Another episode of the Dr. Friday Radio Show is LIVE! This week, Dr. Friday discusses many tax issues with her callers, including:
- Receiving a 1099-R
- Contributing to a GoFundMe Campaign
- Paying Taxes for Portioned Inheritance
- Putting up a Roth IRA for Adult Son/Daughter
- Alimony Deductions
- Virtual Currency
- Interesting IRS Facts
- How The IRS Is Doing With Chasing the “Tax Cheaters”
- Taxes on Social Security Disability
- Charitable Gifting to Children
- How to Get Tax Returns With Little to No Proper Documentation
- What to Do When You Receive a 1098T
- Paying Taxes on a $50,000 Annuity
- Standard Deduction for College
- And More!
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 am Dr. Friday and the doctor is in the house. So if you’ve got questions, it is February 22nd, which means we’re getting close to the end of the tax season. We’re actually about halfway I guess, but it just seems like time Is flying. Tax forms, most of the tax forms are available, I just had an update this morning. I saw that they finally got some depreciation on there that we were working with. So you should be able to get most of your taxes done. We’ve got someone that’s called the show already so if you want to join it 615-737-9986 and We’ve got Chris on the line. Hey, Chris.
Hey, Dr. Friday, how are you? Thank you so much for taking my call. So this is, I kind of have a unique situation this year. My first year receiving a 1099-R. It was associated with an injury that I received. I’m a retired police officer, I got hurt in the line of duty. And I received a tax-free pension as a result of that. And the 1099-R on it says that the income that I received has zero taxable income. However, when I’m plugging it into the software that I’m using, which is like one of the freebase software’s online, it’s flagging it that I need to be reporting taxes on and it’s actually saying I owe a bunch of money based upon the 1099 R.
Dr. Friday 1:52
So are you putting any number and, I don’t know how you feel about your software, but when I put mine in it, I completed 1099 R. There’s a box one which would show the total amount of distribution and then box two, which you should be putting a zero in, which would then show, you know, not taxable. Box two is the taxable amount. And then you should also have a code in box four or five, that’s like a code seven or when I guess you’re probably gonna code two for disability, something like that. What does it say?
Yeah, I know what you’re saying it and it does say it’s a disability pension. The box that it has there is number three. The code I’m sorry, box seven is code three.
Dr. Friday 2:34
Oh, gotcha. So that would that should tell them on a 1099 R what that is, as well as the most important one is box two. Yeah, but code three is disability pay. So that should be perfect. And what’s it? What’s in box two on yours?
I’m sorry, what’s in box two?
Dr. Friday 2:57
I mean, yeah. Did you put a zero or did you just leave it empty?
No. It’s them. I mean, I received it from the…
Dr. Friday 3:02
No, I mean when you put it in the tax software. Sorry.
Oh, yeah, yeah. So I think it just says it says zero, I put zero in there. And on the code, it says three, but it’s flagging something saying about insurance premiums for qualifying law enforcement plan like that. But I’ve also read some blogs online that some people aren’t even putting the 1099 on their taxes at all, because it’s not taxable. And I’m like, “Well, if it’s 1099, it’s been reported, I probably need to put it on my return.”
Dr. Friday 3:30
You are correct. And I mean, again, I don’t use probably the same software you are, but we have the ability to notify him that it is a disability claim, and therefore it should be zero. Is there any kind of q&a you can have with whoever’s doing the software?
Well, it’s a do it to do it yourself. I’m using Tax Act, it’s a do it yourself. And that’s what I was afraid of. I’ve switched between Turbo Tax and Tax Act and I thought about maybe using an h&r block’s, I don’t know if it’s just a way to structure, but it seems to be flagging it that, you know, I owe. But even though I’m putting in what the gross distribution is like, what’s on the 1099, I’m also putting in zero, exactly topping and exactly from the 1099-R that was given to me over into the software. It seems to be flagging and it’s saying, you know, a whole bunch of money on this, which is my understanding that it would be…
Dr. Friday 4:24
I mean, again, I don’t know your software, sorry. In the bottom half of our software, looking at it, we’re able to do an identification, again, that this is a gifted annuity. I mean, I’m assuming it’s a one you receive every year because of your accident, or is this a one-time distribution.
It’s paid monthly. I’m paying monthly on it. It’s basically a percentage of my salary. Yes, well until I reach full retirement age.
Dr. Friday 4:53
So I would suggest looking at a possible different secure, I mean, those free ones are great for W-2s. That’s all they have, you know, I mean, they don’t require a lot. This is something, and I would suggest filing it. I’m sorry, I think if the forms there, the IRS knows about it, and they may not report it correctly, you need to notify them exactly what it is they make sure washes through properly.
