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She’s not a medical doctor, but she can cure your financial woes! On this episode, Dr. Friday dives into the most pressing tax topics for today. With the November 3rd extension deadline for 2024 taxes looming, she explains why it’s crucial to get those returns filed before you can effectively plan for the new year.
Then, she unpacks the massive changes coming in the 2025 tax year, including the highly anticipated tax credits for overtime and tips, and a new deduction for car loan interest. What do these changes really mean for your paycheck and your refund? Dr. Friday breaks down the rules, income limits, and what you need to do now to prepare. Plus, she answers listener questions on dealing with back taxes when selling property and the tax pitfalls of inheriting money.
Episode Summary
- 2024 Tax Deadline Reminder: For those on extension, the deadline to file your 2024 taxes is November 3rd. Dr. Friday stresses the importance of completing your 2024 return to know your financial standing (e.g., carryovers) before planning for 2025.
- Understanding the New 2025 Tax Credits: Big changes are coming, but they will affect your tax return, not your regular paycheck withholding.
- No Tax on Overtime: This is a tax credit, not an exemption. It applies to the “time-and-a-half” portion of your overtime pay. It’s capped at $12,500 for single filers (income up to $150k) and $25,000 for married filers (income up to $300k).
- No Tax on Tips: A similar credit structure applies to reported tip income, with the same income thresholds and credit limits. It will be crucial for this income to be properly documented and reported on your W-2.
- New Car Loan Interest Deduction: Starting in 2025, you may be able to deduct interest on a loan for a new qualified personal vehicle purchased after December 31, 2024. This deduction is available even if you don’t itemize.
- Retirement & Investment Payouts: A cautionary tale: when taking money from a retirement account, ensure enough is withheld for both the 10% penalty (if under 59 ½) and your ordinary income tax rate. Under-withholding can lead to a massive surprise tax bill.
- Inheritance Tax Traps: Inheriting an IRA or 401(k) can create a large, immediate tax liability if you cash it out. Dr. Friday advises rolling it into a beneficiary IRA and spreading distributions over the allowed 10-year period to manage the tax impact.
- Back Taxes and Asset Sales: If you’re in a deal with the IRS (like an Offer in Compromise) and sell a major asset like a condo, do not try to hide it. The IRS will likely find out via a 1099-S form and can revoke your deal for nondisclosure.
Episode FAQ
Q1: Is my overtime pay going to be completely tax-free in 2025?
A: Not exactly. It’s a tax credit, not a complete exemption from tax. You will still have taxes withheld from your paycheck as usual. When you file your 2025 return, you can claim a credit based on the “half” portion of your time-and-a-half overtime pay, up to a maximum credit of $12,500 for single filers and $25,000 for married couples, subject to income limitations.
Q2: My friend is selling a condo but owes the IRS back taxes. His banker said he could hide the money. Is that a good idea?
A: No, this is a very risky idea. The sale of real estate generates a Form 1099-S, which is reported to the IRS. If your friend has an agreement with the IRS (like an Offer in Compromise), a sudden influx of cash from an undisclosed asset can cause the IRS to review and even revoke the deal, demanding the full original amount owed. Transparency is key.
Q3: I inherited an IRA. Should I just cash it all out now?
A: Cashing out an inherited IRA in a lump sum is often not the smartest tax move. The entire amount becomes taxable income in that year, which can push you into a much higher tax bracket. As a non-spousal beneficiary, you generally have 10 years to empty the account. Spreading the withdrawals over several years can result in significantly lower taxes paid overall.
Transcription
Announcer
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or your financial woes.
Announcer
She’s the how-to girl.
Announcer
It’s the Dr. Friday Show.
Announcer
If you have a question for Dr. Friday, call her now, 737-WWTN.
Announcer
That’s 737-9986.
Announcer
So here’s your host, financial counselor and tax consultant, Dr. Friday.
Dr. Friday
All righty, the doctor is in the house on this wonderful Saturday. It’s a beautiful day outside.
Dr. Friday
I’ve been actually working on taxes all day, so I haven’t been out there much besides the morning with my great Danes taking our wonderful morning walks. Anyways, hopefully you guys are enjoying your Saturday. Let’s talk a little bit about what to maybe be expecting in the 2025 tax year, as well as don’t forget many of you, including myself, have not yet filed our 2024. We still have time, but maybe now’s the time to start really working those numbers. I know I’ve got a number of clients I am working on trying to finish them up so that they can actually start working on their 2025 because it’s difficult to go into a new tax year if you haven’t finished the year before.
Dr. Friday
Sometimes you don’t know if you have a carryover, if there’s other issues, you just want to make sure that everything is running the right way. And then you can kind of put that one to bed and then start again and do something, you know, kind of fun and exciting, right? Versus, oh, am I going to make it?
Dr. Friday
How do I need to make larger estimates?
Dr. Friday
This year is really unique only because, you know, we have until that November 3rd deadline.
Dr. Friday
So a lot of people are building up the first three quarterly estimates and then going to send one big check, which you’re totally allowed to do.
Dr. Friday
But, you know, instead of sending $15,000 every quarter, now you’re sending in $45,000.
Dr. Friday
So making sure you still have that money set aside, still doing the same thing you’ve always done as far as practice on how to save Everyone just, if you’re self-employed or if you happen to have side investments, because I know sometimes when I say it’s really for the self-employed, but as far as the IRS is concerned, you know, it’s usually the self-employed or the people with side investments that have estimated taxes required.
