The “crazy lady on the radio” is back at it again! For this episode, Dr. Friday, an IRS-licensed tax agent, answers queries from listeners that are all about taxes. It’s an hour full of information and fun, covering topics such as the following:
- Reminder to All Business Owners
- Rolling CDs Over
- Changes on the Tax Forms
- How to Correct Errors on Child Claims
- Taxes and Democratic Policies
- Receiving 1099s After Serving Time?
- Someone Pays Your Student Loans on Your Behalf
- Private Assets Are Not Deductible
- Claiming Tax Deductions From Hospital Bills
- Tax Deductions on Medical Necessities
- Exception in Selling An Estate Property
- Taxes and Hobbies
- My Daughter Just Got a 1099-ED Recently
- Mutual Funds and Early Retirement
- Retiring but Wanting to Take Part-Time Job?
- Inherited a Rented Property
No, no, no! She’s not a medical doctor, but she can cure your tax problems or your financial woes. She’s the how-to girl. It’s the Dr. Friday Show. If you have a question for Dr. Friday, call her now! 737-WWTN that 737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day, I’m Dr. Friday and the doctor is in the house! It is tax season, everyone! The ball is rolling. We’re filing taxes. It is time to actually start making this happen. So if you want to join the show, you got a question, maybe you’re thinking about filing your taxes on time, or maybe you’re actually filing them this weekend. 615-737-9986 is the phone number 615-737-9986 the number here in the studio. Big changes that have happened and just making sure especially if you have rental property, your sole proprietorship, a partnership, a Limited Liability Partnership, multiple anything pretty much besides a corporation if your trust their state, we all know that QBI came into effect in 2018. And let’s just all be honest, we did not have a lot of rags to go with. So we weren’t sure exactly how some of that happened. Many people I noticed they just completely did not take it in fear that they weren’t entitled to it, especially with rental properties. Or they took it where they were not entitled to it. So you just want to make sure that the person is doing the taxes if it’s you, that you understand. Don’t leave money on the table for fear of not understanding it. But on the other hand, don’t just keep clicking yes because you think that’s going to give you a better tax refund.
Dr. Friday 1:53
It is better to not get the refund today and not make the mistake in some ways. Then getting money that’s not yours. And then the government charges you interest penalties. You know, all kinds of wonderful little sidekicks on that to get you more than what you actually – it can be 100% more than what you actually receive in a refund. So just be really careful. But on the other hand, don’t leave money on the table. So if you’re not sure what QBI is, or if you’re basically saying, Hey, you know, I don’t have that kind of thing, but maybe you’ve just started a business, maybe you’re brand new to entrepreneurship or rentals, or maybe you’re flipping properties. Or having a beer in the hip business that seems to be very popular right this second, I have quite a few people that’s getting more and more interest in that kind of either byproduct of that or whatever. Whatever your interest is, just make sure most of it comes down to is this record-keeping especially on rental properties. It’s not that they don’t qualify, but it is the way that you track them especially if you’re an individual that may have residential and commercial It makes a difference in how you track it, how it’s been put together.
Dr. Friday 3:05
And some people I noticed that our residential their LLCs, and they don’t understand that there is an exclusion. There’s an exemption with the state of Tennessee if you rent to residential individuals without commercial, and there is an exemption out there that you can get you to have to file it every year guys, but come on who wants to pay franchise excise if you don’t have to? I am not an attorney. So put that out there. But in my personal opinion, franchise excise even though I do have to pay it for the corporation that I operate under is not something that’s always going to be cost-efficient. I mean, it’s something that the state does do, but I’m more of an opinion that insurance would probably be better in some cases. Again, not an attorney looking at from the tax standpoint either. That being said, I do believe that most businesses should be separate entities and not be a sole proprietorship. So if you have questions, maybe you’re starting a new business, maybe you’re just sitting down and starting to get your tax returns, or maybe you haven’t received your tax forms and you’re sitting there going, I want to file my taxes. But nobody’s giving me my W-2s or 1099s.
Dr. Friday 4:08
Good news for all of you, as of last night, and our firm was cutting up until at least five o’clock, six o’clock last night. 1099s and W-2s had to be processed by January 31. So that doesn’t mean that you have to receive them. But they did have to be processed. So what comes down to is, you now should be receiving them within the next 7 to 14 days. And that’s what the law allows. So as long as they are processed on the 31st of January, you should have everything by, I always tell my clients, by the 15th.