Okay, so that was my big question, because I need to put it on there regardless of what tax software. Yeah, exactly. I need. I need to put it on there. Okay. That’s what that was my biggest question. So I may just need to look at switching software.
Dr. Friday 5:24
You got it, Chris. Sorry about that.
All right. No worries. Thank you so much.
Dr. Friday 5:28
All right. Do you want to join the show? You can. 615-737-9986. We’ve got Michael on the line. Hey, Michael.
Hey, I have a question about GoFundMe. How does that work like, for tax, at the end of the year?
Dr. Friday 5:45
So, if you contributed to a GoFundMe account, you don’t get any tax deduction unless it was to a 501-C3, a true non-profit. If you had started a GoFundMe account and people paid you or gave you money, it’s considered gifting and therefore it’s not taxable.
Okay. All right. So you don’t have to claim it at all.
Dr. Friday 6:04
No. I mean, the person, the reason for the GoFundMe account, whatever it was, and people believing in it would have been just basically gifting you as if I give a $10 bill to a stranger on the street.
Okay. That’s one of those questions. I look on the internet, you know, I haven’t got a straight answer.
Dr. Friday 6:20
No problem. Yes. So yeah, there will not be anything you have to worry about. If someone gave you more than $15,000, that person should be actually considered a gift tax return. But most of the time, we’re talking people giving hundred or fewer dollars or, you know, in those ballparks as if it was a way of funding some sort of operation.
Dr. Friday 6:37
$15,000 from one individual is kind of a magic number?
Dr. Friday 6:41
It is enough from you. I mean, people can gift you more, but the person that actually gave the money would need to make sure that they responded to it properly. But if you received more than $15,000 it’s still a gift to you. There’s no taxes to you.
Okay, all right. Thank you so much.
Dr. Friday 6:56
No worries. Thanks. Bye. All right, this is the Dr. Friday show. I’m an enrolled agent licensed with the Internal Revenue Service, to do taxes and representation which basically means guys, all I do is taxes. Yes, year-round, we are one of those individuals that are here even when the love letter comes in September, our office is still open. So making sure that you have somebody there that’s going to help you. I was teasing a couple of my clients that came in yesterday, only because, you know, obviously, they come in with like one or two W-2s and they have me and they have for the last 20 plus years and some of my clients’ cases, have me doing their taxes. And I’m always, you know, and they’re driving from Cookeville. I mean that you know, it’s like there’s a lot of tax people between point A and point B. And one of the biggest answers I’ve always gotten, which is all you know, awesome. Of course, they love my personality, but no, really, it’s just that they know that I will be there if there’s a problem with their taxes. And that’s what you need to make sure whoever’s doing your taxes doesn’t make a difference who it is but you need to have somebody in your corner so when you do get a love letter and sooner or later, almost all of us will at least get a love letter if it’s nothing that we have to do.
Dr. Friday 8:05
But something and you want to make sure you have someone there that’s going to help and understand what is the government wants from me. You know, just simply being able to help respond or deal with it. So just make sure when you’re choosing somebody that’s going to help you do your taxes, you know, longevity is great. I love the fact that I still have my first client. Earl is still with us, and we’ll still be doing taxes and many taxes nowadays for 20 plus years, I’ve had a lot of my clients. So it’s a wonderful thing. Every year when I get to see him again, it’s always a great experience to be able to know that they’ve chosen to come back, it’s a choice. So if you have a good tax person, I’m sure they appreciate you as much as I appreciate my clients but making sure that you’re getting. And you know, one of the things there’s a commercial out there, that kind of drives me a little crazy. One of the tax companies, they basically say if your refunds not enough, we’re going to get you the biggest refund that you can get. And I’m going to tell you tax law is tax law. If someone’s doing your taxes properly, it is the biggest refund you’re entitled to. There’s no secret magic that’s going to be making sure that you know what you’re entitled to. Yes, but, you know, if you go to one tax person then go to another one.
Dr. Friday 9:18
And this one says, you get more back than this one, I would be concerned that there’s a reason why one is getting you a little more money than the other. Are they going to be there to represent the numbers that they’re putting on that tax return? Are they going to stand behind the work? Because if you get money back from the government, and it’s not your money, you’re looking at additional paying back that money plus penalties plus interest, plus, you know, fraudulent return penalties. I mean, there are a bunch of things that could happen. So just make sure that you know, the person preparing your taxes is going to stand behind them. So if you’ve got questions, maybe and if you’re doing your own, there’s nothing wrong with that. Just make sure like you either ask the questions before you do something, because the Internet’s a great place. We all do go there to look for information. But sometimes it’s confusing and you need to make sure you’ve got the right answer for you.