Dr. Friday
And yes, I’m using the word required.
Dr. Friday
It is a law.
Dr. Friday
It’s a mandate.
Dr. Friday
You don’t do it.
Dr. Friday
You get hit with penalties.
Dr. Friday
Now, some people will say 0.5% a month is something I’d rather have when I can be earning 3% a month on that same money. That is a personal choice. My job is to tell you what the rules are.
Dr. Friday
And then your job is to do what you’re going to do to make sure you meet those rules. So everybody has that basic. And then sometimes people are like, well, this year I made more money than last year or next year, you know, in 2025, I’m going to have a sale of some sort, or maybe an investment that came to fruition. And you’re sitting there going, well, do I need to make the estimate now? So the tax rule basically says you’re supposed to make it within 90 days, but you only have to pay 110% of the year before. So if the year before you owe $25,000, and then this year you’re going to owe, I don’t know, let’s just say $100,000. You only need to make sure you have paid in that 25.
Dr. Friday
Now, the big secret to that is, is that if you know you’re going to have another 70,000 because of a big change in your finances. And maybe if it’s 7,000, use the numbers, how are they most to fit? But you need to make sure you have that money, especially if you’re getting some sort of payout. Maybe you’re taking money out of a retirement account. If you’re over the age of 59 and a half, then you’re just paying ordinary income tax. If you’re under the age of 59 and a half, it’s not a first time home builder or that you’re paying off major medical, or there’s certain certain exclusions that we can use, but there are as often limitations, like it’s for $10,000 or whatever, you’re going to need to make sure you pay an additional 10. So I had a case the other day, this brings to mind is the person said, well, I did, she did not report it on her tax return because they told her they took out taxes. So therefore she didn’t think she needed to put it on a return. Of course, she got a sweet little love letter from the IRS saying, Hey, we’ve changed your tax return. We think you made an error. You did not report this, this dollar amount.
Dr. Friday
And, uh, and they had withheld 10% tax on $70,000. So she thought, okay, no worries. Why are they asking me for, you know, $18,000 or something like that? Um, and she’s like, I already paid the taxes.
Dr. Friday
They said they withheld it. Well, they withheld the penalty. So the penalty washed, but since she was already in a 22% tax bracket. She basically owed $14,000 on the, um, the 70,000 she took out.
Dr. Friday
So instead of taking 10, they should have taken 30. Um, so now she’s, she’s already spent the money.
Dr. Friday
She reinvested, she needed for a down payment on a house and she doesn’t have the $14,000. So now we’re looking at a payment plan for the IRS in which theoretically they could put a lien against the house she just purchased for the first time. These kinds of things happen and mistakes are happening. None of us are perfect. So I’m the last person to say we haven’t all made some sort of mistake, but you do need to think if you’re getting money, no matter how you’re getting it, just double check with your tax person, make sure that they’re telling you, Hey, this is either tax free. Maybe it’s a life insurance and you’re not going to have to pay tax. Maybe someone passed away and you inherited a house and you’re selling the house, that could end up being a tax-free situation. Maybe you’re sold a primary home and with the exclusion of $250 for an individual, $500 for a married couple, you will not have to pay taxes. Those are exceptions because normally people are taking money out of retirements. They’re selling stock. They’ve gotten stock at work and they’re selling that stock. They may even end up with AMT tax. These are the kinds of things that you’re looking at and you’re sitting there going, hmm, maybe just maybe I need to make sure before you spend the money that you’ve actually taken the IRS out of the equation. Because the last thing you want is to go and get the money, do whatever you want to do with it. And then you get this love letter and with penalties and interest, you now owe, instead of 14, you owe 18, 19,000. And if you girl spread that over another five years, that’s even going to go higher. So it’s painful, but it’s even more painful when you have that problem. So again, just making sure that you, the person who’s making these decisions in your family, are looking at what’s happened. And then of course, we have the individual that works two or three jobs, and he’s claiming married and two because he is married with two children. But when you add all of his jobs together, the tax code’s not taking out enough because there’s a box on the W-4 that says, are you earning more money? You need to make sure you do the whole calculation that goes along with that box. Otherwise you also at the end of the year, get that sweet little, you owe money. And it doesn’t take but a year or two to get behind.
Dr. Friday
That almost makes it impossible to catch up. You’re always playing catch up. And then, you know, your tax person says, oh, you need to adjust this, have an additional $200 a paycheck come out. And yet you still owe the IRS for the pass. So now your paycheck is $200 less per paycheck.
Dr. Friday
And the IRS is asking you pay two, three, $400 a month in payments to get rid of the pass. So it’s like a huge adjustment. So any of these things, if you have questions, if I’m talking to something or talking too fast, let me know. I know sometimes I had a interesting email, um, a couple of Saturdays back where I was told I was talking a little too fast. I get it. I do have a tendency to do that. What’s Aussies do. We, we have a tendency to talk fast. Um, and all you guys that are my clients, you know, it’s the truth. You can be honest. I know I do, but I can always slow down.