Dr. Friday 4:41
And then you can start filing your tax returns. So if you have questions about what you should use or how you’re going to do it, again you can give us a call at 615-737-9986. That’s 615-737-9986 What we need to know what we don’t know this could be some new forms. One of the biggest questions out there if you file a Schedule 1, “Do you have money invested in virtual funds?” Did you buy, you know, Bitcoin or and this is to buy sell trade in this type of virtual currency. So if your answer and they are asking it so if you have a schedule one on your return, which basically means if you’re self-employed or have other income or schedule one could be investments in IRA, a couple of different things, then you will end up actually having to answer that question and just be careful with what you have. Making sure that you’re keeping that information very good for yourself. But other changes, they’ve removed a couple of forms. So instead of having four or five and six, those are no longer on the books. So they did extend if you’re looking at your new 1040, though. You’re going to see that they’ve extended it, no longer the size of a very large postcard. I never thought it was the size of a postcard, personally, but it’s no longer size of a half a page. Now we’re about three quarters. Give it one more year, we’ll be back to a full-size tax return with obviously a few extra forms. So, so much for simplification. All right, let’s go to Calvin. Hey, Calvin, what’s happening?
Hey, Doctor Friday. I got a question for you. So I got a CD opened up in 2018, November 2018. It was a 14 month CD. It matured January of this year, but they’re giving me 1099 for last year for interest that I didn’t receive and it received me I can’t touch you this year. Is that correct?
Dr. Friday 6:34
Well, normally no. CDs, the interest is usually held until the time that it expires. So in 14 months, you would have been either made the decision to take it out or roll it over again. And at that time, the interest would have accumulate because then it’s yours as you were saying when you have it actually in your possession that you would have it so I think you would have to go back and ask them unless the 14 months ended in December and not in January.
No, ma’am. It ended this January.
Dr. Friday 7:00
Okay, well, then they are incorrect because CDs, again, that wouldn’t fly cuz you didn’t have access to the money. So, therefore, it wasn’t yours to be taxable.
You can get them to give you a corrected one?
Dr. Friday 7:12
Yes. Yeah, you need to contact them.
It will be zero then, correct?
Dr. Friday 7:15
It would be zero for 2019. And then obviously in 2020, you would then have one.
Thank you very much.
Dr. Friday 7:21
No worries. Thanks. Great question. And Calvin did the right thing here. Everyone, I will tell you this season gets to be fun, but looking at the tax forms, right? Because things have changed to a point. At one point, when you get a Requirement on Distributions and maybe you’re using the Qualified Charitable Deduction, and how it’s being reported on it from 2015 or earlier years to 2018 and 2019, where it’s coming out a slightly different, just making sure that that information is there and having the paperwork to go with it is important. So look at it, make sure it’s a code seven if it’s an ordinary distribution, a code one for early, a code four for death. And there’s a lot of other codes that can be in there for disability or, or anything else but look at the forms that people send you including 1099. Now, I will tell you that normally my clients only complain when 1099 is too high. And the problem is sometimes, we keep – we have bookkeeping in our firm as well, right? So sometimes people will get checks in December and deposit them in January, and the person wrote the check-in December but we didn’t count it as income until January possibly. That being said, there is sometimes a timing issue where one year you’ll have more and one year you’ll have less. But, that being said, you know, make sure the information. You can’t hurt you to contact the person and say hey, give me the detail behind this 1099 – you can match it up.
Dr. Friday 7:21
Usually, if people are tracking I always find this amazing is when I get people to come my office, sometimes they’ll be the IRS is changing my tax return and I don’t understand why because I reported all my income. And a lot of times it’s a 1099-K or missing 1099. And you know, when it comes down to it, you’re sitting there going well, if you’ve counted for all the money that you received 1099 should not even have to be a part of the conversation when it comes to the situation. So, all I’m trying to say is, is that if you have 1099, if you haven’t received your 1099 if you’ve reported all the money you’ve earned in your business 1099s are just recaps unless there’s a mistake on one that should not offset. And the government does require you to report all of your income, not just who has reported the income to the government. Alright, let’s go to the phone lines. Hey, Justin. Oops, Justin not there. I’m sorry, my fault. I just saw the name down there. Hey, Justin, sorry, my guy was talking to you. It’s my fault.
No, no, you’re fine. But anyway, I have gotten a letter from the IRS saying that I had claimed a child in the office someone else did. And what his mother actually and…
Dr. Friday 10:14
So are you divorced or separated?
We are separated. But I have proof, you know that from the school and everything that he was living with me for over six months of the year that I claimed it for, for 2018. He actually lives in the summer of 2017 and then, like, eight months of 2018. So I claimed him and then she claimed him as well.
Dr. Friday 10:43
Okay, it’s not a problem. I mean, the bottom line is this – first thing the IRS pretty much takes the first parent in. It’s that simple, but that doesn’t mean that they’re right. They’re just taking him in because there’s been you know, they don’t have so and so when you find you the second person so they’re disallowing it because of the wife or whatever, ex-wife, whatever has already claimed the child. So all you need to do is win. And they sent you a love letter saying we’ve changed your tax return, right?