Dr. Friday 10:13
Pick up your telephone. 615-737-9986, 615-737-9986 is the number here in the studio. We’re going to talk more about different things that you might want to make sure, I will tell you a lot of people rushed to get their taxes done because refunds are awesome. I would not know personally. But I hear that getting your own money back can be a great thing. If that is the case, and you need to get it, you know, you want to get your taxes, but now you’ve received some additional forms. Sometimes those forms will not make any major change. Other times, it can be a lot harder than you think. So just making sure that you know, before you file your taxes, you go back and look, I usually with all my clients, we usually go through, well, did you get a W-2 from this person? I have, you know, mortgage interest, I have property taxes. And yes, with a lot of my clients, I will have them still bring in the forms. A lot of them may not actually have anything, but I’ll have them bring in the form. So that way, I can make sure that they should not be itemizing or they should be itemizing. It’s not easy. A single person has to have more than $12,200 a married couple $24,400 – not something you can do on a very simple process. So while we go ahead and take a quick break and I see some phone lines coming in. So I will get back with Doug and a couple of the people as soon as we get back from this break, we’ll be right back.
Your money coach with Dr. Friday will return in a moment on Supertalk 99.7 WTN.
Dr. Friday 12:31
Alrighty, we are back. Live in-studio and we are going to hit those phone lines because we appreciate people calling. All right, Doug, you were first Hey, Doug.
Dr. Friday 12:40
What can I do?
I have a question. We had a family restaurant that got sold, and it was a three-way split in selling. And me and my sister are wondering, do we have to pay taxes on our portion of our inheritance which was…?
Dr. Friday 12:59
Great questions, and that’s often a conception. So if you inherited a home you would have the value of the home at the date of the person’s passing. So if that person if you sold the home within a couple of months of inheriting it, most likely you’ll have zero capital gains.
So we’ve rented it out for like, many many years. And then one of the relatives decided to step up and buy it and that was the end of it. And we all got like $50,008. And me and my sisters didn’t know where to buy taxes on that money.
Dr. Friday 13:33
Well, I would say you probably don’t have to pay tax on all of it. But I will be honest with you, Doug, if you’ve rented it for a few years, there’s some recaptured depreciation along with the house has probably appreciated. I don’t know if you got that value. Since you had family buy it, you may have undersold it. But bottom line is you might want to sit down with somebody. I mean, I doubt it’s all going to be taxable, but a portion of it could be and there could be some recapture. Who’s been showing the rental on the taxes, all of you guys or is it been under one person’s name?
It’s just been under one person’s name. Last living sister, the other sister has deceased, so it went to the kids their portion of the rent money, which I took upon myself to pay renovation I didn’t charge for. I mean it has been renovated and renovated and renovated. So it’s really up to our real good, or one of the family members that they were going to buy from the last month that was alive. And oh, you know..
Dr. Friday 14:32
Doug, I will tell you any money you put into it would be a write off directly against that $50,000 if you’ve never been reimbursed. That would have been improvements unless they used it as repairs each year and they wrote it off the taxes. So…
My sister’s tax person got a hold of me, they think it’s gonna be ideal.. probably wouldn’t worry about it that’s what she’s telling me. And we done our taxes and they saying nothing about it. But I didn’t know no difference, and I was just better to ask you and let you clear it out for me or it might come back and bite me in the…
Dr. Friday 15:01
I’m trying and it could, yes, sir. I mean, in all honesty, it definitely is not a gift, I will tell you that. That was an asset sold, there was ownership in that asset that was not a gift to you. There is a possibility of capital gains. Your income could have been low enough where if you make less than $100,000, including the sale, you could be in the zero percent capital gains rate. So it makes no difference. But yeah, and so it would have no effect on you one way or the other. And the same thing with you know, your sister or whatever, but it truly is a taxable thing that happened. How much of it is taxed? I couldn’t tell you, but I guess you could wait. And then a love letter comes from Uncle Sam, you know who to call.
Dr. Friday 15:27
All right. Thanks so much. Alright, is it Ahmed?
Dr. Friday 15:52
Armand, I am sorry, I could not read, it’s my fault.
That’s okay. I had a question. I would like to put up a Roth IRA for my adult daughter who’s a college student. And I didn’t know if I was limited to the $6,000, or limited to the amount of income she had in the year.
Dr. Friday 16:12
Whichever is lower. I mean, whichever. It’s either $6,000 or her income. But you’re correct. She has to have earnings to offset the amount going in.
So I can’t contribute more than what she’s earned in that year?
Dr. Friday 16:24
Okay. And I can do that right now for last year until April 15. Is that right?
Dr. Friday 16:32
That’s correct. Yes.
Okay. And if I want, well, if I tried to do it for this year as well, what would happen if I contributed more than she ended up making during the calendar year?
Dr. Friday 16:45
Since it’s a Roth IRA, there is a penalty for overcontributing. I would probably wait, I mean, it’s only because she couldn’t get hit with a 50% penalty for contributions not allowed or whatever. It is a Roth so theoretically, there’s probably a way around that particular thing. But all in all it probably easier if you just wait at the end of each year and just contribute for her, which is awesome.