Dr. Friday
So if you’re listening or you need me to repeat something, you can call the studio 615-737-9986 is the number here in the studio. I do know a lot of my clients are out getting ready for their kids to get ready to start school, or they have actually just had their first half day on, on Saturday, on Friday. So they’re getting the final checkoff list. So I know a lot of you guys are busy, but if you’re thinking about taxes or maybe something’s come up, or maybe you’ve got a family member that has something unique happening. And I talk a lot about obviously inheritance because on one hand that often can be confusing because I had one that came in, she inherited an annuity and she just thought she could take it out. And when she did, she ended up with a large tax bill. And there’s also, and of course, when people inherit IRAs or 401ks, the natural thing for some people is I just want all the money in my bank. I don’t want to have to with this for years. I just want the money in my bank, but that’s not always the smartest thing to do because then you’re giving uncle Sam a higher percentage that maybe he needs to get. I mean, you have 10 years to take the money out of an IRA or a 401k as soon as it’s inherited, not a spousal, which you can roll over. But, um, you know, and so if you have that kind of situation, even if it’s two or three of you that are inheriting these IRAs, ask for your share to be rolled into your own inherited IRA and then talk to your tax person and say, Hey, what’s the best thing for me? Because yes, it’s great. Give me all 50 grand or a hundred grand or the one, the case that walked in 302 grand. Um, Oh, be wonderful. Have all that in your bank and you could pay off things and do all this. But at that kind of dollar amount, you’re paying a 30% tax almost in this particular person’s case, where if we could spread it over just three years, you’d be down to 22. That’s 7%. That’s like $21,000 savings. That’s not petty cash. It’s a good idea, personally speaking. And there may be other ways. Maybe you could put more money into your own personal IRA or into your own personal 401k, maximizing that and then taking money out.
Dr. Friday
And that’s somewhat a wash for tax purposes. You would still have to withhold the ordinary income.
Dr. Friday
But all I’m saying is there is some ways where you maybe can move some of this money into your own retirement or investment so that it’s not just, oh, I’m going to put it in the bank because anyone that’s ever received a lump sum of something could, I’m sure tell you, unless they turned around and invested it, it just disappeared out of the bank. You paid off credit cards, you paid off your car. You may have even paid off your home. And those are nice things. They help you create cash flow, but they don’t necessarily grow. Your house may grow, your car doesn’t. And depending on your interest rate, obviously, you need to talk to a good financial planner. You need to talk to somebody that knows how to play the game, not just your tax person, unless they’re a certified financial.
Dr. Friday
I am not. I’m an EA. That means I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. It means I went through all their courses to understand what the IRS expects from you, the taxpayer, and how we should present it to them to hopefully, hopefully make sense of it. I will tell you, sometimes we get lucky. Sometimes we don’t.
Dr. Friday
There’s a lot of new agents at the IRS, but there are also some great agents at the IRS.
Dr. Friday
But it’s really a matter of helping my clients get what they need, or at least the understanding of why, what, and where the IRS is coming from. So that’s my job. So I don’t handle, I can help you.
Dr. Friday
You say, Hey, I want to do a Roth conversion, or I want to put money into my SEP or my IRA.
Dr. Friday
I can help you tell you what the tax savings or costs would be, but I’m not going to be the person that’s going to be able to sit down and say, here’s your five and 10 year plan. If you do this now, you’ll be paying something less later. Your tax person isn’t looking usually at a five or 10 year plan. We don’t even know the tax code for five to 10 years out. So it’s just something we need to always make sure you’re working with a good tax person. Hello, but also a really good financial planner. As you get closer to the age we are, I am at least, that it’s something you’re starting to think about and making sure you have. All right, we’re going to take our first break. You can join the show again, 615-737-9986. This is the Dr. Friday show and we’ll be right back.
Dr. Friday
All right, we are back here live in studio. And if you want to join the show, you can 615-737-9986, 615-737-9986.
Dr. Friday
Taking your call, talking about my favorite subject, taxes.
Dr. Friday
Now we do know in 2025, the tax, the one big bill, one big, beautiful bill, one did go through.
Dr. Friday
And we are honestly, I’m watching every Saturday because I know many of you guys are also like myself, wanting to see how any or some of this is going to affect your personal taxes.
Dr. Friday
I’m thinking it’s going to be closer to October or November before we actually see any kind of actual IRS forms being released for the new, you know, 2025 year.
Dr. Friday
Because I think a lot of them are still trying to figure out how these forms are going to come through.
Dr. Friday
They did have, I mean, they have updated obviously certain forms, W-9s, W-4s, 941s.
Dr. Friday
They have a preliminary 2025 PDF, but everything I look at it, it doesn’t seem to really be available for the use of really looking at it.
Dr. Friday
So they’re still in the beta phase of that particular form.
Dr. Friday
But as soon as we get some forms, I will be more than glad to share or upload some of the 2025, obviously, deductions.
Dr. Friday
Because again, we know that you have the standard deduction, but we also know that under the salt tax where we have income tax, sales tax, property taxes. Now that’s went up to like 40,000 instead of 10. So that’s going to be interesting to see that may make more or allow more people to itemize than we’ve had in the past. We lost a large number of people when it came to itemizing.
Dr. Friday
And so I’ll be interesting to see how it’s definitely going to help people in other states.
Dr. Friday
I am not too sure if it’s going to be as big of a provision for us here in the, you know, the United States.
Dr. Friday
Also an interesting one, guys, is car loan interest.
Dr. Friday
We haven’t had car loan interest or credit card interest.
