We’re getting very to the tax return deadline! And with that, Dr. Friday says you need to do what you need to do; finish up or file an extension. If you have tax questions, this is the show for you! In this episode, Dr. Friday talks and answers queries from callers with topics such as:
- Children on Your Tax Return
- Taxes When Taking Custody of Grandchildren
- Daycare Expenses
- How To Handle a Hobby-Type Business with Taxes
- Do You File Jointly or Separately After a Divorce?
- Installment Sale Form
- Your Kid’s First 1099
- Taxing “Early Inheritance” Money
- What Is The Hall Tax?
- Filing Tax Returns With Another Person’s Information
- Irrevocable Trust Tax
Transcript
Announcer 0:01
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. I will tell you, I was in the midst of working on taxes and debt – I almost did not make it. It was like, “Oops, I’ve got to get to the studio.” So if you’re thinking about or you are actually working on your taxes, and you’ve got some questions, this is the show you want to call at 615-367-0819, 615-367-0819. Taking your calls about taxes, maybe you’re working on 2019 tax returns, or you’re planning for something in 2020. Remember, every year doesn’t always match up. Sometimes, you know, your children get older. So a big thing for a lot of my clients is in the year in which my child or the child on the tax return turn 17, we’ve lost a $1500 tax credit and many of the cases of my clients, maybe a child’s going to college maybe they’re not that they’re still living in the house. Are they truly dependents or not? Sometimes, a question who should be claiming the child, we have a situation sometimes and we do with every year. I’ve always respected divorce parents that actually look at the situation from what is the best tax advantage not just what’s on the divorce decree. Because I had a case where this is a $2489 – I remember the dollar money because there’s not quite $2500.
Dr. Friday 1:56
But, there was a difference that legitimately the wife was a lower income, had a situation or the ex-wife would be able to claim a child that was actually could have been claimed by the husband and had always. But because they started college this credit was available. It’s a huge credit, it didn’t make a difference. And in this case, the husband was like, “No, no, no, that $500 wasn’t enough to worry about.” That’s all he was entitled to. If he had claimed the child, she would have gotten all $2500. Again, you know, this is where it comes into play, knowing the tax law, working with the tax law, who should be claiming, who not just what the divorce decree says but who’s really going to get the best benefit. Because otherwise, the person that’s getting the best benefit is the Internal Revenue Service. So if you don’t want them to be a part of the conversation, then sometimes having one with the ex is a good you know option. And I say I have some pretty cool clients because we do this often from year to year when it comes to what is the best tax advantage, what is going to get the largest reach funds, and then taking it from there – not so much on who, who is entitled to take them. So if you want to join the show 615-737-9986, 615-737-9986 taking your calls here in studio.
Dr. Friday 3:17
Finding out if your child is a dependent. If they are independent or not, it’s a big quiz there because she has to meet that 50% of their cost of living to be able to claim them. So if you have a child making $25,000 a year, the likeliness is that child, even if they’re living at home is not your dependent, even though you may feel like it because you’re paying for the house and the groceries. But they in theory, according to the Internal Revenue Service could be living on their own. So these are the kinds of things you need to decide to figure out and what’s going to work best. Also, filing taxes making sure every year we run into this thing and I’ve been at this 20 plus years, every single year we run into a situation where one of the truly dependent children, maybe only had a couple of thousand dollars of income, but they had money in box two of their W-2. And so they went ahead and file the taxes, not marking themselves as a dependent for their parents. So when we go to file the parents tax return, we lose that child credit. And again, it may only be $500. But the other one didn’t never, they didn’t get credit for it either. So you’re leaving $500 on the table. So making sure you understand your tax options. And what you need to do is the important part of that conversation. All right, we got Chuck from Smithville and I appreciate the call. Hey, Chuck.
Caller 4:37
Hello.
Dr. Friday 4:38
Thank you for calling. What can I do for you?
