miles as a choice. But once they’re in the studio, if they go out and do a live event, they would be able to write any miles off from the studio to that live event and back. So it’s no different. It’s just that people often think because they’re self employed and they have no place of business, that the place of business is their home. That is not always the case. And, actually according to the IRS, it’s not the case in many situations. So it was a great question and I am quite sure there’s a number of people out there listening right this second saying, I don’t agree. Wait until you get audited! All right, we’re going to be right back with the Dr. Friday Show. If you want to join or if you’ve got a conversation, a point or maybe you’ve actually went through an audit with the IRS and want to share that whatever. I always enjoy those stories. (615) 737-9986. We’re going to be right back.
Dr. Friday: 24:56 Alright, we are back live in Studio. I’m Dr. Friday. I’m an enrolled agent, licensed with the Internal Revenue Service. We do offer in compromises. I’m sure you guys have heard me talk, especially John Haggard was on the show about offering compromises. I do want to put a little caveat out there that not everybody qualifies for an offer in compromises and not every offer in compromises is something that someone can still afford even though it may be a good deal if you owe $200,000 and I make a deal with the government for 40 and you still can’t afford to pay 40 off, then the offer and compromise is not a good deal. That being said, that is exactly what an offering compromise is. It is based on what you can actually afford and not what you think you can afford, but what you can afford. One of the biggest problems we have in most offering compromises is if people have equity in their homes.
Dr. Friday: 25:45 So let’s say you owe the government $100,000 or $50,000 and you have a home, it has equity of it, $20,000 or $30,000 and you have five or six in in your, in your bank, or maybe you have nothing in the bank and maybe your home is the only asset you really have that has any equity in it. So there are ways of us getting that off of the table and the IRS could consider, but it depends on two things. One, how much equity is in the home and two, the ability to borrow. And there’s actually a three where it, how long has the IRS has been trying to collect? If it is a fairly recent situation, even though you may be able to make a deal, they’re gonna sit there and say, wait, we still have 7 years or whatever. They have 10 to actually make a good collection, assuming the time clock never stops.
Dr. Friday: 26:36 And if you’re only a few years into it, you may find that the IRS isn’t willing to negotiate because in the past you have been able to make some good money. You know, it really depends on the situation and what happened. Was it a cash out of a retirement account, you’ve always only made $40,000 or $50,000, but you cashed out a retirement account to put a down payment on a home. Had that one happened just last week. And now the home obviously has equity in it, but the person can afford to borrow any more than the mortgage that’s already on it. Their credit isn’t very good shape. So we’re gonna try and see if the government will consider waiving this, but it may be too new to actually have. And meanwhile they are going to put a lien against that house that you have all that equity in.
Dr. Friday: 27:21 It may not have any effect on you other than the fact if you want to refinance or sell that home, you will be at the mercy of having to get the IRS to hopefully either let you refinance or pay them off before you sell that house. So there are ways. That’s what an offer and compromise is – taking what you have, taking a look and seeing what you have, the ability to pay and see where you’re at. If they agree, it’s great. We’ve had many cases where people have owned, you know, $60,000, $70,000, $80,000 and only paid, you know, $4,000 Or $5,000 in one case as low as $25, I have settled cases with the IRS. But again, those are the cases that the individuals – in most of those cases have no home. They don’t own real estate. They work an hourly job and their income is usually fixed.
Dr. Friday: 28:12 In many cases, they’re living with their children and they’re, in some cases, they were actually just living off of social security. So it really depends on your situation. And even though it seems like you feel like… Hey, you know what, I had a friend of mine that called from Florida. His neighbor had just lost her husband. And now that he passed away, the household income is going to drop down to about $6,500 a month. And they’re in a payment plan with the IRS. And she was trying to figure out how she was going to continue to make this payment plan. And I tried to explain to him that the IRS was looking at it as if 6,500 for a single individual is not poverty, you know? And so she wanted to try and make a deal and make it go away or whatever.
Dr. Friday: 28:58 And I’m like, I don’t think that’s going to happen. I did refer her to someone in that area and we’ll see what comes of it. But mathematically she only had rent of $2,000 and that was pretty much her major output along with, she owned her car and everything. So she doesn’t have a lot of expenses. But she was concerned because she was losing his social security benefits, which… That’s the hardest thing when people think about when someone passes away. So she went people on fixed incomes and in many cases their pension, sometimes their social security benefits. You’re not moving so you have the same overhead. You still have your same medical expenses. Many things reduce. But not much. Your basic household living expenses don’t change at all for one person or two people in most cases.