Dr. Friday
Goodness, it’s got to be a good 10, 15 years, right?
Dr. Friday
So car loan interest is now going to be part of the eligibility.
Dr. Friday
It says it’s effective from 25 to 28 individuals may deduct the interest paid on a, on a loan used to purchase a qualified vehicle, qualified vehicle. This is where it gets a bit on the interesting side to qualify for this deduction. The interest must have been paid on the loan that was originated after December 31st, 2024.
Dr. Friday
So all of you lucky people that purchased the vehicle in 2025, basically, you will be one of them that we’ll be looking at.
Dr. Friday
Use to purchase a vehicle originally used by the taxpayer used vehicle.
Dr. Friday
A used vehicle does not qualify.
Dr. Friday
So it has to be a new vehicle for a personal or vehicle, not business or commercial.
Dr. Friday
Well, of course not, because business and commercial already interest is deductible.
Dr. Friday
And it’s a secured loan on the vehicle, qualified vehicles.
Dr. Friday
This is what you need to know.
Dr. Friday
A qualified vehicle is a car, minivan, SUV, pickup truck, motorcycle with a gross weight rating of less than 14,000 pounds.
Dr. Friday
So I’d have to look and see if my 3500 Ram, which is a business vehicle, may not qualify for most minivans and all that would.
Dr. Friday
The label attached to the vehicle on the dealer’s premises, the vehicle identification as well as the National Highway Traffic Administration VIN number has to be on the information we’re reporting to the IRS. Basically, it has to be something that’s not deductible for business use, right? So if you’re an Uber driver or doing something like that and you’re taking your car off, then you’re not going to be able to deduct this interest on that because, well, if you’re taking mileage, it’s built into the mileage. This is for individuals that have purchased vehicles. I thought it was going to say U.S. vehicles. Deduction is available to both itemizing and non-itemizing. So if you’re not itemizing, this interest is still a taxpayer, must include the vehicle information. Lender or the person purchasing must be furnished to the IRS.
Dr. Friday
Interesting. See, there’s going to be all kinds of fun and interesting things, seriously, that’s going to come through on this. All right. Well, it looks like we finally, Daniel’s on the phone. So let’s see if I can get Daniel to join the show. Hey, Daniel, thanks for calling.
Caller
Hey, yeah, I had a question about tax on overtime. Oh, yes. No tax, no tax on overtime. Is it going to be on no tax on everything over 40 hours in a week? Because I’ve heard people say that if you work 50, 60 hours in a week, you still have to pay taxes on your base rate for that amount of time. And the only tax deductible tax will be the actual half that you get for the, uh, anything over 40 hours.
Dr. Friday
So right now, what I have been told is that it is actual overtime. So all the hours that you’ve worked over time, depending on the contract.
Dr. Friday
So all I’m saying is some, especially in restaurants, some managers are different people.
Dr. Friday
they are contracted to say you’re going to be paid this dollar amount for 50 to 60 hour weeks.
Dr. Friday
They they you know, it’s not minimum wage, obviously. And then anything above that will be considered over time. So it does depend. The basic federal law Department of Labor says 40 hours in a week. Anything above that should be paid at overtime. And so that’s going to actually show on the W-2 under box 14. So the employer is going to be identifying the dollar amount of overtime. And then that dollar amount is going to then be up to $25,000 credit given backed.
Dr. Friday
You’re going to pay all the taxes like you normally do. So it’s going to be on your W-2 or on your pay stubs. You’re not going to see any change. They’re going to still be taking out withholding on everything. And then when you file your taxes, you’re going to get this credit that will then give you a larger refund at the end of the year.
Caller
Okay. Cause I’ve worked a job that’s 40 hours a week. So everything, and then I work, like I said, I work sometimes 50, 60 hours. So everything over 40 hours should be considered over time. And they have to go back to January.
Dr. Friday
Now, most of your stubs will show it anyways, and you may exceed the $25,000, but it will be better than nothing, obviously. It also is going to have some income varications. And I’m not absolutely sure. I saw something that said like 75 for individual and 150. It could be 100 and then 200. I’m sure it says it in there, but that may, you know, I’m going to be honest, that will hurt some of my guys because they like if they work the lines or electrical companies and stuff, they’re working 70 hours, but they also make a decent pay.
Dr. Friday
So their income becomes high enough where it may not, it may not benefit my guys. That’s almost saying.
Caller
Okay. I appreciate your help. Thank you.
Dr. Friday
Okay, buddy. Thanks. And thanks for calling. All right. So we have, and that’s what I’m saying. We do again, that one is also going to be 25 through 28. So, okay.
Dr. Friday
So here it is.
Dr. Friday
Maximum deduction will be $12,500 for a single person, $25,000 for a married.
Dr. Friday
Here’s the better news.
Dr. Friday
The threshold will be $150,000 for a single person, $300,000 for a married couple.
Dr. Friday
So that will actually be better than what I expected.
Dr. Friday
It will have to be reported on the W-2.
Dr. Friday
So I think that is where, from the tax preparer’s side, we’re going to have some fun.
Dr. Friday
Because I have a feeling, especially for small time employers, if you’re using a payroll service, hopefully Gusto, ADP, you know, any of the major ones, they’re going to be jumping on that.
Dr. Friday
And normally an employer turns in the hours, regular overtime, and your stub should be saying that.
