Welcome to the Dr. Friday Radio Show! In this episode, Dr. Friday answers all the caller’s questions concerning taxes, tax deadlined, and also the following topics:
- Tax Advantages Because of Covid-19
- Do You Need Help Preparing Your 2020 Taxes?
- Why You Need Help With Tax Representation
- Will The Elected President Affect My Taxes?
- Tax Deductions Will Expire By The End of 2020
- IRA Conversion Deadline Before The End of 2020
- Can I Take Money Out of My IRA Without Penalty?
- Nevada Will Have A Short Term Tax Amnesty
and other caller’s questions!
Transcript
Announcer 0:01
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 at 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:30
Good day, I’m Dr. Friday and the doctor is in the house. Hopefully, you guys are having a great Saturday out there enjoying the weather. It’s a little nippy, but it is obviously December. Therefore we’re getting to some deadlines, some explorations. Now in some cases, it may or may not affect your taxes. But we do have some extenders, what we call extenders or tax deductions that will expire by the end of 2020. We’re going to cover some of those. If you’ve got questions, maybe you’re getting ready to prep for 2020 taxes. And we have to have all those done as far as your expenses are paying with exception of IRAs or SEPs, things like that. You need to do everything before December 31, which is sneaking upon us. Conversions of your into doing an IRA conversion, which is something that has to be done before the last day of the year. Also some of the tax advantages because of COVID, and the cares act, taking out money from the IRA without penalty, all have to be done before the end of the year. So we’re going to cover a few of those things as well. But you can join the show at 615-737-9986. We are taking your calls talking about taxes.
Dr. Friday 1:51
I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. This basically means if you’re getting some love letters in the mail, and you’re not too sure what to do, you know, you haven’t filed or you just don’t have the money to pay them. But you’ve been ignoring them, which doesn’t usually lead to good things. It’s something that we probably need to deal with instead of just putting our head in the sand and hoping that they don’t catch us. That works for some people, not for many, many people. So just making sure that we have everything, we need to see what’s going to expire, and we’ll start with that. The exclusion for the income of a discharge or indebtedness on our principal residence. So if you had to do a short sale on your principal residence or something along those lines. Or you renegotiated your mortgage, and you ended up getting it reduced, in normally would become income because of the money that you put in your pockets. But if it’s to your principal residence, we were able to not have to pay tax on that. That expires as of the end of 2020. The ability to treat mortgage insurance also known as MIP, mortgage insurance premium, qualified residence, we can usually write that off on our taxes that expires. That has expired many different times. So far, they keep adding it back, a big one for individuals that have the ability to deduct medical, which is not easy under the current itemization. But they reduced it down to 7.5 of your adjusted gross before you get the first dollar onto your itemizing. That expires and it’s going to go up to 10% of your AGI. So that may make a difference. Above the line deduction for qualified tuition and related expenses for continuing education for college courses and things that are expiring credit for health insurance costs for certain low-income individuals are going to expire. So there are a few others that will we’ll get into especially employers credit for paid family and medical leave. Some of these are going to be incentives that we may lose or have. Energy tax credits, of course, we know that solar is going to slowly be reducing, and we’re going to be getting less and less over the next I think two or three years until it gets to zero. Certain credits for other energy like fuel energy for cars and different things like that. Some of those are going to also expire, some of depends on the number of cars.
Dr. Friday 4:23
So if you’ve got questions concerning that or anything else, you can join the show at 615-737-9986. I always suggest individuals, you should always do a little tax planning. If you’re running around right this second trying to figure out if it’s going to be a good thing or a bad thing? Probably going to maybe rush something you don’t want to do. I have people that will sometimes go ahead and sell off stock because they want to recapture loss but they haven’t actually calculated their gains. Now again, the loss will carry forward but if It’s only 3000 instead of 30 that you’re expecting, it can make a difference in your tax planning. Or doing a conversion from a standard IRA to a Roth IRA, I have many people because I work with a lot of financial planners, which can be a very good plan. Sometimes I think people are in a big rush to do that. And they’re willing to pay a lot more in taxes than maybe what’s necessary. I do think that one of the big questions a lot of people are coming in, hate to say it, but I think we know that Joe Biden is now going to be our next president. Hopefully, he will be the next president and not be taken out of the office and everything there. But that being said, and under his new tax plan, he was basically going to increase corporate taxes, which we all know basically pass through to us, right? Because corporations don’t really pay taxes, they increase their profit margins to cover their tax bill. So everything could get more expensive again. Then any individual, or a state’s worth more than $400,000, he’s going to start taxing. Now, I know a lot of people consider $400,000, I suppose. But when you get a husband and wife both working, that’s not necessarily, in my opinion, extremely rich.