Dr. Friday: 29:50 Maybe the food bill will go down a little bit, but not a whole bunch because it doesn’t cost as much to feed to almost any more than it cost to one. So, just saying when you’re preparing or looking at your documentation, you need to make sure you’re budgeting that situation. That’s what he was helping her with and he had forgot to take out the taxes she owed, so her picture wasn’t looking as good as he thought it was. All right. If you want to join the show, (615) 737-9986. Here’s another; don’t miss out on tax brackets. If you use a flex plan for childcare costs, you can still claim the dependent care credit to the extent of your expenses are more than the amount you pay through your workplace flex ban account.
Dr. Friday: 30:36 The maximum dependent care costs that can be funded through a flex spending care is $5,000. And in many cases, people will be spending $6,000, $7,000 or $8,000 for a child easily. And so you may be able to take off, even though you had the flexpen, you may still qualify for dependent care. That’s not something that has changed. And remember that summer day camp costs qualifies as dependent care. I can’t tell you how many speaking engagements I have done and that is one of my favorite things to bring up because most people always look at me and say, “Well I’d I don’t really have any costs. You know, my husband and I or whatever.” And I say, “Well don’t you send them away for day camp?” I have 22 nieces and nephews and I don’t know if one of them have not went to a day camp during the summertime especially or during the Christmas to break or whatever cause parents are working and day camps are a great way of keeping the kids somewhat occupied.
Dr. Friday: 31:31 And so you bring that up and, now I am saying day camp very specifically because if they’re spending the night, if they’re going away to camp and spending the weekend camp or whatever and they’re spending the night, those do not qualify. But if you’re taking the child every morning to camp and picking them up in the afternoon, then that is considered daycare. Because it’s someplace you put them during the day and then you have to come back and pick them up. So it’s really, really important that overnight camp does not qualify but day camp does. So that can also be eligible for that kind of situation. Okay. So here’s a quick tutorial on the rules of taking a dependent care credits for all of you that may have kids that are in that expenses for care of a child under the age of 13, qualified relatives must be encouraged.
Dr. Friday: 32:22 So you can deduct or looking for a job, you must report the provided tax id on the 2441. That is where we take off our child care credits. So if you are paying your mom to watch the kids and mom is only on social security, it may not be a bad idea for mom to pick up that if you could get the tax deduction, you know? I get it, sometimes you don’t, but sometimes you also pay. If taking the credit to help care for a relative who isn’t a qualified child, such as an aging parent or grandparent, that person needs to have lived with you for more than six months. So then when you catch that dependent care, I started out saying children under the age of 13. But if you have a parent that is living with you for more than six months and maybe while you’re at work, you either take them to a care unit or you have someone that comes in and takes care of them while you’re at work, just like you would a child, then they are able to be used as the same.
Dr. Friday: 33:30 The credit is worth 20% to 35% up to $3,000 in eligible care credits. Now, you know, I will be honest with you, most people pay a lot more and get this credit. But if you’re paying it anyways, so if you’ve got a parent at home or you’ve got a child under the age of 13 at home and you’re having to put them in day camps, or you have someone that is coming in to take care of them or you’re taking and dropping them off someplace where they’re being taken care of during the day, then Bam, why not take it? And if you have a flex savings account, use the first 5,000 out of that because that’s pre-taxed then take off the rest because in many cases it will be that you have something other than just that that expense to come into. And really quick before I take my last break and remember if you want to join the show guys, if you’ve got questions, cause these are the types of things that people forget to take on their tax return.
Dr. Friday: 34:25 And I have often asked people these questions afterwards like, oh, I never knew this. So I’m trying to make sure you know it. So she, if you haven’t filed your 2018s but hey, we’re getting towards the end of 19, so this will be good for either one and you can amend up to three years to get these credits. So non-custodial parents need to form 8332. Again, non-custodial parents need the form 8332 to claim a child as a dependent. This is essential. I can’t tell you how many cases I’ll have walk in my door saying I am the custodial parent, but my ex or my parents or his parents, somebody else claimed the kids. But yet you’re the custodial and you had the kids with you the whole time. Okay. And even if you didn’t, in some cases the IRS may rule, but the tax courts confirm in the case of a man who argue that he was entitled to claim as a dependent for 2015 his son who lived with his ex wife after the divorce. However, he failed to get the form 8332 before his return, after the IRS audit the man and disallowed the earned income credit and child credit.