Caller 4:42
I’ve got a kind of a unique situation. My wife and I are raising and have custody of our grandson. And the mother has a support order. And she’s falling in rears and we were going to sit down with her – you know we never have a good relationship with her. We’re going to sit down with her and figure out what was the best option. We made about $84,000 last year and have basically him as their only dependent or. And then the mother made about $13,000. And so what I’m asking is, I mean, she went 100 backs and did this just because she was in a hurry for the money, I think. I think it’s gonna be awash in the end because she has…
Dr. Friday 5:31
Well, the problem you’re gonna have with this particular situation is that this child probably lived in your house and you support it for more than six months in a day. Is that correct?
Caller 5:42
That is correct. Yes.
Dr. Friday 5:43
And the mother does she also live in this house?
Caller 5:47
She does not.
Dr. Friday 5:48
Okay. So, the child tax credit the $2,000 that you guys would have gotten for the child is one thing but she would have also got what’s called earned income credit. And You could only get earned income credit if the child was truly in her custody for six months on a day of that year. So she lied on her taxes would be my concern. And we’re not, you know, I’m not this isn’t a big deal. I mean, from my standpoint, I’m not here to do one way or the other. In your case, you wouldn’t put the child on you would have gotten a $2,000 credit, you legitimately would have had it, no big deal. In her case, if she had just claimed the $2,000 but I guarantee you when she went to prepare her taxes, she also qualifies for another $1,666 minimum for earn income most likely. So she probably got three or four grand back on that child.
Caller 6:40
She had a little more than that, yeah.
Dr. Friday 6:41
Okay. Yeah. And you know, but then she may have even paid in a little taxes on the 13. So all I’m saying is, you know, in theory, you know, she cheated. And the reality of it is, she did get more than you would ever get, because you don’t qualify for any benefit she would have gotten. But she didn’t really take care of this child and that’s where the problem is. I mean, obviously, you know, people that know about is you and her. If you don’t file on the child, the IRS isn’t likely to know, therefore, it’s null and void in the conversation. But if you go and file and get your credit, you can still do that. You would have to mail in your return and show proof of residency for the child, she would then have to pay back that money and I know that maybe just causing more conflict than not, but I’m…
Caller 7:25
I think so. Yeah,
Dr. Friday 7:27
I’m with you on that. And she’s already at a rough spot. So I’m not trying to recreate a rougher spot for that person. So but um, yeah, she would definitely benefit in the conversation if she went in and said, Oh, yeah, this is my baby here. I make $13,000. She’s like in the prime earned income, whatever that is. And then she would also have gotten the $2000 which almost all of that’s refundable. So she would have had a really sweet return.
Caller 7:51
So the other issue, it’s a part of this is our daycare expense. There’s a credit for that as well as they’re not?
Dr. Friday 7:58
Maximum Like $500, you would have gotten in credit.
Caller 8:03
Okay. Okay, so it’s a negligible amount
Dr. Friday 8:06
Yeah, compared to again what she would have received, you may have spent a whole bunch more. But I think it’s like $5,000 per child or a little less than that we get total credit for anything above that is considered luxury.
Caller 8:17
Okay, yeah, we were like $5400 almost $5500.
Dr. Friday 8:20
Yeah. So I think your maximum credit per child I think is actually a $500. It’s a credit so it’s a dollar for dollar, do not get me wrong. You would have received that against your total income of about $2500.
Caller 8:33
Okay, well, I think this is probably the best scenario anyway, because, you know, she needs the money but…
Dr. Friday 8:40
I hear you. I know what you’re saying. And when it comes down to it probably will make things easier on you guys. If she actually does have a little extra money so she can do more than what she needs to do. But yeah, so that’s where it comes down. Thanks for the call.
Caller 8:54
Thank you. Thank you.
Dr. Friday 8:57
Alright, let’s go to Shawn in Lynchburg. Hello, Sean.
Caller 9:02
Hi. How’s it going?
Dr. Friday 9:03
I’m doing awesome.