Dr. Friday 6:16
So anyone making less than that, apparently you won’t be affected, I find that hard to believe. The good news is, because of the difference in the senate as well as the house, the spreads are a lot closer, if there’s a good thing that may happen in the Senate will keep control of. The likeliness of him being able to pass any of his unique tax changes will probably be zero. So that’s what we have to count on. At this point, let’s just hope the senate stays ours. Because I have people that are really getting extremely concerned, maybe cashing out or converting things at a higher tax rate because they’re terrified if they’re going to be in even higher tax brackets. Because if you just go back to the old but you can only tax people, the wealthy so much. It doesn’t make a lot of sense to most of us. Because how does a wealthier person spend more time on the roads than a person that is making the same money, just because they’re doing it better? It doesn’t make sense to me how you can justify it. But that being said, we have to basically be looking at the fact that they’re also going to be looking at the Medicare Part B individuals that pay that will be also going up to a minimum of 14850 next year. So, everybody that’s on Medicare, that you have to pay Part B, I think it was like 139. So it’s almost a $10 hike, I believe it’s in that ballpark, but it’s going to go up. The basic coverage is going to be 14850 a month. So obviously that’s also means-tested. So if you happen to make more money, or in some cases, I have people that have sold just the inherited piece of land or something for the next year, they end up doing something crazy, like taxing these individuals. So that makes it hard. All right, we’ve got an on the phone. Let’s go ahead and hit Anne number three, please.
Caller 8:15
Hi, Dr. Friday. I had a rental that was demolished in the tornado in March. It hasn’t been completely rebuilt yet. And I want to know what I need to do for tax purposes for this year affecting that.
Dr. Friday 8:32
Right. So were you fully covered with insurance meaning they are going to you will recoup a completely new home or were you out money for the thing? Well inside the home or house?
Caller 8:46
Probably I was but It was just a small house and I’m increasing the square footage. So I probably can’t claim that. It will be over money.
Dr. Friday 8:57
You’re putting money but you’re building a maybe a little nicer home than what they’re for. So you’re going to when you sell it, you’ll have a nicer investment, let’s say as a rental. But you know, so that the loss I mean, since it was under the tornado was a federal law. So you can claim any losses that you may have had. But they’re going to have you do the math right? How much was covered by insurance? How much did you pay? And then what’s the difference of loss. So if you were fully insured in the long run, as you said to me, if you do dollar for dollar 5000 square foot home for 5000 or whatever, 500 square foot home for 500, and now you’ve got a larger home. Were you covered for everything inside as well as everything out and keep in mind that you would have had some depreciation on some of the value of the equipment and things inside because as a rental, we depreciate it. So you will not have to do a recapture. But in the calculation, there’s a recapture of that equipment. So they weren’t valued at what you originally paid for them.
Caller 9:56
Right. Yeah, but what about should I sell that house In the future? What about the cost basis?
Dr. Friday 10:07
The cost basis is going to be what the basis was at the time at the original basis that you had, right? Besides what you’ve put physically in above and beyond. So let’s say they, let’s say the house is just for simple math, the house was worth 100,000, the insurance company covered the 100,000. But you went ahead and put another 50 making it a bigger home. So now it’s worth 150,000. You sell it for 250,000, you’re going to make a gain of 100,000. Does that make sense?
Caller 10:38
Yeah, it does. There’s really nothing that I need to do.
Dr. Friday 10:42
No, not unless you want to sit down and just make sure that they did cover you for all of your basic losses. I mean, what we don’t want you to do is leave any losses on the table. But in all reality, for most of my individuals, it took a while because of COVID hitting and everything else, the rebuilding on that side was a little slower than maybe they would have liked. In most cases, most people made out at least my clients did not have any losses when we did the numbers.
Caller 11:10
Okay.
Dr. Friday 11:11
I have one of them doing the exact same thing you did, because it was a total loss, they decided to build something different. But the insurance covered the value of what the home was that was originally there, they applied that plus an additional mortgage in their case, to the house, and were able to build something much better for a rental anyway. So at that point, so that will work out long. Yes, so they are they’re going to be ahead when it’s all said and done.
Caller 11:40
Okay. All right. Well, that’s what I’ve wanted to know. Thank you very much.