Dr. Friday 11:12
Okay, so you need to respond to that saying no, no, please do not change my tax return. Here’s the documentation. And just what you just said proof that the kids were using your home address when going to school. If you have any doctor bills that show the home address and that you are providing, you know, taking them to the doctor or whatever, just I would embark, you know, I would send them many, many documents showing that.
As much as I have.
Dr. Friday 11:36
Yeah, copy it and they won’t send back original so make photocopies of it and send that certified to the address on that love letter. And then what they do is they basically go to the other person and they say, Hey, we’re going to disallow this because you know, you weren’t the person and if they can’t justify it, guess who wins? You.
Really? Okay. Good. Cause I think I have gotten whatever the tax, the child tax credit is on it. And like I said, I didn’t find out that she had claimed him until because there were actually two kids, she claimed one that was living with her. And then when we separated the little boy wanted to live with me. So when we separated, I claimed him she claims she claims her so…
Dr. Friday 12:27
It’s pretty simple, but unfortunately, it doesn’t always stay simple. And you know, in divorces so often and I really dislike – again, I’m a tax person, not a divorce attorney, but I dislike where an exit actually says in the court papers that this person supposed to get them once every other year or something like that on their tax return only if that spouse writes off on the 8820 whatever. You know, it No one wants to sign off – they don’t like each other, people, they’re not signing off and giving permission very often, okay? And as a tax person here, so they’re going, this person is never going to give permission at least you know, they don’t even want to talk to him So, but I would yeah, I would we do it all the time and 90% of time we win because the person that we’re representing truly was the caregiver for more than six months of the year. And as long you justify that, it’s not fun it’s going to take you 9 or 10, but it’s the principle as much as the money when it comes down to it with most my people. And then if you win at the first year, then you have the entitlement of proven it’s the same Well, it may or may not be the same in your second year or not, but my clients many times they have custody of the child for every year you know? But they’ve lost so we have to continuously find it. So after that the government kind of keeps it in there and they disallowed the other one from trying to claim them.
So okay, well, like in this situation, he actually went back to live with his mom for this year. So, will this affect whenever I go to file my taxes this year?
Dr. Friday 13:58
It will if you owe them money.
Okay, so I need to get this resolved.
Dr. Friday 14:04
Resolved to file an extension. I mean, they will refund all the money and they’ll pay interest if they were in the wrong, okay? So I’m not going to tell you that it’s not going to come back. But if you want to hold on to your refund and not fight that battle, fight the first one – 2018 – now, and then file an extension if necessary, and then file your taxes once that’s resolved.
Okay, okay. I appreciate it. Thank you so much.
Dr. Friday 14:29
Thank you, appreciate the call. All right, we’re gonna take a quick break. If you want to join the show. It’s easy. 615-737-9986 is the number here in the studio. I will be here for another Oh, good. 3040 minutes. So pick up the phone. We’re gonna take a quick break. We’ll be right back.
Dr. Friday 15:01
Live in studio, if you’ve got questions, now’s the time to pick up the phone 615-737-9986 615-737-9986 taking your calls. I don’t like to get too political. But I do want to bring up a couple of things. If you’re thinking about who you’re going to vote for on the Democratic side if you’re a Dem listening to the show, I do want to point out a couple of things you might want to think about because we’ve got quite a bit of talk, what’s going to happen to the, well, a couple different things. So first is the capital gains tax. That’s a big one. Some of them, including Warren, wants to basically make capital gains tax all across the board at ordinary income tax rates. Right now, of course, we know that the short term is that ordinary but long term has the 15, 20 or 23.9% tax on it. So that could be a problem and there’s a zero percent capital gains for people under the age of 15, right? And then we are under the age of 15 under the income bracket of 15%.
Dr. Friday 16:07
So that would be one thing you want to have. Social Security on payroll, many of them, Sanders and them, Biden would love to actually increase the amount right now it’s $133,000, roughly $133,000 is taxable for Social Security then it stops. Now they want to go up over $400,000. Now, I know a lot of people are sitting there going, it’s not going to be affecting me anyways. Well, the problem is, does the person that’s making 400,000 are they going to get more in Social Security back? Because in theory, right now, if you make about $75,000 or more, any money you pay into the fund is already capped. So the people making $75,000 and the people making a million or paying $133,000 are going to get the same amount pretty much in Social Security benefits, this is not a big difference. So you have to wonder where the difference of the money is going to go. Is it going to go to other benefits? And the bigger is the estate tax. So right now we’ve got the estate tax is wonderful. $11.4 million, for a couple of $22.8 million.