Caller 9:06
Wonderful. All right. I have a quick question. I think I’m really not sure what the answer is. But my wife and I were both normal W-2 employees last year. And we and I kind of had a hobby type business that I had and I went ahead and got an LLC for that. And the entire year, it was more of a, I guess a good way to look at it would be like… something I did for the protection so I could get business insurance with the LLC. And my question was, I mean, we also have a few kids. And so it’s always been simple for us to do the easy forms. But I didn’t know if that might change. Now that we have had this LLC and what the easiest way to do that was if you thought maybe itemizing would be better.
Dr. Friday 10:01
So you won’t, I mean basically what you need to add to your regular tax return will be called a Schedule C, self-employment form. And on there, you’re also going to do a state franchise excise. You can go to TNTAP.gov – I think it is the Tennessee Department of Revenue, and you can file your franchise excise. It would be a minimum of $100 no matter what if you’ve lost money, but you need to do a Schedule C to report your losses. If it’s a hobby, then you have to go to break even and not take any additional loss. I mean, meaning if you really weren’t trying to generate an income, you’re just kind of getting it formatted and get started. You know, you have to determine Is it a business or is it a hobby because it’s kind of does change things. But you do need to report it because you have a Federal ID number. And on the Schedule C, you’re going to list that federal ID number, the name of the business and then whatever income and expenses and anything else that might have come along with generating that business.
Caller 11:00
Okay, and is there a spot to input that on the EZ form?
Dr. Friday 11:04
No, you’re going from 1040 to, I mean a 1040-EZ to a 1040, because you do have to get a software or whatever that’s going to allow you to do small business.
Caller 11:15
Okay. Okay.
Dr. Friday 11:17
All right.
Caller 11:17
I think that at least clears that up for me. Great. Thank you.
Dr. Friday 11:20
Thanks, sweetheart. All right. That was awesome. Two great questions, to be honest. And that’s the kind of thing we have to do. And, you know, Chuck, obviously has no control over what the young lady that daughter in law, I think he said, it wasn’t even his daughter files on her taxes. So all you can do is your best but obviously them not claiming the child as well will make life a little less frustrating on that element. So if you have questions, you’re not too sure which direction to go or where you need to be headed in taxes. That’s about the only thing I can help you with guys. The rest of the life choices that we file is a whole different conversation. We can talk about that world. Talk a little bit about some The changes and things I’ve seen happening during tax season so far this year, we are in full swing, will tell you that. Don’t forget March 15 is coming up very quickly. For all of you that have partnerships, corporations, those are going to be due in the next well, I would normally say 15 but we’ve got an extra day in February today. So you know what, it’s not till tomorrow the first of March so we about 16 days till due day. But if you need help with any of that, you guys give us a call but extensions, maybe the direction you need to go and then that way you have a little extra time in preparing those correctly, not always rushing to the end. All right, we’re gonna take a quick break. If you want to join the show. It’s really easy to do 615-737-9986. We’re gonna be right back.
Dr. Friday 12:45
Alrighty, we are back live here in the studio. This is the Dr. Friday Radio Show. I’m an enrolled agent license with the Internal Revenue Service which basically means I am licensed to do representation and taxation. So if you need help with taxes or representing yourself in front of the IRS or the state, I am the young lady you want to call. And the number here in the studio if you’ve got questions 615-737-9986. We’ll go right to the phone. We have, Darryl. Oh, no, sorry. He’s on the phone there will get Darryl in just a second. My young man, I didn’t see the checkmark or not – my fault. But we’ll get to you in a second. So if you have questions about taxes, maybe you’ve gotten some love letters in the mail and the IRS is you don’t know what they want. All you know is that the situation is there, then I can certainly take care of helping you explain what it is. You know, we can do offering compromises payment plans, you name it, as far as helping you try to resolve your issue with the Internal Revenue Service. I will tell you I am not a big fan of dealing with collection agencies. I have a problem. They don’t have the power to negotiate. They basically just had the ability to move forward on dealing with things. Alright, so that was my fault. Now get in there and talk to Darryl and see what his question is. Hey, Darryl!
Caller 14:03
Hey Dr. Friday!