Dr. Friday 11:44
Thank you, bye-bye. All right, let’s go to Becca in Mount Juliet, please.
Caller 11:50
Yes, it is. Hey, thanks for taking my call. I have my mom passed away about a year and a half ago. I have two older sisters and I am the executor for her estate. Recently, we got a letter in the mail that explained to us that our great grandparents had owned mineral rights to some property in West Virginia. There’s a gas and oil company out of New Orleans that is wanting to develop the area. So what I’ve gotten is a lease agreement that pays out a bonus to the signer. I’m trying to figure out because we are at the tail end of being able to enclose out the estate, what would be my options for the best way to make this work? I tried asking them if they could split the bonus payment based on the percentages that we get from my mom’s will. And they said that they weren’t sure that they could do that the easiest thing would be to pay the bonus to the estate.
Dr. Friday 13:06
No that’s not the easiest for us, but the easiest for them, possibly, but not easiest for you. The easiest for you would be to have the lease read a wrote up with the three if there’s three of you, three of you, as owners of that particular mineral rights. Because the state needs to be closed, this is going to be an ongoing situation. So basically, you three are now the owners of that. I would not want that into the estate that. Sure it’s easier for them, but that’s not what we’re really asking about. What’s easier for you is the conflict and the conflict is the three of you need to sign in Rehovot wrote up in your three names. Okay. Yeah. Because it because there’s going to be 1099s and if it’s actually if the mineral rights actually create something, you’re going to have renewals and residuals and things like that, that’s going to be going on hopefully, for years, I have people that get those kinds of things. So, assuming that they find what they’re looking for, you know, you rather have that in your name and your brothers and sister’s names, whatever to make that a viable option. We don’t want that because then you’d have to keep the state open.
Caller 14:13
Yeah, and who wants to do that say they did say that they could pay the royalties out to us based on the will. It’s just the bonus, the initial bonus.
Dr. Friday 14:24
I would say that we’re closing the estate, we want to do this outside of the estate. Period.
Caller 14:31
Okay.
Dr. Friday 14:32
I mean, you can do it within the estate, don’t get me wrong, it’s doable, the money goes in, then you account for it, you’re gonna have to do an estate tax return and then that would be paid out equally or whatever the percentage of the estate is for each of you. It can be distributed just like any other money that would be received through the estate but obviously, this is taxable income. There’s no step-up and basis on this. So this is straight out tax, which is a little different than a lot of the other things that happen in normal estates.
Caller 15:02
Right. Okay, that makes sense.
Dr. Friday 15:05
So each person, that means either the estate will have to pay the tax, which they usually end up paying taxes higher unless you guys are in the higher tax brackets, but you’re talking about 20-25% in the estate versus individuals start at 12% and work their way up. So it may be cheaper for you guys to have it in your names again, I don’t know you guys his personal tax situations.
Caller 15:26
Right. Okay. Thank you so much.
Dr. Friday 15:30
No problem, sweetheart. I appreciate you. Thank you for calling. Alrighty, we’re gonna take our first break. If you want to join the show you can at 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 15:56
All righty. We are back here live in the studio. If you want to join the show, you can do it very easily.615-737-9986. Why don’t we go right to the phone to see what Chris has to say?
Caller 16:16
Yes. How are you? Thank you for taking my call. So I’ve got a question about the power of attorney situation. My biological father lives in Alabama, and he is at the very end of a pretty nasty battle with Alzheimer’s. I am the executor of his will, and I have the full power of attorney both over his finances and medical state. He’s been living in his own home with his girlfriend, and his girlfriend’s basically been taking care of him along with some in-home care and hospice. She decided that she did not want to live there anymore. She wanted to buy another home her own home and move him in with her. Now he’s completely incapacitated, he’s in his full bedridden and can’t make decisions. So they went ahead and did that back in January. So now his home was sitting there completely empty, with a mortgage to pay. His only income was basically Social Security, he had no money in savings. He did not plan well, financially for his retirement. So that left me in a situation of his girlfriend is taking full care of him, which is much cheaper than putting him in a special home. And she says she does not want to continue to pay his mortgage with his money.
Dr. Friday 17:58
Can you sell the house?
Caller 18:00
So I did, I did that. I had to put close to $40,000 of mode money into the hub to get it to even in sellable condition. Okay, and after paying myself back that $40,000, there’s about $40,000 leftover. Okay, here’s the challenge. In his will, my brother and I inherit the home. Equally 50/50. Okay. So I don’t want to keep the $40,000 in his bank account, the $40,000 that we profit from the sale of the home.