Okay, if I want to, you know, claim that I hired her to do work around the house is that – what documents I have to do?
Dr. Friday 17:21
So you’d have to actually have true documentation. Hours worked, job done, just like if you were hiring a cleaning person. And then you would need to pay her on a weekly bi-weekly, monthly, quarterly basis.
Okay, All right. Cool. Thank you very much.
Dr. Friday 17:34
Thanks mate, bye. All right, that was a great question. I like people to think outside the box. Not everything is got to be perfect. There’s nothing wrong with hiring your daughter or your son to do something, but you do need to treat them as if they were an outside labor the same way you’d have to treat those but not a bad thought working outside that line to think, “Okay, what else can we do to help make it as a true earnings.” All right, so we’re talking about different things that are happening in the 2020 tax season for the 2019 tax year. Remember, this point probably cannot do much besides IRA or SEPS. As far as contributing money, 401ks, 403bs you’ve already done that. I have had the tax had talked to quite a few people. We’ve done quite a few taxes so far this year. And I would say that, one of the things we have seen in our office, there’s a new question I keep telling you guys all about so you’re prepared when your tax person asks, do you have any virtual currency? So far my clients are pretty much betting 1,000, meaning no.
Dr. Friday 18:42
But it will be a question that you will be asked or have to answer along with that. You’re also going to possibly see that you didn’t pay in as much money federal withholding wise than you did the year before. Or you may have paid in a little bit more but you earn quite a bit more. Maybe you got a bonus, maybe Gotta increase in pay, a better job, whatever, multiple jobs. So I’m finding that refunds are not quite as high as they were last year. But it’s because the federal withholdings aren’t as high either. In most cases, people had other income sources or whichever. Again, I will say, I am going to be able to probably count, you know, 10% of my clients might be able to use a medical deduction, which also leaves the mean they’re able to itemize because of the medical deductions. They did bring that down to 7.5, which was at 10% of adjusted gross income. Still, in my opinion, guys very, very hard to know which way that’s going to work until you get in there.
Dr. Friday 19:43
Alimony deductions, for all of you that have always had an alimony deduction and you know, you’ve always had to pay tax on your alimony. Really no change. It only came into play when people get divorced. I believe it was marked as of December 31, 2018, or after that. Those individuals are under the newest tax law, which is obviously, you know, you, you don’t get to deduct it and you don’t get to keep any of it. I mean, as far as the person receiving does not pay tax, the person paying has to pay all the tax, opposite of what we’ve had for a very long time. I would love to be a little fly on the wall and some of those lawyers offices when that’s been negotiated because there was some very, very good advantages. Sometimes lower-income people would make a little bit more money because it was a better advantage for the higher income, a person to pay it to their wife versus the IRS. Now, the argument is more to the IRS less to the spouse. So it should be interesting to see where that comes out when it’s all said and done.
Dr. Friday 20:45
Don’t forget that if you turned 70 before July 1 of last year, then you are on the regular RMDs. meaning that you are taking requirement and distributions at 70 and a half. But if you turn 70 after July 1 of last year, then you all will be on the new requirement of distribution, which is 72. So you’ve got a little bit more time to maybe plan, do some Roth conversions, maybe figure out you know, a lot of people were working their way to the idea that they were going to have to start taking requirement distributions at 70 and a half. And now you may have another year, possibly two, depending on how your birthdays and everything flies to be able to do some more conversion. So you don’t have as much money in a Roth IRA versus having it in a traditional IRA. Nothing wrong with doing conversions. I’ve probably had five or six of my clients we every year when they come in, we recalculate how much money can they actually convert or take out at a lower tax bracket? At what point do they hit that 22% versus 12% tax bracket? So we have it down because every year it goes up a little bit, right? We get that standard deduction increases, sometimes somebody just turns 65. So going from a regular traditional standard deduction to the over 65 deduction, which is right now $27,000 for a married couple, making sure that you have everything done and done correctly.