Dr. Friday 14:04
What can I do for you?
Caller 14:06
My daughter is – she’s in a marriage. She’s in Mississippi. And she’s in a marriage that where her husband is the marriage has been kinda going south for two or three years. I throw a little personal information there to get get to the point, I’ll say so he basically left. It’s not a legal separation, it’s not a legal divorce. She’s in a quandary because he worked for a company out in Oklahoma, so they didn’t make enough money out on him. He knows he probably has to pay and he doesn’t want to deal with it. So he said, “My daughter said just you just take care of it.” Well, she’s saying that’ll make you say, you know, I don’t even want my name on there. I don’t want anything if they lose anything and she’s saying. You know, can she file? Does she have to file jointly or can she file separately? How will that affect her? And I thought, “Hey, you this is probably something you might answer and give me some advice on I’ll pass it on to her.”
Dr. Friday 14:53
No worries. First question. Are there children?
Caller 14:56
Yes, two.
Dr. Friday 14:56
Okay. Um, how long ago did he move out of the house?
Caller 15:02
Probably about a month. Okay.
Dr. Friday 15:04
So her only option is married filing separately or married filing jointly. Does she work?
Caller 15:10
No.
Dr. Friday 15:10
Okay. So, you know, I understand exactly, but what I would actually have her do is basically she didn’t work, she’s not required by law to file taxes, period. So she doesn’t need to do anything. She’s not responsible for filing taxes on her husband’s behalf and she doesn’t need to sign any tax return with her name on it. So her option is to do absolutely nothing. His job is to file taxes on himself. If he wants to claim the children married filing separately, he certainly can. She could have the taxes prepared that way if she wants to prepare them, she could put you know, married filing separately in his name and the two children and won’t benefit her one way or the other. And whatever the situation as it is, that way she’s not required to sign off on it. She can give it to him if he wants to sign it or he can do what he wants. She has no tax obligation in the year 2019, at least.
Caller 16:03
Wow. Okay. So that’s what she was talking to me about and I said, “Baby is kind of out of my league there. I don’t know what you think you’re gonna have to do what you feel in your heart, you should do.” I want to do the right thing or it’s kind of like, it’s gonna be his money. You know, if he decided to give you any then fine. If he doesn’t, then there’s no legal alimony.
Dr. Friday 16:21
I mean, there’s no agreement, but if she puts her name on it, and there’s a balance due, in theory, she’s saying she knows it. And now she’s responsible for the total amount do even if it’s half of his half hers, or whatever. So, she does not want her name on that. And then they may actually be a state income tax. I’m not. I don’t do a lot in Mississippi, myself or Oklahoma or wherever he was working. Those aren’t states I have right off the top my head but many states do have a state income tax. So I’m not even sure if she can actually, I mean if she came into my office and she said my husband and I are separated, I wouldn’t prepare the return because she doesn’t have the power to sign those returns. So you know, in my opinion, she should just say, “Hey, you know what you can claim the kids, married filing separately, or just don’t file. that’s your choice.” There is no personal obligation for her to file taxes.
Caller 17:13
Wow, okay. I think that’s probably what she’ll do than stay out of it legally. But like you said, if she finds it, you basically saying she is partly responsible for that money.
Dr. Friday 17:23
IRS says she’s 100% responsible, each person is responsible for 100% of that tax and tell page. So she could get back she could actually, God forbid it, separates right and she gets a job, and he is the kind of guy that goes from job to job. She may be the more permanent one and end up having to pay that money because her name was on that tax return. So personally, I would not put my name on any of the tax returns. If she wants to claim the children, that’s fine because she has no income, so there’s no benefit for her. But if the kids are both under 16, there is a $4,000 credit there.
Caller 17:56
Right right
Dr. Friday 17:56
Just saying, I don’t know how much sure he is. So maybe…
Caller 18:00
In my mind, I told her that day I’m just kind of rough guessing based on my experience, I’m 60 years old. And I said, If y’all break even, it would be a miracle. But I figured up I got her to tell me, she told me how much he made how much they took out. I called the girl in my office, I said, how much y’all take out on me on federal. And then calculate and I told her I said, “It ain’t gonna work, baby. You’re gonna have to pay in based on what I’m looking at.”