Dr. Friday 18:37
Don’t have a choice, because while he was still alive, that home was his even though in the estate, he said that the house would be yours until he has passed away, that money has to be used to take care of him.
Caller 18:51
Okay, so the only problem is his bank account is shared with her. So she has full access to that money.
Dr. Friday 18:59
Well, you could keep it in an estate return, you can’t distribute it to you and your brother. Bottom line, it needs to be still kept. You could be custodial over it in a separate account, and she would have to come to you for some reason and justify the need for it. Because the Social Security is going to her, she’s getting his care at this point, but there may be additional medical or some other costs that are above what he’s you know, what, what the Social Security’s bringing in. And at that point, theoretically his estates responsible for it.
Caller 19:33
Right, so here’s where we are today. I put that money into a money market account, where I bank here locally in Tennessee, and it’s just sitting there. No one’s touched it. But that’s in my bank account. How are the taxes going to work on that? As far as that goes, goes, there’s $40,000 more in my bank account than there was before. Wouldn’t I have to report that you don’t
Dr. Friday 20:08
know, I mean, because basically, whoever files the file this tax return for, for 2020, I’m assuming this happened this year 2020, someone needs to file the exclusion for the home, he could have sold his home for 250,000 above what he paid for it. So in most cases, people don’t have that kind of increase. So he should have exclusion and that money, you could show that you were holding it at this point. As long as you’re not touching it, it’s basically being held in an estate for him. You could theoretically get a state-federal ID number set up in a state account. So that way, if something’s needed, you can file it for any interest or anything. Because if it is earning interest in your name, you’re going to pay tax on that interest, because it’s under your name, not your father’s. So all in all, my suggestion is, I mean, there’s nothing in my mind, I’m not an attorney, but in my mind, there’s nothing wrong with what you’ve done, as long as you don’t touch it until his passing. Make sure that everything is paid for out of the estate, this needs to be paid for before distribution. If he leaves medical bills behind anything else that needs to be paid for with that money before anything else can be done.
Caller 21:26
Okay, okay. All right, that helps me. So the last piece of this is his life insurance policy. So he’s got a $150,000 life insurance policy, which is going to be split into thirds. 33, and a third percent to myself, my brother, and then his girlfriend. It’s a term policy. I think there are like 18 years left on it. He might have a few months left. So I’ve been paying the monthly premium on that life insurance policy for about three or four years now. And I guess I just need to draft some type of contract with the girlfriend basically saying, “Look, this has been split into thirds, it made absolutely no sense financially to let that term policy expire, is worth too much.”
Dr. Friday 22:18
So you made the investment. So they should pay you back whatever you’ve been paying. And I would probably justify would actually document immediately from the insurance company or whatever, showing that you paid it. I mean, in theory, you could pay it from the fathers. Who gets the Social Security check?
Caller 22:37
It goes directly into his personal bank account.
Dr. Friday 22:41
Is there a reason you can’t draft the insurance money from that? She would not allow it? I mean, I won’t again, I know politics and families, trust me. But is that something that couldn’t be being paid? How much?
Caller 22:58
I could do that. I guess. I mean, there might be a few more months left. I mean, it’s kind of a moot point.
Dr. Friday 23:05
It is because you’re out of pocket for whatever the months you’ve paid it. I’m just saying, in theory, you need to get two-thirds of that back. So everyone at least made the same shares.
Caller 23:16
Right. So I guess it would be wise to put some type of contract together. I went to my bank and found out exactly when it was when I took over the payments, and I can easily reverse the math and figure that out. Then hope they sign that agreement.
Dr. Friday 23:35
you’re the executor, and you can justify the expense. I mean, it’s really not a question.
Caller 23:41
So why would the life insurance company then distribute it in equal thirds? And then it will be up to me to be reimbursed? Or could I get the life insurance policy?
Dr. Friday 23:50
No, the life insurance and won’t do it, but you have the 40,000 that you could take it from? I mean, we’re talking Term Life, it can’t be that expensive.
Caller 24:00
It’s like $450 bucks a month.
Dr. Friday 24:04
That’s more than I was expecting. But that being said, Yes. Again, you would have the cash where you could reimburse yourself and document that, because the life insurance company is not going to pay it to you as a fee. And I’m assuming the insurance already has all three of you listed with the percentage or is it just the will that says it?
Caller 24:31
The life insurance policy does have all three of us listed.