Dr. Friday 22:09
So for most people, this seems like a total, but there’s a problem with not filing your taxes. So let’s think about the fact that they’ve got some cool penalties out there, that’s just going to knock your socks off. You know the government has a way of wanting to make sure you’re going to pay your fair share. Let’s try to at least file the taxes definitely file the extension. But extensions expire, guys, I have people that come in and say, “Oh, every year I filed an extension.” But it expired! I mean, you were five years behind here. So obviously finally an extension was great with the idea that you’re going to follow up on before the October 15 deadline. So file the extension is fine, but following up and I must reiterate I know a lot of people know this already, but somehow they don’t know it even though they kind of know it. Filing paperwork is what we’re extending. We are not extending the amount you owe. You owe money, no matter what, it’s going to still get hit with all the penalties and all the failure files and failure to pay quarterly is everything because you’re not paying it. So try to do an estimate, send something in – something is always better than nothing. And, you know, make the adjustment to your W2, I can’t tell you how many of my single I mean, my married couples I have, on their W4 form completed information of single and zero. They’re having the higher, and in some cases, it’s single zero plus extra. There’s nothing wrong with that. One doesn’t bear anything to the other, meaning I’m married, okay, great, but you can still file single and zero over here. One doesn’t have anything to do with the other. All right, when we come back, we’re going to get to your calls. We’re also going to start talking a little bit about more of the changes that’s happened in taxes, maybe some of the things that you might be missing when you’re reviewing your taxes, making sure that you have all the information at your fingertips So that you can keep all the money you’re entitled to. Because in most cases, guys, it’s your own money coming back to you. So we don’t want to have huge refunds but no one likes to have to write a check. So if you want to join the show 615-737-9986 615-737-9986 we’re going to be right back with the Dr. Friday Show.
Your money coach with Dr. Friday will return in a moment on Supertalk 99.7 WTN.
Dr. Friday 24:44
We are back live in studio. If you have some questions, you can join us here at 615-737-9986, 615-737-9986. Here are some interesting facts of we wonder why the IRS. But, you know, the problem is the IRS has a catch 22. I’m like, why don’t you just email us and stop with all the whole mail thing? Because sometimes it gets ridiculous. In my office, you should see the paper we take in. Undelivered mail sent by the service, Internal Revenue Service, cost over $43 million in 2018 alone. That was the undelivered mail. It was over 14.4 million pieces of mail was returned to the IRS. That is about 6.6% of the total mail sent by the agency in 2018. The notice says that it costs about $3 per piece to process the undelivered mail. So we have a lot of people chasing a lot of people that just don’t want to be found. And to be quite honest, I mean, I know a lot of people are out there saying, oh, cut the military. I mean, come on people, there’s got to be a better way of getting this stuff delivered. In many cases, people have jobs, you know, they’re able to go in and do things. I’m not saying they should go to your employer or anything. All I’m saying is information is out there to be able to check in see what is more apt to be a better job than other ones.
Dr. Friday 26:11
The IRS is still not doing very good on what they’re calling tax cheaters, a whopping $441 billion fell through the crack each year from 2011 to 2013. They always run a bit behind on these because, well, for one, we’re still filing tax returns for those years. This is an estimated lost revenue of not paid voluntarily on time. They’re recouped about $60 billion of it. But we have $441 billion they have recouped about 60. through audit out other enforcements, leaving about $381 billion as uncollected. And that does not include $45 billion in self-employment tax. So these are interesting. I mean, the fact is, a lot of us, all of us. Well, I shouldn’t say all of us, there’s some that don’t, but most of us file, pay and do our taxes to the best of our ability. Now I will say things happen. I mean, I deal with people on a daily basis that have not been able to file taxes. They want to in some cases, want to get caught up, they want to get into compliance they wanted to, but they don’t even know where to start. I mean, as an enrolled agent, that’s one thing I’m really good at, I know where to start. I know how to get us back on track. I know to the best of our ability, we can grab the forms that we need, we can file them, then we can either get into offering compromises we can get into payment plans. I mean, we just closed an offer and compromise. And this is you know, an everyday working person he owed about $51,000 he’s paying about $7,000 back he’s gonna pay that back within six months, and he’s had a year. So it’s really been a year and six months, he’ll have to have saved up the money. But it is something and now he will be able to and this particular gentleman’s case he’ll be able to get married the poor wife to be has been waiting because the smartest thing they did besides obviously hiring me was to wait. Because by marrying and getting involved with someone else, you’re bringing your tax problems with you, and in many cases, eliminating the ability to do an offer and compromise.
Dr. Friday 28:11
So, you know, sit down with a professional, you want to make sure you have I mean, we settle cases all the time. But don’t be fooled. There’s a lot of companies out there that tell you “Oh, yeah, we can do it, we can handle it, just start paying us $1,000 down and $500 a month or etc, etc.” And they haven’t even pulled your transcripts, they haven’t even really evaluated your entire tax thing. Are you even able to do any kind of deal? If it’s just a matter of filing back taxes, sure. That’s one way of doing it, I suppose. But why not get the whole picture first you got to file to find out how much money you’re gonna owe. And then if the amount is at a certain dollar amount, and each person the dollar amount could be as low as $10,000 and throw you off the path. It could be someone that has to pay more than $150,000 or $250,000. The number base is on many different things and the government’s going to look at each one differently. In one person they may say, Well the house because they have the ability to borrow is is a credit and therefore you’re going to go borrow versus us give you a deal. On that same situation, you have another person that can prove that it’s not going to happen in the near future, at least that I will ever be able to borrow against this house. My credit score is a 420 Hello, no one’s gonna touch me. So then this possibility that that person could be negotiated with an offer and compromise that every situation is different guys.