Dr. Friday
But it’s going to be interesting what goes from the stub to the W-2 and that box 14 where they’re going to be identifying the total amount of that overtime.
Dr. Friday
because I think we’re going to have some possibility.
Dr. Friday
And so basically it says you deduct the pay that exceeds your regular rate of pay, half portion of time and a half compensation.
Dr. Friday
So I guess an answer to the gentleman had called, it is the half portion of the time and a half.
Dr. Friday
So you’re gonna have, you’re deducting the pay that exceeds your regular rate.
Dr. Friday
So if you make, go ahead and grab, we’ll come, go ahead.
Dr. Friday
Let’s get Devin before the break.
Dr. Friday
So that way he doesn’t have to hold through.
Dr. Friday
I’m on a roll here.
Dr. Friday
Hey, Devin, what you have?
Caller
Hey, so I’ve got, actually it’s for a friend, but they’ve got some, they owe some back taxes to the IRS.
Caller
But they’re looking to sell a condo that they own.
Caller
And I guess don’t want that to screw up, like the deal that they’ve tried to make with the IRS.
Caller
to like you know lower their back taxes but i don’t know how legal it is or what you know can be done
Dr. Friday
Right well here’s the secret they’re probably doing an offer in compromise um which means they they’re making a deal with the irs um and in that deal if this condo is already a part of it the value because if it’s not their primary home basically whatever it’s valued is already built into this deal. And if the deal says, Hey, we’ll sell it and give you all this money or whatever portion we owe you, that’s fine. But if the condo is not in their name, and I ran into this where, um, a family member had a condo that to say, Hey, we’ll sell it.
Dr. Friday
We’ll pay off your taxes. Um, you know, but they were like partners in it, but it was a handshake partnership. And I’m not saying that all is your friends. Uh, but I’m, I’m saying in this particular situation with my client um they you know immediately came up with a big chunk of money the irs did go back in and review that case because even though they made this deal when they came up with this money it triggered hey where’d you get this money you know there wasn’t a loan taken out you didn’t provide you know where mom wrote you a check for 25000 um so they can i guess what i’m saying even if you make a deal with the irs and then you sell something they can go back and review those offering compromises if they feel there may have been some misinformation lack of a better term so just tell them that if they decide to do this and they don’t kind of disclose it to the IRS in this deal even if they get the paperwork that says hey we’ve accepted your deal and then you go and sell a condo that may or may not be directly associated they can go back and ask for all the money back for not disclosing the information
Caller
Okay because I know you’re like The banker said that he could take the funds and put it into some sort of like outside account where it wouldn’t be visible.
Caller
But I was like, I’m pretty sure the government can see everything.
Dr. Friday
Well, yeah, I mean, I’d be curious of a banker that’s willing to put it in something that’s not their name.
Dr. Friday
But again, if it’s if it’s in their name, the IRS knows about because the title is already out there.
Dr. Friday
So we’re not hiding from the IRS.
Dr. Friday
if it’s something that maybe isn’t in their name, but it’s, it’s, they had the ability to sell it.
Dr. Friday
Then my suggestion would be is either wait two years before you sell it and then pay off the IRS, which will be outside the clock that they probably need to make the payment because they can go back and look is all I’m saying. So, I mean, I’m not going to say it’s going to happen, but it’s always better.
Dr. Friday
I think your thought process is right because when that build, if, if that condo sells and even if it’s in another state that does get turned into the IRS a 1099 s is submitted and then that’s going to wave some sort of flag in the computer system that says wait a second offering compromise $200,000 condo they’re not adding up you know or whatever the dollar amount is I’m with you and I like to sleep at night so I’m with you on that one too buddy thanks.
Caller
Thank you very much love your show
Dr. Friday
Thanks for listening appreciate it all right we’re going to take the second break here when we get back we’ll do some more talking a little bit about what’s happening in 2025 and try to explain a little better about how these deductions are going to happen you can reach us 615-737-9986 we’ll be right back.
Dr. Friday
All righty i guess we’re back i don’t want to never hear the intro all right so you can reach us here 615-737-9986 615-737-9986 okay so diving deeper into what i can find out the gentleman that called the listener that called the first gentleman thank you so much um your people are correct it is taking only the half that is over time that’s becoming part of your credit ordinary time, no matter if you work 80 hour weeks, your straight time is not a deduction for the purpose of the tax credit. Only that halftime or the time and a half. So if you, you know, receive a paycheck and you make $4,000 and a thousand of it is overtime, it’s really only going to be that halftime above that, that you would really be looking at as a potential credit, which makes sense if you’re doing a lot of overtime. So they’re going to take that and it’s going to be part of, so salary employees, the employees must classify it as non-exempt employees. That’s going to be a little bit trickier. You must make less than 150,000 annually threshold set by the illustration.
Dr. Friday
And that’s going to move administrator. The important part is this started back as of January 1st, 2025. So even though the bill didn’t pass for later, that went backwards in time. And so if you’re looking at your pay stub and it’s showing you the time and a half, it’s the half that’s going to go into getting you that 12,500 single, 25,000 married to give you some relief.
Dr. Friday
So again, and you have to have income household income of 150 for a single 300,000 for married.
Dr. Friday
I think that will actually give some people, it’s going to be interesting to see how that really affects a large number of my people that work with overtime.
Dr. Friday
And then you have some people that could actually physically get tips and overtime.