Dr. Friday 24:34
So they’re going to automatically distribute, yes.
Caller 24:38
Okay. My last question, which is a whole nother situation that will take longer, I don’t want to take up your airtime. Is there a way that I can reach you or your office during the week, you’re here locally in Middle Tennessee?
Dr. Friday 24:50
I am I’m in the Brentwood area, and you can call my office directly at 615-367-0819. Or you can just google Drfriday.com is my website and all my information is on there.
Caller 25:04
Okay, thank you so much.
Dr. Friday 25:06
Thank you. Okay, bye. Alrighty, well, let’s go ahead and hit Daniel because he’s been on for like 11 minutes on hold. That’s a cool guy. Hey, Daniel.
Caller 25:16
Hello, Dr. Friday.
Dr. Friday 25:19
Thank you for holding for so long.
Caller 25:21
Oh, my pleasure. I have a life estate the million-dollar Bellamy home that incurred some damage due to a neighbor’s negligence. I received a settlement that really should have gone to my mother’s, which I just have a [inaudible] and she’s the one who purchased the property. Did I incur a tax liability with a settlement due to property damage? And is there some way that I can transfer the money to her that the attorney should have sent her in the first place?
Dr. Friday 25:56
Well, there would be a way of transferring the money if necessary. I guess I would have to take a look and see exactly how they wrote the settlement up since it wasn’t for the loss of earnings. It was the loss of damage on the property. I’m not too sure. I mean, if you’ve repaired the property, it’s a wash because it’s equity in the property. Again, if they sent it to you, and you’re not theoretically the owner of the home. But you could wash it. I mean, you could turn around and 1099 your mother for the exact same amount that you have 1099 for. Assuming she’s showing it, but I think we’d have to look at the documents to see if this is even a taxable situation, Daniel.
Caller 26:40
Well, thank you so much, Dr. Friday.
Dr. Friday 26:42
Sorry. Yeah. Give me a call or give me a copy of the documents, we can give you a better answer on that particular one. Okay.
Caller 26:48
Will do. Stay well, thanks.
Dr. Friday 26:50
Thank you. All right, Gary, let’s hit you real quick. And then that way we can take a break and not leave you on hold for five more minutes.
Caller 26:58
Hey, how you doing?
Dr. Friday 27:00
I am awesome. How about yourself?
Caller 27:01
Doing okay. My question might take longer than you. I wanna start off by saying I will be turning 65 next June. So I’ll be going on Medicare. Right now I have insurance through the Marketplace and I have an HSA eligible plan. Right now, that’s what I’ve had this year, but that same plan is going up by $200 for next year. Yeah, it’s a pretty substantial increase. I can get another policy, that’s about what I’m paying now. But it’s not HSA eligible. Would it make sense to go ahead and bite the bullet and pay up for the more expensive premium for five or six months of next year and have that HSA deduction? Or would it be just better to not worried about it?
Dr. Friday 28:04
I am a firm believer in health savings accounts because of what you just said, even though the premium goes up, you can write off up to 3600 for a single I think, and like 72 or something like that for a married couple. That money just keeps growing if you don’t use it. Versus normal insurance, it’s not really an easy deduction, because most of us can’t itemize, and there’s no growth, right? I mean, it goes in every month. And if we don’t use it, we kind of lose it kind of thing, you know? So I personally, from the tax standpoint, am a big advocate for health savings accounts. And you should be able to still maximize it as much as you can. Up until you hit Medicare, obviously, and then you have that to use anytime during your lifetime that Health Savings doesn’t have to be used immediately. You can use it any time until you hit 72. And then it’s part of your required minimum distributions.
Caller 28:58
Mm-hmm. Okay.
Dr. Friday 29:00
That’s my advice. I know, it’s a bit more expensive. But again, I think you get more of a tax write off with it. So it may come out a little bit further ahead on the other side, I think.
Caller 29:09
Would I be doing just as well to put extra money in my SEP to have that deduction?
Dr. Friday 29:19
If you have a SEP if you’re self-employed, or you’re still working?
Caller 29:24
Yes, still working.
Dr. Friday 29:25
I mean, again, I say maximum if you have the ability. Now if your income is relatively low, and you’re still in the 12% tax bracket meaning you’re making if you’re single, around 50 grand, and if you’re married around 100,000 combined, I would actually be doing a ROTH SEP because you’re in about lowest tax bracket will ever see. But otherwise, if you’re in the next bracket up or anything from the 22 or 24, I would maximize my self-employment plan or IRAs or 401 K’s whatever it might apply.