Dr. Friday 29:35
So don’t just sign a piece of paper because you know that Uncle Sam is trying to get ahold of you and making things a bit difficult. We had one where a tax lien was filed and we’ve done our best to, you know, we you know, unfortunately it took us one payroll pike cycle to get a lien removed. Because when you pay on a weekly basis is a little hard to get everything done as fast as you need to. But working with the state of Tennessee, there is with their online with TEN-TAP, there are better tools to be able to make payment plans a lot faster. The agents, a lot of times go right online while you’re on the phone with them and help release liens and levies. We do it every day. So don’t let this kind of thing stop you from living your life.
Dr. Friday 30:18
But don’t also think that just because one person got this awesome deal, that you’re going to all get the same deal. So you need to first and foremost get into compliance and part of compliance is paying forward. Meaning you need, come April 15, to make a quarterly estimate for this year for the year of 2021 or 2020 – sorry, for the years 2020. I’m jumping ahead of my tax law. So that way, when you file your 2020 taxes in the year 2021, then you will not owe any money. You’ll have the first year maybe in 10 or 15 years that you haven’t had to pay any taxes. It’s a first step and then you move from there and then you can make a deal. But if you’re not making those estimates that government’s not going to make a deal with you, it makes sense, right? I mean, why should we think that you’re going to need a deal if it’s not going to come through anyway? I mean, it’s impossible. And sometimes you can’t pay forward can’t pay your current and pay the past. So but you’ve got to prove you’re paying forward so that the past can look at him and say, Okay, well, I can see that there’s only so much money. Let’s do this. Let’s put a hold on the past. Let’s see if he can stay current with the future. And then we’ll come back at this. They will work with us all the time on these different situations, but it’s very, very important to understand the different situations that are available, because otherwise the government’s just gonna take lien, levy, or cease because you’re not paying attention to them and they’re gonna get your attention. Alright, Kevin’s on the line. Hey, Kevin.
Hey, we talked about this before. I just want to make sure I had it right. The calendar year 2011, all of my income has been based on Social Security disability. And I’ve always been told, I’m gonna I’m gonna hang up in a minute and listen to your fire. But I’ve been, we’ve been paying taxes on that ever since calendar year 2011. And my wife works so we have another income. Could you set me and probably some other folks listening straight on whether or not taxes have to be paid on that as that’s the only income a person has. I’ve got a second quick I got a second question How much can my wife and I give our daughter a year in cash and who would have to pay taxes on that? Thank you so much, Doc.
Dr. Friday 33:00
Thanks, Kevin. Okay, so let’s take the first question disability. So if Kevin was living by himself and living solely off of disability, it would be zero tax. Kevin is married, so his wife is making money. So she has a choice, she could file married filed separately, and then she would report his income, Kevin would not be required to file and you wouldn’t have any taxable situation on the Social Security. So, you know, you don’t have to file as a joint couple. And Kevin would not be required to file any taxes on it. So that would be a plan, too. But if there are children, if there are kids in college, there are disadvantages to credits, no earned income credit, no, you know, no additional college credits, no interest on student loans, all of that would be disallowed for a married filing separately situation. So it would work for some it would not work for others, even though you’re paying tax on the disability, it may be that you’re actually getting more money back because of the other benefits that come in, especially if there are children. So the second is Kevin was asking about charitable gifting to children, and the gifting is still $15,000 per child. So Kevin can give her 15, the wife could give her 15 that would be $30,000. And as long as it’s coming out of a bank account, you’re not gifting them an IRA or something, it would be free. I mean, Kevin and his wife would pay the tax first and then whatever they gift to the child would be tax-free. So if money comes out of paychecks, or just money that you have set aside in a, I don’t know stock account, you sell the stock, turn into cash, and then you would give it to your daughter in that scenario, that Kevin and his wife would pay tax on the capital gains that would have come from the sale potentially, but then the daughter would have no tax on the $30,000 that they gave her up to. If they give them more than that, there’s a gift tax return. No one says you can’t give her 50 but you would need to file a gift tax return. And no one says you can’t just give her one or two, it just whatever number but up to $30,000 does not require any documentation from the parents to the one child. So hopefully that will help Kevin in his questions.