Dr. Friday: 35:29 His ex wife signed the 8332. But that didn’t help him because she also claimed the boy as a dependent on her 2015 and did not amend the filing. Well, that was silly. I mean, I’m not even too sure what to take that court case. Obviously if she signed the 8332 because she was supposed to do, she should have amended her tax return. Because, let’s be honest, she wasn’t entitled to take the child even if the child was on, and this is where those exclusions, even if she had the child for more than six months in a day, the agreement was as long as he paid child support, he’s entitled to this child every other year or whatever. Not, because you don’t like them or you’re mad at ’em or whatever. Okay. I’m gonna come back to that a little bit.
Dr. Friday: 36:16 It’s just, it’s one of my pet peeves because parents don’t always like each other and therefore the custodial parents often just doesn’t want to sign that form even if they’re legally obligated and nobody wants to have to go to court to get the form signed. So it seems to me that those forms should be signed automatically at the time of divorce. Boom. All right, we’re going to be right back. This will be our last break. So if you have anything you’ve been holding your breath, you wanting to join the show now will be the time. (615) 737-9986. We’re going to be right back.
Dr. Friday: 36:59 Alrighty, we are back live in studio I’m Dr. Friday. If you want to join the show, (615) 737-9986. Here is a new bill. It’s a bi-partisan is by Bill Cassidy and Kristen Sonoma. She’s a Democrat from Arizona who is co-sponsoring the bill for Congress. First bi-partisan to leave a proposal. Parents of a newborn child or recently adopted child under the age of six would be able to opt to receive up to $5,000 of their future child credit. They would then repay the funds over a 10-year period by reducing future bough credits by $500. This ideas and to tell Pippi of parents who need the help with why they couldn’t work. I’m going to tell you, many of you guys may remember back in 2007, 2008 when they actually gave these loans out to people who are first time home buyers. And then the following year, they gave people credit for the first time home buyer. Most unfair system as far as I was concerned.
Dr. Friday: 38:05 Hey, I deal with taxes all the time and there’s a lot of unfair super situations, but here’s the deal. Anytime you’re getting a loan from the government, I don’t necessarily think it’s a good plan. I’m sure there’s a lot of parents out there that say that would be great the first year cause I had to take off work. I’ve got a newborn baby. Let’s go ahead and get this. But now if you don’t have a refund or you don’t have the ability to get the money, now you’re going to be in debt to the government with penalties and interest. The $500 or a $5,000 a year situation that you went from not having enough money to having the IRS as your loan officers. Personally speaking, not a good plan. You do not want to have the IRS as your loan officer. It’s a very difficult situation and making it harder and harder for people to get back on their feet.
Dr. Friday: 38:53 I mean, let’s be honest, I make a living out of helping people try to get the IRS as no longer their loan officers and trying to make it so they can actually have a fresh start. That’s why the government actually has a program called “Fresh Start” because of the fact that, let’s be honest, people are having a difficult time. You get married and so let’s say something happens and you end up on divorce or you end up with being self employed. And once you… I love my entrepreneurs. Self-employed most of my entire life. It’s a lifestyle that many of us have to work with. But it is difficult when you have to remember that you have a partner in business and that partner is requiring a minimum in most cases of 25% of your net profits.
Dr. Friday: 39:40 So, you know what? When you, “Oh yeah, I’m doing awesome! I made $50,000, $60,000, $70,000!” And next thing you know, you have to take out 25% and give it to that silent partner that’s not so silent if he doesn’t get his money. And then he charges you interest and penalties if you can’t pay him on time. We always talk about loan officers or they always talk about, you know… I’m not a person that likes those cash checking places, to be quite honest. The interest rates can get to a point where it’s probably cheaper to get it from a loan shark kind of situation. I have some people that, I mean, they’re paying as much. I mean they go borrow $100 and they’re paying back, you know, $170. So it’s highway robbery and that’s what the government can do, but legally, right?