Caller 29:54
Okay, well thank you so much. I appreciate it.
Dr. Friday 29:56
Thank you, Gary. I appreciate the call. We’re gonna take our next break a few minutes late, and then we’ll come back to your calls at 615-737-9986. We’ll be right back.
Dr. Friday 30:19
All right, we are back here live in the studio. Do you want to join us? 615-737-9986. And while we go right to the phone, Steve is on the cell phone.
Caller 30:38
I’ve got a question. My mother had set up a partnership with me and my two other brothers years ago, it used to have some property in it, it’s left with one piece of property. And there’s some cash, there’s probably $100,000 worth of cash. The property is a farm and we’ve had an offer on the farm, which is substantial, I think it’s $90,000. My question is if we do take this, trying to get distributions to me and my brothers, if we close the partnership out, what’s the best way to handle the taxes to minimize those, either with partial distributions or if we just liquidate the partnership?
Dr. Friday 31:25
At this point, assuming that the property The only thing in it is that property and there’s no other property there’s not going to be a 1031 exchange, meaning buying another piece of property that you’re going to want to hold on to, I would suggest just doing a final partnership, close it out and do a final distribution. Since every year you’ve got a K 1 now may have only been for small losses, if it was on a rental or something that wasn’t really generating income. Maybe a little interest in the money, it’s in the bank. But that way, as long-term capital gains going to pass through to each of the partners based on their percentages, and the distribution will follow suit.
Caller 32:06
Okay, on an amount like that, what type of tax is that gonna incur?
Dr. Friday 32:13
Well, it really depends on the income brackets. But assuming that everybody is in the typical 12 to 15% or 12 to 22%, bracket, capital gains long term is going to be 15%.
Caller 32:28
Okay.
Dr. Friday 32:29
Okay. If it’s $100,000, and that’s assuming that’s the gains, that means each of you is getting like 30 or something, it shouldn’t be too bad.
Caller 32:38
Well, it’s got $100,000 in cash in it. And then the property if we go ahead with this sale, the property’s gonna sell for $900,000.
Dr. Friday 32:49
Okay, so you’re gonna have like an $800,000? Well, and maybe some closing costs, fees, whatever. But you’re between $750-800,000. Right. So you’d be looking at in all honesty, you guys will all be assuming everyone’s gross income with the gain would be under 500,000. You’d be looking at about 19% tax.
Caller 33:09
Okay, would it be better to try to make distributions at a moderate level?
Dr. Friday 33:17
It won’t make a difference. Once the sale happens, you can’t change it. It’s an automatic pass-through situation. So once that property is sold, it will have to pass through to the shareholders or to the members or partners or whatever the proper term is.
Caller 33:31
Okay. All right. Thank you.
Dr. Friday 33:34
Appreciate it. Ah, all right. Let’s see what Alan in Franklin has to say. Hey, Alan.
Caller 33:41
Hello, how are you?
Dr. Friday 33:43
I am awesome. How about yourself?
Caller 33:45
Good. I’m fine. We have sold a farm and supposed to close in 2021 if everything goes all right. My question was if Joe Biden’s tax plan goes into effect and doubling the capital gains tax, does that normally go back to the first of the year in which it was approved? Or does it go to the next year to become effective?
Dr. Friday 34:11
Normally it goes back to the first of the year. So if he takes over the office in January, and let’s say he finally gets it passed in June, just throwing names around, let’s pray it never happens. It would go back to the first of that year. We’ve had him pass laws in December and backdate them to the first of that year. So it can go either direction. I would say it would depend. In most cases, I would say if it doesn’t pass till almost the end of the year, it would probably be effective in logical 2022. But I’m preparing my clients because I have seen in the 20 plus years of doing this where they have backdated those kinds of things the first of the year, which doesn’t allow us to plan it at all because once the sale is done, we can’t go backward and say, “Oh we didn’t want to really sell that because we didn’t realize we were gonna pay for that percent in capital gains.”
Caller 35:01
Right. Okay, thank you very much.