Dr. Friday 35:17
And if you again, if you want to join the show, it’s going to be the last Oh say 10 minutes pretty soon. So if you’ve been holding your breath, or you’ve got some good questions like Kev that maybe is, was willing enough to call you just want to pick up the phone 615-737-9986, 615-737-9866. Remember some of the questions that you ask other people are thinking or wanting to know the answers to so sometimes it’s very difficult to be able to know what’s happening or not. So if you’ve got a question, almost guaranteed that other people have that same question, and there are no stupid questions in my opinion. The only thing that is not the smartest I won’t go so far as close stupid is not to ask a question, Right? Because if you don’t ask the question of how we ever, ever get the answer that you need. So this will be a way for you to be able to get that question answered. And if at least move on do we want to get Gil first or take a break? Take a break. Okay, we’ll come right back and we’ll get Gil and we’ll be right back with the Dr. Friday Show.
Your money coach with Dr. Friday will return in a moment on Supertalk 99.7 WTN.
Dr. Friday 36:39
Alrighty, we are back in the studio and I’m so happy my phone lines are all lit up. I love it. We’ve got Gil, Jean, Wade, and Linda, and we’re gonna get you guys in order, which Gil was first. Hey, Gail, thanks for holding through the break.
Hey, thanks a lot.
Dr. Friday 36:56
What can I do for you?
I got a question. I have a house that I built in 1983. I lived in it for about 30 years and then rented it for 10. During that time I added on to it. A problem is I don’t have documentation for what I paid for it back in 1983. What should I do?
Dr. Friday 37:19
You could probably go back to property taxes. I’m assuming that you did purchase it. I mean, you didn’t like get it inherited or something like that. You did actually buy it.
I actually I looked at that and it only shows the land that was purchased. It doesn’t show
Dr. Friday 37:35
Oh because you built the house.
I built it. Yes.
Dr. Friday 37:39
No mortgage? That means you built it without the mortgage?
There was a mortgage that check with the bank and they don’t have records back that far.
Dr. Friday 37:51
That’s a great question. Did you have a builder? Who knew that builder may be out of business at this point. To be quite honest.
Yeah, that’s true.
Dr. Friday 38:04
Yeah, I’m gonna say that um for I mean, I will tell you honestly the IRS gonna say if you can’t prove it, you can’t use it. That simple, okay? But you may be able to come up with a reasonable case that the fact is, it’s been 30 years and the reasonable ability of it is you know that I you know, other homes built at that time relatively based on that you might be able to find some information on other homes with the same square footage in the exact same area that this was built, and try to get a square foot price that would maybe be used as a as a potential argument saying, I don’t have the documents but this is the home you have the finished product, you know what the home looks like. And obviously someone built it and I was the only owner and that’s provable by this property taxes or anything else. So, uou know, I think you might have an argument on it but I would see if you could go back and look and other maybe there’s even some other homes that are still are built around the same time you built yours, to see if you can find out what those homes were maybe worth back then. And real estate people are pretty good at getting comps.
Okay, so if I knew that I can use those numbers and then if I get audited, use that documentation.
Dr. Friday 39:15
I can’t absolutely guarantee you that the auditor is going to prove that that would be the advice I would give my client and try to document to the very best of my ability. Yes, sir.
Okay, thank you very much.
Dr. Friday 39:26
Thanks, bye. Okay, next, we’ve got is Linda, Linda. Hello, Linda.
Hello Dr. Friday. I have a simple question. My granddaughter had received a 1098 T. Of course, the amount of the cost of the school is less than the scholarship slash grant that she received. Does she needs to add? Would that be included on her return?
Dr. Friday 39:57
It does need to be included, but she would also want to write off because normally under there would be room and board and things that are not included in that box for education. And so probably used it for room and board but it would be something she shouldn’t have to pay tax on unless she did actually pocket the money. But most of the people I, most of my clients, they ended up still paying extra money, but they did have some money that went towards room board or you know, labs and things like that they were outside of the curriculum.
Okay, she’s just, she commutes. And she said she doesn’t have any fees or anything.
Dr. Friday 40:32
So she did actually put the money in her pocket.
Okay, so she just needs to put it as extra income.
Dr. Friday 40:37
Yes. I mean, it sounds like she didn’t pay. I mean, she was commuting from home so she didn’t pay rent to mom and dad.
Okay, another question. She didn’t do hers last year. She did a return but she didn’t put the 1098 on there. Does she have to do an addendum.
Dr. Friday 40:52
I wouldn’t. I mean, at that point, I would wait. I mean, why volunteer it in another you know, she should hear something. Usually their matching that, so she should have heard something I would say by now. So maybe it wasn’t such a large difference. And it may be that even this difference is making a zero tax situation.
Okay, okay. Well, I do appreciate it.
Dr. Friday 41:12
Thanks Linda, appreciate it. Bye. All right, we’re gonna go to Jean and then wait. Hello, Jean.
Yes. Hi, Dr. Friday, the question I have is, you know, my son just graduated from college, and he had two loans and debts and I wanted to give him $10,000 to pay off that student loans. Can I use that as a gift tax? Because he’s working now?