Dr. Friday
And again, we’re working our way over on that one to see exactly how it’s going to also change because we do know that tips is going to be.
Dr. Friday
And again, guys, I want to reiterate one important thing.
Dr. Friday
It’s not going to change on your pay stub.
Dr. Friday
All of these changes are made for you to do on your tax return.
Dr. Friday
So it’s going to be a busy first year.
Dr. Friday
I can always see that people wanting to kind of rush in and get some things done.
Dr. Friday
Um, but it is going to be one of those where, um, you know, you, you definitely need, uh, to, to save your pay stubs. Uh, if you haven’t started downloading them, start to download them because I really do feel that this is definitely going to be, um, you know, a year where you might need somebody to, um, you know, do your taxes. If not, it’d be interesting to see if it’s something that we need to have going, you know, where, what kind of documentation I was talking about cars that you may have purchased in 2025. If you have a, if you have a loan interest, that’ll be something we’ll add to the situation. No tax on tips began January 1st. Employees and self-employed individuals whose customer and regularly received tips may deduct up to 25,000 per a qualified tip income. Again, the income thresholds are the same. 150 single, 300,000 jointly. Um, it’s going to be kind of interesting to see is basically workers contain thresholds may deduct up to 12,500 qualified overtime competition, 25,000 for married couples.
Dr. Friday
Um, so again, that will not be a number you’re going to be making an educated guess and saying, oh, I made $20,000 in tips this year. It has to report on the W two. We have to have all that information on the W-2 coming from your employer. It does say individuals that are self-employed.
Dr. Friday
It will be interesting because I’m assuming we’re going to have to have some really good paperwork, guys. It’s not like when you come in and say, well, I’m an Uber driver and I received this much in tips. You need to make sure that that’s being reported as tips through Uber. And a lot of times they have it. They’ll show how much is your trip, how much is tips. But if you got tips in cash, you didn’t report it. You’re going to have to have a reportable situation where we can track it because if it’s cash, I’ll be honest, I’m sure a number of people through Uber and everything have not been reporting a hundred percent of that income. And it may be the year you want to start doing it. You may not. I don’t personally, I think it’s easier to report it all.
Dr. Friday
Your lifestyle is being done with those. And if you ever audited, the IRS will turn around.
Dr. Friday
First thing they do is a lifestyle report.
Dr. Friday
They basically look at your lifestyle.
Dr. Friday
They look at what you’re reporting in income.
Dr. Friday
And either you can justify the difference because either you get gifts every year from family or you get credit cards that you just run up and you haven’t paid down or you had an inheritance that you’re able to live off of.
Dr. Friday
But if you’re living off of $12,000 a year and your rent is $1,000 a month, does that really make sense?
Dr. Friday
No.
Dr. Friday
unless I go again, unless you have some outside situation where there is a need or a situation where there is a situation, you know, a place where you basically say, Hey, I have roommates.
Dr. Friday
So I pay a thousand, but these two people pay me 500 each or 250 each something.
Dr. Friday
So you have to be able to adjust your lifestyle.
Dr. Friday
I have people come in and they’re like, I didn’t make any money last year, but then you sit down and you do a basic lifestyle.
Dr. Friday
Do you eat every day?
Dr. Friday
Yes.
Dr. Friday
but I, a lot of times I’ll go to my mom’s house, whatever, a friend’s house. Do you have a rent?
Dr. Friday
Oh yeah. But, uh, I live with my girlfriend. She covers most of it or boyfriend, whatever.
Dr. Friday
Then do you have a car? I do, but I use it all for business. So it’s kind of, you know, and there is logical, but the logic is, do you have clothes on your back? Yeah. I shop at the goodwill. I don’t spend more than $10 a month on clothes, whatever you have to be able to justify your lifestyle. If you’re living in a $3,000 a month apartment and you have a $500, $600 a month car payment, and you have alimony payments, and you have all the things that come along with being alive, food, clothes, utilities, and then you say you make $12,000, it’s not going to fly.
Dr. Friday
They have caught more than one person in that particular trap. It is a good one for the IRS to use. And so you need to be doing that same one. If you are socially self-employed, because I know a lot of you guys think your entire life is a tax deduction. Heck I’ve been living it for 30 plus years, but trust me, it’s not all a tax deduction. When I go out to dinner, it is not a tax deduction.
Dr. Friday
When I drive my car from home to work, that is not a tax deduction. If I’m, you know, using my car for anything other than going and seeing a client or going to the bank to talk to my banker.
Dr. Friday
My car is not a tax deduction in my world. I have to be generating income to do that. And then, um, you know, again, my mortgage, my everything is, is out of pocket. I have to show, I make enough money to justify the life I live. And so if you’re a person that’s sitting there and then of course, what’s funny is a lot of times clients will come back in and they’re like, well, I went and tried to get a loan and I didn’t, you know, I didn’t show enough income. And you’ve been saying, you know, that makes sense because you’re not showing any real income. Self-employed people love to pay zero tax until they need to buy a house, put their kids through college, anything else. So, you know, your best bet is to remember you have a partner in business. He’s going to take a minimum of 25%. That’s basically ordinary income and, you know, social security Medicare match that we, most of us have to do. That is the minimum. Most of the time, 30, 40%, you need to be setting that aside. And that way you can be showing your actual income and living the life you want to live. So just saying not always good to basically, it seems nice that you didn’t have to pay any taxes, but when people walk in my door, it’s either one of two reasons.