Dr. Friday 35:05
Thank you. That’s a great question, Alan. That’s a big concern that many of us have. And I have people actually accelerating taking smaller losses or taking less money to close before the last day of this year. I’m not sure what’s going to happen, Biden keeps saying he’s not going to hurt or affect people that make less than $400,000. But, you know, these kinds of situations happen once in a lifetime, a family farm, whatever, and they finally sell them. That could kick you into higher than $400,000. Even though in your normal day to day life, you don’t make more than $400,000. We don’t know the answers. All we can do is try to prepare the best we can and hope that we have the Senate’s to keep the Congress and the President and everybody somewhat on track to realize that if you’re taxing people that much money, you’re going to stall the money. Let’s be honest, why would I sell something if I’m going to pay more in tax than I would normally have? Alright, so if you want to join the show, the last part of the show is coming up, just call 615-737-9986. We are taking your calls, and we’re gonna be right back with the Dr. Friday show.
Dr. Friday 36:29
Alrighty, we are back here live in the studio, if you want to join the show, you can at 615-737-9986 taking your calls. If you have questions and you need them answered, you can join us now it’s usually a pretty good time to get them. If not, then you can always call me or email me at my office, which I’ll give you that information in just a few minutes. Some good news on the fact that they have redone the life expectancy table was last time revised in 2002. So they’re saying that we’re going to live a little bit longer. So now if you’re a 72, right now, you would have 25.6 years to calculate your RMD. So that’s pretty good. They’re thinking that you’re going to live to be about 90 some years old. I guess that’s great expectations. We’ll see how that works out. Then we also wanted to know to break, no breaks for residents of housing with CO ops or deduct state and local tax their shares of the co-op real estate tax is subjected to the 10%. cap. A lot of people were from 2018 through 2025. Everyone knows we have a $10,000 cap on Schedule A for what we call the salt tax, but it’s where your sales tax your income tax, and property taxes fall in. Many states or individuals are trying to take and find other ways to get property taxes. Because if you live in Massachusetts, or Connecticut or New York, or California, you can be paying 10,000 alone for your property tax besides your state tax. So I mean, I had people with 30-$40,000, just in that particular category, and now they’re locked out at 10. So that’s a huge change for those individuals, they are trying to find some new ways around that.
Dr. Friday 38:19
At the moment, guys, not going to happen. Because most of the ways people have found are that they’re passed through entities and the courts have held up that they are not allowed to pass that information through to other companies. Something else I know myself that I end up sometimes having to work and I know one of the gentlemen that called in as an executor of an estate, you do want to make sure that if you’re an executor of an estate, you want to make sure you’re doing everything to the best of your ability. There was a case that went to court where the individual inherited everything from his sister, he just transferred everything into his name and didn’t file any estate tax returns or state income tax returns in this particular situation. And then in you know, there is still a state tax for some people and there is income tax returns due on a state’s. That being said, this particular person ended up with quite a few pieces of property. Apparently he inherited quite a few of them levied and having to deal with some serious tax penalties. The court ruled that he had tax evasion, tax avoidance, etc, etc. So you don’t want to be that person.
Dr. Friday 39:35
Nevada will now have a short-term tax amnesty this year or next lawmakers are ordering the Department of Taxation to Decaux a tax amnesty program that would waive penalties and interest for state tax delinquencies that come forward to pay their back taxes. Again, this is the state of Nevada. So Illinois personal income tax will continue to be imposed on at a flat tax rate. voters rejected a ballot that wanted to have an actual flat, an actual grid graded, or gradual tax rate, and they have a flat tax, which I personally think would be a great plan for individuals that way. If you want to buy something, you pay a certain dollar amount. If you don’t, then nobody has to worry. But that will never work. Because, well, let’s just think how powerful is the IRS? If no one had to file a tax return, the IRS would never know how much money you had, if we use had to pay it directly whenever we purchase something only information they would have would be on businesses. Yeah, I don’t see that control going anywhere soon. So but I do think it’s a great plan. At some point, it might be some way that we could actually eliminate complete tax evasion, and then that everyone would pay their own fair share, right? Because everybody would have to pay what they’re actually spending, not on what they’re telling the IRS they have.
Dr. Friday 40:53
Alright, so if you do want to reach me, the easiest thing, the first thing to do go to the website, Drfriday.com. It’s a new website. Well, it’s fairly new, we’ve updated it a little bit in the last few months. The calendar, I believe, for tax season is opening, I will tell you that we are pretty booked up already. But there’s always still a little room for individuals. But you’re going to want to either check on the online site or email friday@drfriday.com or call our office at 615-367-0819. If you have or need help with tax preparation, I do individual tax returns, I do state tax returns, I do business tax returns, we do all 50 states. So we’re pretty much and we’ve been doing it for 20 plus years. So we’ve been handling these kinds of situations for quite a while. And as an enrolled agent, I’m an EA is what we always say. But since we’re Enrolled Agents, and that means I’m licensed by the Internal Revenue Service to do taxes and representation. So not only are we looking at filing your taxes and getting you current but if you have back tax issues.