Dr. Friday 17:09
Not that I’m going to deal with, but Sanders and Biden, and then we’d love to bring it back to 2009, which is $3.5 million. And some of them, Sanders and, who is it? Costello, I guess it is, would like to bring it back down to the $1 million. So I mean, that would be $2 million. And they’re talking about removing the step-up in basis, which is huge because right now if you pass away and you have a house, your kids would inherit it with a step up and basis. So whatever the value is that the day of your death is the value of the home, not what you might have paid 30 or 40 years ago. Without that step up and basis, you’re talking about huge differences in the estate value. So just make sure if you’re a Democrat and you’re looking to put your vote out, which I think everybody should vote, you need to make sure that you know what they’re going to do. All right, we got the phone lines lighting up. The first one we have is Charles and then we’ve got Beth. Hey Charles!
Yes, ma’am. Now, a man that works with me, he got 1099 from the, I guess from the city of Murfreesboro and the company that was running the probation part of it, and he, you know, they overcharged him and then he got a refund back. And they sent him 1099 on that.. you know? He did not make that money, you know, working by the hour so, he could not be really having to pay on that money because that was money that he paid the Department of Corrections, you know?
Dr. Friday 18:55
Right, so this is the money he paid the Department of Corrections and then they turn around and refunded it. But they’re showing it as other income it sounds like. So he either paid it to them with pre-tax dollars, meaning that he worked for them somehow is what it’s sounding like. Either, and I don’t know the whole situation but, you know, I’m assuming it wasn’t one of those where the money went into the food bond, food – you know people put money into their cards so that the people inside the jails can actually eat and do things. I’m assuming this was some sort of labor so he needs to go back. I agree with you if it’s real money, he just paid them out of his own pocket that would have been with after-tax dollars and therefore he shouldn’t have to pay taxes on it now. But that’s not the way it’s translating Charlie. So he needs to give them a call or call someone like myself or whatever and we need to get to the bottom of it. So he doesn’t pay tax on something he doesn’t have to but he needs to understand for sure what it is.
Okay, now here’s, I don’t know that there was a big… about what they, you know, overcharged him. You know, and then whenever they report system said they have to repay him.
Dr. Friday 20:08
But it shouldn’t come back with taxable income if they paid them with after-tax dollars. So if I paid you money for a service and you refunded that money to me, it wouldn’t be tax-deductible unless I could dust off my taxes in the first place. So I would say again, he needs to contact them to find out. That may be a wrong form that they’re using and who’s to say the government is right. I mean, I hate to say it, but you know, I mean, we’ve seen mistakes before, okay? So, have him follow-up before he files those taxes.
All right. Thank you.
Dr. Friday 20:38
Give him my number if he need help. Okay, thanks. Bye. Alrighty, let’s see here. I have Beth and then I have David. Hello, Beth. Hi.
How are you?
Dr. Friday 20:48
I am living in the wild life.
I have a question. So I am delinquent in my student loans. I’m actually working on I’ve set up something to pay them off. But last year, they took our tax returns and my husband makes a bulk of our income since I work part-time, and I was wondering if it would be beneficial for us to pay or to file our taxes separately under the injured spouse clause?
Dr. Friday 21:16
Right. So you actually file them jointly, but you will attach the injured spouse, which is the 8379. And in that case, it will divide it. It will ask you on that forum, how much was yours? How much was his? What portion of the refund would have been yours? That’s what we go and that would have been last year. That’s silly for your husband to pay your student loans. Not saying they don’t need to be paid, but I’m just saying it’s not it wasn’t his. So you should go back amend 2018s, go ahead and file the injured spouse and get his share of the refund back and do the same thing for this year and move forward.
Now, is that something that we typically do our taxes ourselves, do you think that that’s something that…
Dr. Friday 21:53
Well, I would say when you do it yourself, pull up and see if they have the 8379. It’s an available form. If they do, you will have no problem in filing it, you know, I’m pretty sure you could probably read it and understand. If it’s not, you got my number. Well, at the end of the show you’ll have my number either way and I can certainly help you with it but you know, give it a shot.
Awesome. Thank you very much.
Dr. Friday 22:14
No problem. Thanks. Bye. Alrighty, we got two calls here we have David and then Jess. Hey, David.
Hey, how you doing?
Dr. Friday 22:22
I’m doing great. How are you?
I’m fine. I have a question. I want to work after I started withdrawing my Social Security.
Dr. Friday 22:31
How old are you David?
I’m 67 right now. The question is, when I went to work, I bought a camper to live in while work and also had about the truck to get to and from work. Can I claim those two out of my income tax?
Dr. Friday 22:54
No sir. Those are investments or their private assets. Either way, they’re not just for the purpose of work. You made a choice to buy them as what the government would say, not to say you don’t but you know, I can’t write off my house, I want a roof over my head, therefore, it’s my choice. And the vehicle would be that, you know, you could have used city you could have walked, not reasonably, but I’m just saying, David from their standpoint, those are your assets. Now, if you were able to itemize which, let’s be honest, if you’re 67, you’d have to have more than $13,600 or something like that to itemize which wouldn’t be enough for the interest on either of those but – not interest, the sales tax would have been able to erode off on the older tax forms at the lower itemizing. But right now there’s nothing on the tax code that’s really gonna help you, David. Sorry.