Dr. Friday
They don’t understand why the bank will loan a money, or they don’t understand why the, um, why the IRS is saying that they’re making so much money because you had a 1099 for 300,000, but you said you spent it all and you ended up upside down. And you know, there is the basic rule of thumb. If you’ve lost business two, three years in a row, you need to reevaluate. I had an auditor pretty much put it straight out. No one can afford to lose money two and three years in a row. No one would stay in a business. If you were only doing that, you couldn’t afford it. So why would you do it on, you know, on your tax return for five, six, seven, 10, 12 years? There are certain industries that will do that. If you’re a person that’s a farmer, then you raise nuts or something. It takes eight years for the tree to mature. Got it. IRS has exclusions for that. But in the normal world, if you’re a real estate agent and you tried it in two or three years, you’re not making money. It’s a hobby. You’re enjoying being a real estate agent, but it’s not something you’re making a living at. So you’re not supporting yourself. All right. We’re going to take our last break for the show here in just a minute. If you have a question, you can call the show 615-737-9986, 615-737-9986. You can also email friday at drfriday.com. This show is based on taxes. I’m an enrolled agent licensed by the Internal Revenue Service. I want to basically help people understand where they can be going, making sure you’re checking before you jump to make sure that there’s a way for you to save tax dollars. I much rather be able to tell you that now and then help you save them. Then you make the choice and then you walk in the office and say, Hey, I took all my money out of a 401k and now the IRS wants, you know, 50% of it. And there’s nothing you can do. It’s not like you can go back and erase it. So you need to be able to think outside the box a little bit and then figure out which way you need to be heading. Again, if you want to join the show 615-737-9986 we’ll be right back with the dr friday show all righty we are back talking about taxes again make sure that if you are have not filed your 2020 okay It is time to go ahead and make your appointments, get started on those. I know you have till November 3rd to hit the send button, but it would be nice to know. I know myself, like I said, I have a number of clients I’m trying to work up this weekend because, well, let’s be honest, they’re ready to see how much money they owe, what they need to do.
Dr. Friday
because not only do a lot of my clients have to pay last year because every year they end up owing a little bit more but they also have their quarter lease that goes with it um so you know they need to make sure all that’s being done is there someone in line one box one or is it just green okay i’m gonna assume there’s no no one’s there perfect thanks sweetheart um uh so if you want to get your taxes done obviously again you can call our office if you’ve already got your normal tax person, get on their calendar. So a lot of people can do their thing, make sure it works and make it happen. Um, if you need help with 2025, because even though we’re still working on 24 for many, we also are doing a lot of tax planning for 25. I’ve had a number of people that have either, either have had a state’s situation where they have to deal with an estate. Um, and then how that’s going to affect taxes. Like I mentioned, I had a person that has, um, some IRAs that she inherited, but this person’s pretty cool. The dad had asked her to share everything 50 50 with her half sister. And, um, it wasn’t quite documented that way properly. So, uh, she was POD on a couple of things and she’s not letting that bother her. She’s going to take in cash out, pay the taxes on things that need to have taxes paid on and then distribute. That is, um, something you don’t have to do in life. I think karma is good though. So it’s a matter, again, I’m not an attorney, so I’m not going to tell you that I know the answer to all those, but I do know you can gift anyone pretty much anything, especially if it’s in fifties or a hundred thousands, you can gift that to someone after the taxes have been paid, keeps a family happier. And like I said, karma is funny.
Dr. Friday
So you want to make sure you have that going as well. So if you have your 24 in line and your 25 is scheduled, you know, little tax planning for the future. I have a number of times, a lot of my existing clients, again, I’ve been at this for about 30 years, but a number of my existing clients have had a situation where they’re thinking about selling a condo that has been a rental, or they’re thinking about doing some interesting, you know, getting close to retirement, we want to pay off the house, etc, etc. If those are the kind of things they have, then you want to basically preempt that. So when you get ready to sell a house and it’s a matter that you want to take the cash out, but sometimes, Hey, you know what? I’ve had this house in Florida forever. We’re never using it anymore. It wasn’t Airbnb. Maybe you want to reinvest it, put it into something that’s going to have to do with, you know, long-term investing. Maybe it could be put into a commercial, a 1031 exchange can be any of those kinds of things. So making sure that you have the, the right issues that you have, but, um, making sure also that when you’re making those choices, okay, I’ve got a condo, I’ve got, I’ve done a 1031. I put it over here. I’m now 65 years old, 70 age doesn’t really, but we’re over the age of maybe you hit retirement. And now you’re thinking, do I want to go ahead and sell that so that my estate is easier? And my answer from the tax standpoint would be no, just to let you know, because, um, when it comes to doing, um, taxes and you’ve done a 1031 and you’ve got this huge capital gains under the current tax law, if someone were to inherit that house, they’re going to get the value of the home at the time of your passing versus you cashier it out, getting the original value. And then having, I know a lot of people, some people don’t like 1031s and a lot of people refer to 1031, as it’s like kind exchange is what they’re called. But a 1031 is how the rich keep getting richer.
Dr. Friday
And what they mean by that is not so much that they have done a lot of anything wrong or funky.