Dr. Friday 41:58
So not only are we looking at filing your taxes and getting you current but if you have back tax issues, now may be the time. Because I keep telling people, it’s time when you’re actually at a hard point in your life, and you’re not where you want to be doing. That’s the time to kind of be making a deal with the IRS. Because they’re looking at your current situation, they’re not projecting out years. They’re not trying to say, “Hey, this person can go out and do this or that.” They’re looking at your current situation, and can you or can you not pay them what is due. Now sometimes you have assets that can pay them. You may not want to take them, you may not be able to even borrow against them because well let’s be honest, credit rating is important. But there is a pecking order in which we have to go through to make sure the IRS can know that you can’t borrow. They wanted levy lien and seize those who are never happy words, we can help you deal with those tax issues what I do every single day.
Dr. Friday 42:47
So if you need help filing taxes to need help doing back work or understanding what you can do to make a deal with the IRS. Our initial consultations are always free. And again, you can either call the office at 615-367-0819 on Monday morning, you can email friday@drfriday.com, or check us out on the web at drfriday.com. We have been doing taxes for like I said 20 plus years. And as an enrolled agent, we have been doing a lot of offering compromises for a number of years. I’m gonna be honest, I’m not one of those companies, when you call up and say, “Oh, yeah, we can help you. It’s $5,000 start paying us now we’ll get you taken care of.” Not everybody qualifies for an offer and compromise, and not everybody likes what I come up with for a number for offering a compromise. And then the ones that do I can tell you we just closed one just recently the guy owed 89, a little over $89,000 in the pain about 19,000. But it was a good deal. I still saved quite a bit of money. But you know, he had to get a mortgage on his one piece of property had another one where they were going to force him to sell his second property, he decided to sell his primary got a mortgage on that. And then I actually for the second property, got a mortgage and was able to pay the IRS and then deal with the issues but the IRS can make you sell any properties other than your primary home.
Dr. Friday 44:16
So if you have rental properties, if you have 401 K’s. SEPs, retirement life insurance that you can take money out of, these are all important things to know. Because if you have the ability to pay, the IRS is sitting there going, “Wait for a second, you made that monthly payment with money you could have paid us. You built up equity in this because you didn’t pay us, you paid them. So now that equity that amount of money that you have access to is really ours up into the amount that you owe us.” So we have to either show we can’t borrow it or that we do go ahead and borrow against it and take out what we need to take out. But it’s really important to understand how that works because I can’t tell you how many people come in and they say they have equity in their house or their kids are in private school and they’re maybe living a bit outside of their income bracket, and they’re using the IRS tax dollars to pay for that difference. Then every year, they keep building up more and more tax debt. The IRS doesn’t allow private schools, for example, to be a deduction when making a deal or even a payment plan. Now college is allowed, but not the payments that you make to a private or daycare or anything like that unless it’s a special needs school. So you need to understand what the importance is of what you have and how it’s working and what you need to do with that.
Dr. Friday 45:35
So you know, just keep in mind, those are important things, we can help you walk through that we can get the power of attorney so that we can represent you in front of the IRS so that way, not everybody likes to do it. Nowadays, I will say there are more paper audits than every-day audits. But either way, an audit is an audit, and never feels good to have Uncle Sam sitting there saying, “Oh, well, I want this, I want that want this.” Like anything else. There’s a proper way of putting those documents together to deal with the issue, and wrong ways to do it. I have more than one person that says oh, I handle my own and they just disallowed everything. I’m not usually I will say you have to document properly or they can disavow it. But many times, it’s because you didn’t provide it in the format that they’re looking for, or not in a timely manner. Right now the normal is they disallow everything and then you submit the documents and they readjust for whatever numbers that they feel are justified that you can use through your own information. The last thing I want to warn people about is 1099 Ks, nowadays with Uber and Grubhub, and all the different delivery companies and all that electronic money coming through your bank, keep in mind that if you aren’t reporting everything that goes through your bank plus the cash, you’re in trouble. So you need to make sure you do that at your own rate. So if you’ve got questions you need help doing what you need to do. All you need to do is contact us at 615-367-0819 or drfriday.com or friday@drfriday.com is the best way to reach us. So hope you guys are having a wonderful day. So if you need help with taxes or anything else, you can just give me a follow up at 615-367-0819.