That’s okay then. I just wondered. All right. Good day.
Dr. Friday 23:45
No problem, thanks. All right. Well, Jeff, and then we’ll take that break. Hey, Jeff.
Hey Dr. Friday. How are you doing?
Dr. Friday 23:53
I am awesome.
Quick question here. My wife died in part of November, and the insurance companies are just about to settle with the doctors in the hospital. And I’ve been told I can expect my share of the bill, which will be close to $10,000 out of pocket to be coming up in the next couple of weeks. So my question is, am I eligible for any sort of tax deduction for this? And if so, would it apply to 2019, the year my wife died, or 2020, the year that I’m going to be making payments for it.
Dr. Friday 24:31
So it would apply in the year in which you make the payments. So, if you’re on a payment plan that may be multiple years, you’d only be able to deduct the amounts that you physically paid for it. And again, Jeff, what’s your age?
Dr. Friday 24:48
Okay. So, right now you’d be at $12,200. If you normally can itemize, you will have the 10% of your – it’s hard to kick medicals, what it’s gonna come down to. So if you make $50,000, the first five is not deductible, and everything above that would be. So hopefully, you know, unless you’re paying all 10 in one year, which would, you know, probably be the only year would actually kick in, depending on your income. If you’re living solely off Social Security, you probably could do a hardship filing and not have that situation. But either way, Jeff, I think it’d be tough for you to be able to take it off your taxes unless, unless your income is really low and in the total bill has to be over $12,200 to get a dollar.
Yes, yes. Well, I plan on paying the entire month this year. Plus I have other deductions, contributions to church and property taxes and such like that, and my income will be about…
Dr. Friday 25:45
How much is your income, what’s your ballpark?
Well, I see. I don’t have to take any distributions from my 401k. Roughly, it’s going to be $40,000 not counting any distributions, which I’m not going to take and I won’t need it.
Dr. Friday 26:00
Okay. So you get the first $4000 of the 10 that will go. So you’ll have about six that would be counted on the tax return along with your property taxes, sales tax, charitable contribution, and mortgage interest if any exist. So you may be able to do it if you could do it all in one year, it may kick in.
Okay, thank you. And it would be for this year, not last year,
Dr. Friday 26:20
Correct. It would be the year you wrote the check.
Okay, thank you very much.
Dr. Friday 26:26
All right, we’re gonna take another quick break here. When we get back we’ll get to more of your phone calls. And if you want to join the show, now is the time and guys there is no silly question. Seriously, I much rather you ask the question. Give me a fake name if you don’t, I mean, it doesn’t make any difference, but I rather you ask the question before you make a decision and find out yes or no, this doesn’t happen. 615-737-9986 is the number here in the studio. We’ll be right back.
Dr. Friday 27:05
If you want to join the show Now Is The Time flies as fast as it does. 615-737-9986 is the number 615-737-9986 here in the studio, and we’re going to go to Elaine. Hello, Elaine.
Hello? Hey, I got a question in regards to an elevator that’s been installed in my home, and also a backyard exercise, endless pool. And if I were to get a physician’s order, indicating there’s a medical necessity for this, would those be tax-deductible items?
Dr. Friday 27:47
They would. And in some cases, some of those actually have handicap availability as well as credits. So you might want to look into the medical. But you might also look, I mean, if the reason you have it is that someone has a wheelchair or walker, or if the back if sometimes people will get those bathtubs where you know, they can get into them easier. There are also credits for disability. So you might want to look at both. But yes, you would need to have a reason for it. Right? I mean, you’d have to have a medical reason for it. And if you have that, you would definitely be able to put it on your medical deduction. Yes.
Great. And of course, they would, we would still have to deal with a percentage of your income before.
Dr. Friday 28:36
Absolutely. You’re gonna run into that 10% of it. And yes, but it would be a good deduction if it applies in your situation.
Great. All right. Thank you.
Dr. Friday 28:49
Great. Thanks. Bye. Alrighty, I am Dr. Friday for all of you that have just tuned in. Not too sure who this crazy girl is on the radio? I am an enrolled agent license with the Internal Revenue Service to do taxes and representation which is pretty much all I do year-round. We do have a bookkeeping service for small businesses. My brother handles that division. We started out obviously in – we do taxes just for all those because a lot of times people will call and say, do you do individual tax returns? Yes, I do taxes for individuals, I do taxes for estates, corporations, LLCs, partnerships, sole proprietorships, pretty much anything that requires a tax return. If I don’t, there are usually people I can send you too if it’s a very specific type of tax return, that I don’t feel I can give you the proper service for that. I would definitely find you someone that’s an expert in that. But when it comes to doing taxes and understanding what your situation is because let’s be honest, life happens, which basically means sometimes divorce or sometimes people pass away or just, you know, you’re building a business and you’re just so busy building it that you forget the tax season has happened about five years in a row, and you’re behind, and sometimes something triggers it.