Dr. Friday
Basically, what they’ve done is they have taken and grown their money through real estate or other investments that are like kind real estate. And then when they pass away, instead of having to pay any tax throughout their life or the person that inherits, they now inherit it all at the step up in basis. So, um, you know, when you think about all of those different, and even, you know, you think about the Vanderbilts and some of them that are Kennedy’s that had all this real estate and their great, great grandfathers purchased it. And then they still today own a lot of that real estate.
Dr. Friday
Every time it got passed down a generation, they got a step up in basis. So now none of those properties really had to worry about paying capital gains. So there are ways of preserving money, not paying tax, but you do need to make sure all the documents are correct, that the titles are correct. That’s a huge one because sometimes people will put the name of the next beneficiary on a title because they want to make sure that person gets it. And when you do that, you’re messing with my step up in basis, not a good plan. POD paid on death, wonderful plan.
Dr. Friday
Um, but if you’re putting their name on these accounts, then the step up in basis doesn’t work unless you have a lifetime lease.
Dr. Friday
Sometimes you have that.
Dr. Friday
There are legal documents.
Dr. Friday
Again, let me clarify.
Dr. Friday
I am not an attorney, but I would send you to a really good attorney, um, either Jack McCann or Russ cook.
Dr. Friday
Both of them have been known them for good 30 years and both very good at what they do, but I would send you to either one of those because that’s what you want to have is the right documents written up. Don’t just tell somebody and hope like this young lady that her dad said, Hey, I, you know, I want everything split and, you know, and then didn’t follow up with the proper documents. Um, that doesn’t always happen. In fact, I say statistically, probably less people are cool like this kid and she’s not very old versus, um, versus other people.
Dr. Friday
But, you know, like I said, I think she’s she’s more like karma matters more than money.
Dr. Friday
And I think I think in the big picture, when you look back in life, that is awesome, often true.
Dr. Friday
But it’s also better if all the documentation is proper.
Dr. Friday
So you don’t have to wait for the the right person to do the right thing.
Dr. Friday
You already told them what is the right thing.
Dr. Friday
So there’s no question in life.
Dr. Friday
All right.
Dr. Friday
So we’re winding down to the end of this show.
Dr. Friday
if you want to join, um, or call Monday morning, I should say, forget joining call Monday morning, call my office 615-367-0819. Appreciate all of my listeners. And I was a little quiet, but I’ve got a number of emails from some people popping in and just listening.
Dr. Friday
And it’s so cool because after what 17, 18 years of doing this, um, you never know who’s listening.
Dr. Friday
So it’s always fun to, like I’m talking to myself in my studio.
Dr. Friday
So you can also email friday at drfriday.com.
Dr. Friday
That comes to me, friday at drfriday.com.
Dr. Friday
Or you can just check me out on the web, drfriday.com.
Dr. Friday
That’s probably for a lot of you that don’t know who Dr. Friday is.
Dr. Friday
I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and representation.
Dr. Friday
It just means that that’s all I do, guys.
Dr. Friday
For 30 years, I’ve done taxes.
Dr. Friday
I’ve represented people in front of the Internal Revenue Service in the state of Tennessee.
Dr. Friday
And I love doing what I do.
Dr. Friday
Most of my clients know that.
Dr. Friday
It’s something that some people get a calling.
Dr. Friday
I’ve got a calling.
Dr. Friday
Taxes are fun.
Dr. Friday
People are awesome.
Dr. Friday
And making sure that everything runs as smoothly as possible is my job.
Dr. Friday
But if you have a question, maybe you’re dealing with the IRS, maybe you know somebody that hasn’t filed taxes in the last five, 10 years, 20 years, we can help.
Dr. Friday
We can help you find out what you need to file.
Dr. Friday
We can help you get things organized.
Dr. Friday
I won’t tell you it’s not gonna happen overnight.
Dr. Friday
I still have troubles with the IRS getting power of attorneys moving faster than 30 days sometimes, but it will happen and we will be able to make it happen for you.
Dr. Friday
And then we can help you file back taxes or tell you what taxes you need to file and be able to move forward and do what you need to do.
Dr. Friday
It’s important to stay in compliance.
Dr. Friday
If you’re in compliance, then the IRS is more apt to deal with you, more apt to make deals. And also you’re up to be able to go do FAFSA. If your kids are in college, get loans or do something else. So again, just making sure that you have what you need and, um, making sure hopefully you need to do, but, um, if you need to reach me, uh, Devin, you can call the office number, the 615-367-0819.
Dr. Friday
I think you’re the gentleman we talked to earlier. I’ll be more than glad to go over that, uh, overtime situation again. But if you need help with taxes, need help to understand what the IRS is expecting from you, if you’re not sure exactly how to move forward, because sometimes, you know what, life happens, things get out of control. You’re like, I don’t know where you want to go, how you want to go with it. Then just go ahead and just give us a call. Initial meetings, always free, because I don’t know if I can help you. I’m not like some of those things you hear on the radio where they say, oh, we can save you 10 cents on the dollar, what you owe the IRS. Let’s be honest, what you owe the IRS is what you owe. And the question is, what does the IRS think that they can get from you? I don’t know the answer to that yet, but we will help you get there. And then I can tell you how to make a deal. All right. So again, if you want to reach us 615-367-0819, the number to the office. Also Friday at drfriday.com is the email. You can also check us out on the web at drfriday.com. Cop you later.