Dr. Friday 41:34
Absolutely. You could give him that money without a problem. It would not be taxable to him and in your case, it wouldn’t be taxable to you assuming that it’s money that you’ve got in the bank that you’ve already paid tax on.
Yes, so I can just so how do I – Okay, so I can just put it somewhere on my 401k when I file my taxes?
Dr. Friday 41:54
You do not have to it’s under $15,000 Jean, so you don’t have a gift tax return required. So you will just write him a check or whatever, but just assume it’s a check and maybe at the bottom put gifts happy graduation. And that would be all.
How will I get the credit?
Dr. Friday 42:08
No, there’s no credit to you. No, sorry.
No credit? Okay, I have a follow-up question. After paying $50,000 for my annuity because it wasn’t making any money. And rather than putting it somewhere else, it’s my IRA and I’ll fix so I figured, you know, I just take it out because I’m getting ready to retire in two months. Now, how much taxes would I have to pay on 50,000? Should I save some aside to pay taxes on it?
Dr. Friday 42:30
I would say you need to set 20% aside. I don’t know your taxes, but I would say 20%. Assuming you’re not making a lot of money at this moment, 20% would be safe. Okay?
Okay, thank you so much.
Dr. Friday 42:41
Thank you, bye. All right. We have Wade, Mr. Wade. Hi.
Hi. How are you?
Dr. Friday 42:48
I am awesome.
I was wondering if you could tell me a friend of mine was telling me that there was a standard deduction for college, but you didn’t have to itemize a bunch of stuff. I was wondering if it’s better. itemize or whether to take the standard deduction?
Dr. Friday 43:04
Well, there isn’t really a standard deduction, you have the American Opportunity, you have the lifetime and you have the educational credit. Educational credits are usually for people that are continued education more through work, you know, I’m going for my Masters, I’m doing this, you know, they’re there, they’re going for the secondary degrees. If it’s a child that’s in college, you have to have a 1098 T, as Linda was talking about, and you have to prove that it’s a standard and you would have to file I mean, the form itself would show you how much did you pay in education if there was any grants or, you know, money paid on your behalf for the education.
Okay, we got a grant. Where did we get the 1098? From school?
Dr. Friday 43:43
Yes, and it would show right there on it.
Okay, all right.
Dr. Friday 43:49
All right? Go for it. It’s worth $2500. It’s a credit so it’s worth up to $2500. So it’s well worth going and looking into that information.
Okay, thank you.
Dr. Friday 44:02
No worries, thanks. And I probably should put a caveat on that. Because just as Linda brought up her granddaughter, apparently is going to school on a full ride. And if you’re not paying any real money out for the education other than room and board, but for the full education. Then, in that case, there would not be any educational credits because you’re not really paying for the education. You may be paying for room and board, you may be paying for food, different things like that, but you’re not paying for the education. So just that’s why the 1098 T is so so important because it will tell us how much money has been paid for education, and then how much of the grants and things went towards that education, leaving the mom and dad or grandparents or whoever else is helping out or the dependent is to be able to take it off their taxes. So you know, just the point that not everybody is going to have to pay for their education. There are some kids out there that have managed to do it. On an MA, of course, many of my clients have tried to convince or in most cases have managed to get their children to take the first two years at the community college. I think that’s an awesome idea since most kids seem to be taking about five years to go through college because they’re changing their degree, somewhere in the middle. At least if you get the first two years at, you know, minimal fees, and in that, in that child has got a better idea of what they want to be. That is more important than anything else.
Dr. Friday 45:27
You know, I think it’s very important. I mean, we’ve had this discussion probably more than once. I mean, education is great, but if you don’t know what you want to be and you’re just going to college because mom and dad said I have to go to that is a little bit scary, because sooner or later, you know, 50% of people that graduated with their degree do not practice with that degree. My sister works for SunTrust or I guess it’s Truist now. But you know, she’s always saying you know, a lot of the people she works with our, our teachers or lawyers that have gone into the banking industry, obviously, not practicing another degree. Nothing, I mean again BA is a BA when it comes down to it, but why not get what you need so that way you’re not having to go back to college then later do something more. So that works when it comes down to the situation. So, going to college I’m telling everyone yes is a great idea. But getting a good college education, trade school, whatever it is that you really need is the important part because it’s expensive nowadays and all these people are saying they can’t afford to pay back their student loans. Well, don’t sign your name on that loan unless you think you’re going to actually use it to graduate to do something. Alright, so that being said, this is the end of the show you want to reach me, all you have to do is pick up the phone 615-367-0819. Monday morning, I will be answering that phone, 615-367-0819 or you can actually email your questions to Friday, which is my first day just like the name is just like the day the week firstname.lastname@example.org or check out the website, defriday.com, to book your appointment. Call you later.