Dr. Friday 30:09
I’ve had people walk in my office say, well, the IRS just came to my door and they said they did. I told him, I couldn’t pay him. They didn’t want to work with me. And so I just stopped filing completely. I get it. Sometimes life is just you know, you’re trying to keep a roof over your head, food in your children’s stomach, etc. But at some point, you’re going to want to start looking at what is it going to take for me to get back on track? And I will tell you, there is no magic answer. I don’t care if you call this other companies, there’s a lot of them they have 800 numbers and basically say oh, we can help you no matter what. But there is a basic system just like any other business, any other situation, it’s very simple. Pay current. That means you need to pay estimates. If you’re self-employed or you’re an individual that has multiple jobs and you’re not heavy enough come out of your withholding. It’s that simple. You need to be current, which means moving ahead, you pay in. And my clients, I usually have them pay monthly, it’s just easier just like when you get a W-2, you have money come out of it. If you’re self-employed, a percentage of it needs to go to Uncle Sam, and then you worry about the past.
Dr. Friday 31:13
But first, you got to file the tax returns, right? So dealing with that is the first two steps. Getting current and paying your taxes forward, then we can start dealing with how much can be afforded towards back tax issues. In some cases, we have them in a non-collectible because by paying forward, there’s no money left. In other cases, they have to pay a little bit back and all the money forward. It just depends on everybody’s situation. And yes, there is offering compromises and there is bankruptcy available to some, but it’s not for everyone and you need to know the rules. All right. Let’s hit Dorothy while she’s on the line here. Hey, Dorothy. Thank you for calling.
Hi! Oh, I’d like to know if, I bought my house 16 years ago and it’s worth $100,000 more. And when I sell it, what will I do with the hundred thousand?
Dr. Friday 32:03
You put it in your pocket without having to pay any taxes?
Dr. Friday 32:07
Yes. It’s one of the few wonderful exclusions that we have on the books for people. Unless of course I had a couple of people that came to my office the other day and they lost money on their primary home that was not good because we can’t take the loss but most people make a gain. So, Dorothy, you will take whatever you get out of that house up to if you’re single $250,000 above what you paid or $500,000 if you’re married. In your case, all of it will go into your pocket and you can either you do not have to buy another house, there is no exclusion that says you have to reinvest it like the old law, you can put in the bank, use it for whatever you want.
Oh, thank you very much. I appreciate you.
Dr. Friday 32:43
No worries, great call. Thank you. And that’s a great tax law guys. At this point. I haven’t heard anyone saying they’re going to take that off the books but when it comes down to it, if again, just like in Dorothy’s case, as long as she had lived in that home, two out of five years in the first sale of a home, and then if you’ve used that exclusion once, you will have to stay there, three out of five, and so on from that point on because there are people that are really smart, right? I’ll sell my first home move into my rental house. I’ll go live in it for another two years and flip that home in two years and flip it. So they said, Wait for a second, wait a sec, we’re at least make them go to three years. So you have to go for three years and then you can still do it. You would have recapture of depreciation if few things on rentals. But it is a way of helping especially if you have a high amount of capital gains and you’re looking for a unique challenge. You can certainly go forward with that situation. Your choice, but in Dorothy’s case, she can take that money, put it in her pocket and live or invest however she wants to on that. If you want to join the show you can at 615-737-9986 615-737-9986 I do want to remind people the secured act did pass in December of 2019. And now if your birthday fell after July 1st, 2019, as far as turning whatever your birthday is, as long as you turn 72 will be your RMD – required minimum distribution. So, anyone that turned 70 and a half in January through June, you will be on the 70 and a half. Anyone that turned 70 after July 1st will be at 72 for RMD. So just make sure you don’t miss that. All right, we got Rita. Hello, Rita.
Hello there. I have a question. I have two or three hobbies that I get a little money from. And I thought at first that I wouldn’t have to count that because probably for the year doesn’t even total $600. But that doesn’t have anything to do with it if you have more income than $600. Is that correct?
Dr. Friday 34:49
No, it does. I mean, if a hobby is if you make $600 or less out of it, it’s a hobby.
And you don’t need to put it on there.
Dr. Friday 34:56
Yes, because most people are spending more than they’re making in that situation.
Okay, and if I do like a profit on it, what section of my income tax return does it go? I use TurboTax and doing it on my own?