Dr. Friday: 40:31 So the last thing you want to do is get behind on the IRS. And now you’re taking young families, people that have already struggled to get to a point at this point normally. And now you’re saying that they’re going to have to pay back $500 of either their refunds or their, their income. So I’m not a fan of it. We’ll see what comes of it. I’m not too sure if that’s going to be the direction that we want to go when it comes to dealing with that. Okay. So now we’re going to be back at the drawing board for the IRS. I’m rules for reporting donors. Exempt organizations used to list on a schedule B of their 990 return the name and address as the contributors who make gifts of $5,000 or more. Last year, IRS issued a revenue procedure axing the requirement to disclose donors information.
Dr. Friday: 41:19 501-C4, social welfare groups, and many others beginning the 990 filing of 2018. And court now invalidated that procedure because the IRS put it out without giving prior notice or inviting public comments. Note that the court in this case addressed the procedure by which the agency attempted to amend an existing regulation and not the actual suspension of the conversion change. So what they’re saying is, and I’ve always had a problem with that because 990s are public record. So if you’re a person that gives a large amount of money to a non-profit organization, and by law they have to now disclose your name and address, well now you start getting calls from a lot of other places with that same, you know. Because now they know that you’re a donor and your information is public record and now they have your information.
Dr. Friday: 42:12 So now you start getting postcards and all kinds of other information. And you may get bombarded. So I’ve always found that that was a privacy issue. When it comes to, and it probably intelligent people either use companies or they will keep it less than 5,000 to any one organization that’s a 501-C3, because the last thing you really want is to be on some sort of mailing lists. I’m not too sure about many of you, but when you start contributing to certain organizations, it seems like they share that information. Next thing you know, you’re getting 10 calls a month basically asking you to give money. And I understand non-profits have to work to get money just like anyone else. But as a person and my clients are extremely giving people. I mean they seriously are. And it’s better to be able to do that anonimously. So I’m concerned most people do not give for the glory of giving.
Dr. Friday: 43:10 We give because we believe in what the organization is doing. And then when you have to continuously be bombarded, just makes it difficult to do something else. Some followers who attached a Schedule D in 2018 returns are hearing from the IRS. Does anyone know why? I will let you know. In May, the service announced on air on the Schedule D tax schedule affecting certain taxpayers who reported gains from collectible taxes at 28% or recaptured depreciation for real estates. We did run into some of this, which is subjected to the top bracket of 25%. IRS fixed the worksheet in mid May, but returns filed before May 16th could be wrong. The agency advised effective taxpayers not to file an amended return or call the IRS that it does it own review on the tax returns and they will then send you a letter and then you can deal with it.
Dr. Friday: 44:01 So don’t be stressing out if you file the Schedule D, maybe you had a sold some real estate. In many cases. That’s what we found it on some of our returns. And you had recaptured depreciation, the tax rate was not calculated properly. In this case they actually worked in the favor of my taxpayers, so that was a blessing. But it didn’t always work them. My understanding is, that some people ended up with some others. If it is a problem, the IRS has come out with saying that they are working with the tax payers if a balance is due because of this air. They are in many cases waving the penalties if you’re willing to make it correct and take care of it. So if you get another, if you get a love letter talking about your 2018 Schedule D, it is time for you to be able to look at things and know what you have and how you’re gonna move forward with that to make it all work.
Dr. Friday: 44:54 So if you’ve got questions on that or anything else when it comes to taxes, guys, it is that season we’re going to have to file business tax returns by September 15th and Personal Tax returns by October 15th for the Year of 2018 and then we’ll be getting ready to start it all over again. We are finding out a lot more about regulations and things about how some of the tax changes are affecting people for 2018. If you have questions, maybe you haven’t filed your 2018s or maybe you haven’t filed in a number of years, now’s the time. This is the time of the year when you can get to a tax person, an enrolled agent like myself to be able to help you get organized, figure out what we need to do. We are finding that power of attorneys are moving a little bit slower so it may take a little bit longer, but right now’s the time to get involved and get yourself out of there.
Dr. Friday: 45:42 Don’t try to do that between January and April. I will tell you, you’re not going to get much success. All right? So if you would like to reach me Monday morning, it’s really easy to do. (615) 367-0819 again, (615) 367-0819. That is my direct line and that is also a phone number that you can text to. So you can text (615) 367-0819. Email email@example.com – that’s my first name Friday, like the day the week – at drfriday.com. Check us out on the web. You can also email right from the web. There’s a contact page there. It gives you all the information you need. The website is drfriday.com that is David Richard. That’s D-R Friday, F-R-I-D-A-Y dot com. It’s an awesome weekend. I hope you guys have a great time. Paul Winkler will be joining us soon. Call you later.