Dr. Friday 35:06
You would choose a Schedule C, as in cat.
Okay, thank you so much.
Dr. Friday 35:11
No problem. Thanks. Alrighty, and let’s hit Cheryl. Hello Cheryl.
Hi, how are you?
Dr. Friday 35:19
I am Awesome. Thank you for calling.
So I wanted to ask. My daughter just received a job where she’s being 1099-ed. She works every month and the job last year, and I wanted to know if there was a way for her to have it, to arrange to have the taxes taken out rather than her putting away a certain amount and waiting until she filed for taxes next year.
Dr. Friday 35:43
So it would be up to her. In essence, she’s self-employed. So she would be like many of my clients where I basically say take a savings accounts at 20% depending on how much money she makes – 20%, 25% – into it then every month she can go on to irs.gov make an estimated payment and send it in under her social security number. A lot like what would happen if she had a paycheck, but obviously she doesn’t. So it does learn, it’s a little bit more disciplined that the person giving them 1099 does not have any obligation to do it.
Okay. A further question for that then. If she’s making $4,000 a month, what should she put aside? Because we had figured maybe 30%? Do you think that’s accurate? If you think that’s a bit much.
Dr. Friday 36:27
So that would be $48,000 a year. She’s single, or married?
Dr. Friday 36:34
So she’s gonna be at 12%, plus another fifth. Yeah, I would say 25 would be fine.
All right, even with a state tax, because she’s in New York.
Dr. Friday 36:42
Oh well, though, I don’t know. You’d add that to whatever this is. 25 would just be the federal I don’t know what the income tax for the state would be. But add that on top.
Okay. All right. That’ll be great. Thanks so much.
Dr. Friday 36:54
Thanks. Bye, bye. Alrighty, we’re going to take a quick break and we’ll come back to bill and Gary. Please hold through this break and then we can spend a lot of time going over your questions. We’ll be right back with the Dr. Friday show.
Dr. Friday 37:16
We’re back last part of the show. So if you’ve been holding your breath you better give us a call. 615-737-9986 30 get your calls in here. We have been awesome. Bill and Gary have both held through. Gary’s been on their longest. Hey, Gary, what can I do for you?
I’m fixed in retiring at 55, and I’ve been in a Boyer account. Are you familiar with that mutual funds? And I’ve got money in there. And I’m 55 and I want to retire and can I start drawing out of that?
Dr. Friday 37:52
That is probably outside of my pay grade ID taxes and that would be more of a financial planner. My normal answer would be probably no only because normally it’s 59 and a half before penalties. But there are certain exclusions to that like a 401k. And some of those if you’re, you know, if the if you were let go and then theoretically you would have access to it at the age of 55. But that one I can’t answer Gary, I’m so sorry. You held through for that one. I don’t know the answer for sure.
Okay. Well, Thank you very much.
Dr. Friday 38:20
Thanks, no problem. Bye. Hey, Bill, what can I do for you? Bill, you still there? Yeah, there you are.
Oh, okay. This is crazy lady on the radio?
Dr. Friday 38:32
This is crazy lady. You got it!
I wanna ask a question. I’m calling for a friend, she’s 63 and she just retired in March, and she gets Social Security. And she wants to know, how much can you make should she take a part-time job.
Dr. Friday 38:51
She can make… Well, there’s two sides to that. One’s going to be what’s going to turn her Social Security into taxable income and the other part will be since she’s taken early Social Security, what portion of that Social Security which you have to pay back if she earns too much. So the initial question would be for tax purposes, she can make about $15,000. And she would have zero tax without an issue. She could actually make almost a little over $18,000 before she’d have to pay back any of the Social Security benefits. So you know, in that ballpark, somewhere between 15 and 18 would be where she wants to max out.
Okay, and when you retire, your pension would that count towards the $18,000 limit?
Dr. Friday 39:40
It would and, actually, half for the, they call it provisional income tax. For the income tax, half of her social security also counts into that number. So, not confuse you. So if she can go out and make a paycheck for $15,000 and she’ll be fine. Even if we add back in half of the Social Security she’s gonna make. I don’t want to confuse you.
Okay, I would say she can make $18,000, that wouldn’t count the pension at all?
Dr. Friday 40:15
No. Well, the pension would, I mean, if it’s not Social Security, we’re talking pension, yes, they would, they would not count it for the purpose of payback 2 to 1 for Social Security, but it would become possibly taxable if she makes more than that. So again, there are two conversations. Sorry, Bill. One is since she’s on early Social Security that she’s got the 2 to 1, they would not count the pension and she can go make $18,000. But at the end of the year, she could end up actually paying taxes on some of the money but she would have to pay it back.
Okay, and one more question. She had a 401k rolled over to a – IRA – some kind of an investment company. And they sent her 1099. Is that normal?
Dr. Friday 41:01
Yeah, tell her if in box seven it says G, as int good, she’s got it there. That means it’s just telling her that she rolled it over. If it has a code seven that she needs to call them.
Okay, so I don’t have it with me. Can you say that one more time?
Dr. Friday 41:17
Yeah. So G as in good, if the letter is G is in box seven, then that’s fine. If the code in box seven, if it says number seven, then that would not be good because that’s saying it’s taxable income.
Okay, okay. All right. Thanks.
Dr. Friday 41:36
Alrighty. Let’s go to Mike. Hi Mike!
Hi, how you doing?
Dr. Friday 41:41
I have a question. My mother passed away about two years ago. The executor first day. She has a house that we rented out this year. So when I do taxes, should I just put that under my income because it’s currently showing, you know, like I’m renting it, or do I need to file that separately under the state?
Dr. Friday 42:07
Okay, so is there in a state-federal ID number and then a state open right now?
There is a state open, but there’s, I don’t have an ID number.
Dr. Friday 42:17
Okay. And are you the only beneficiary?
No, there’s my sister as well. But we’ve been taking all the money and putting it back into basically her account.
Dr. Friday 42:28
Okay. So, I mean, my opinion is you need to get a state ID number and you need to file a 1041 as an estate tax return, pick that up as rental because the asset isn’t owned by you. It’s owned by the estate right now. And you can’t really depreciate it like the estate can otherwise. So yeah, I would actually say you need to have a separate tax return prepared for that.
Okay. And is it too late to get the IDs to file for the 2019 taxes?
Dr. Friday 42:56
Mike, it’s never too late! No, just go to irs.gov and in the little search thing, but S as in SAM, S as in SAM Online, like SS for the form it is. “SS-4 online” and it’ll have an online app that you can actually get the number right there on the website.
Okay, okay. All right. Thank you. Thanks.
Dr. Friday 43:15
Alright. And quickly. Let’s hit, Jeff. Hello, Jeff.
Hi Dr. Friday, I spoke to you earlier. A question about my wife’s Social Security, she died back in November. The last check that they sent, she had been having 10% deducted for federal income taxes, which they did deduct a direct deposit the check in my account and deducted another 10% from it. And when I went to the Social Security office to question them about it, they said that was standard IRS procedure, and there was nothing that could be done about it. Does that sound right?
Dr. Friday 43:50
Well, at this point, Jeff, I would say when you file the taxes, it that should be showing you when you get the year in Social Security, there should be under federal withholding that additional money and it should be able to be refunded to you when you file the taxes.
Real quick. When they sent the check to me, direct deposited, it was in on January 2 of this year.
Dr. Friday 44:16
I imagine it was, and I’m making a wild guess here, but I’m going to assume that it was for December. It was probably issued in December but didn’t receive it until January. You might want to ask them what’s year it will fall into?
Yes. Okay. They claim they did set it on January the second.
Dr. Friday 44:33
Okay, well, they sent it on January 2 thing. Unfortunately, you could have a whole year to have to wait before you can get that money back because you’ll never see it back from them. I will tell you that right now.
Okay, all right. It was only about $100. But thank you very much!
Dr. Friday 44:47
No problem, thanks. Bye. Alrighty, we have hit the end of the show. So get your paperwork together, right. Don’t rush to file your taxes until you know you have all your documents. It is so much easier to fix a tax return than it is to correct the IRS. So you know I realize a lot of people, I can’t say a lot of my clients but many of my clients some will have refunds. Most of us file estimates so if we have a refund is rolling over to the next year anyway. But anyway, you look at it if you’re waiting for your refund or trying to get your taxes just step back and make sure did you work any extra jobs? Did you go gambling and Oh yeah, I got a 1099 G or W-2 G. Is there any inheritance? And if so, is that going to be his somehow become taxable to you? Did you sell anything? A house? A piece of land something that’s going to be trackable on a 1099 S? Did you give up any credit cards? A 1099 C, right? Go to college? 10980.
Dr. Friday 45:50
You need to have these forms, people, so don’t just rush. Make sure you understand what you should be doing. So that way you have that information and you do your taxes. Nothing wrong with you doing your own taxes. But if you make a mistake, it’s so much harder to fix and it can take 6, 9, I’ve got cases that are 9 -10 months out there and we’re still waiting. I have one estate that took me three years to get the freakin money back. So it is not something that happens fast, that’s all I’m saying. Once they had, it takes a lot longer to correct it so if you need help doing your taxes, the easiest way is to go on my website drfriday.com. That’s David Richard friday.com click on appointments and make an appointment. If you need questions, whatever go to drfriday.com. or firstname.lastname@example.org. In that way then I can help you. Give me a call at 615-367-0819 Call you later!