Dr. Friday 18:25
I mean if she could, if it’s just a W2s, there are free software unless he makes more than $50,000 I don’t know, you know. She could try to get them prepared. Just prepare them as if they were a joint filing and see, but I would be concerned because if he gets his hands on it, he could try to file it even though she didn’t want it filed. You know, I’m just saying I don’t…
Caller 18:47
Quick question. I do TurboTax. I called you a few weeks ago about a GE thing I had, you answered a really good question. I can simulate without having to file and I could get the figures. I had thought about doing that and just running it for her. But I didn’t know with it being in my name, it’s got my wife’s name and all that. Is it going to look at what we got and try to calculate off that? Or should I start like new?
Dr. Friday 19:11
I would just start new. I mean, for the few dollars in my cost, I would start new, throw it in, put the kids and, and her husband try married filing separately, which is what we really want to be filing. But you could try jointly and just see if there’s a break-even right. If it’s a break-even then married filing jointly may be okay.
Caller 19:30
You think there would be a difference?
Dr. Friday 19:31
Oh, there is, absolutely. Absolutely. Because with him claiming her as a joint married couple, they’re gonna get the $24,200 plus the $4,000 credit for the two children that are under the age of 16. Married filing separately, he’s only gonna qualify for the $12,200. He’s gonna lose $12,000 without her being on that return. And if the difference makes it breakeven, awesome. But if the difference doesn’t make a difference than leave it in his name. In that way, you know, later on, you can deal, yeah, deal with it later. But that would be my suggestion.
Caller 20:04
Okay, she good friend with a person that does income taxes. I might suggest to her, they get her to run the quick figures and say she’ll do that for you and you make a decision there.
Dr. Friday 20:16
But that would be what I would do. But just have the numbers run because you don’t want your name on a return, that you can’t afford to pay the taxes. If it’s a matter that the tax bill is $10 or $100. That’s one thing, right? But if we’re talking thousands of dollars, then let him be the one that’s going to have to bite that or just don’t file it on, let him deal with that after the, you know, hopefully not the divorce. But as long as you’re married to him, it’s always going to be a problem, right? So if this is just a rough spot, then I would say you know, the downside to that is now there’s penalties and interest that she’s going to end up paying because they’re eventually going to get back together. You know, I mean, it’s a hard call to say, you know?
Caller 20:54
Exactly, it’s horrible. It’s horrible dealing with this, but it’s facts, it’s life. And Dr. Friday you have given me a lot of things to talk to her about it might be a little bit biased. But what I would suggest I’ll give her some suggestions based on what she said. Yeah, and let her run some figures at least and kind of get and I think that will make her feel better. Because she just doesn’t know what to do. And I don’t know what to tell her to do. But after talking to you, I got some ideas I think that would help us all. Appreciate it, Dr Friday.
Dr. Friday 21:22
I appreciate it, bye-bye. All right, let’s hit to Ray. And remember, if you want to join the show, all you have to do is pick up the phone 615-737-9986. Hello, Ray.
Caller 21:34
Yes, ma’am. I got a little thing here. I’ve been retired for about seven, eight years. And I haven’t had to file any taxes because I didn’t have any income to get anything back. Nothing held out. But you know, I figure – I had always figured to myself and every time, I think, and I know I didn’t have nothing to pay in. Therefore it’s safe I didn’t have to file. But this past year, I’ve sold some… And I will have capital gains on it plus I sold it and financed it, so I’ve got an interest also. And then also I have another debt that just came, started being paid back this past year also and I have the interest on that. And I was just wondering, I know I got to file, and how do I turn it in? The capital gains and the interest that’s all being paid back on a monthly basis? Do I just do it for each year the amount of interest in capital gains for that year? And what do I use to file it home?
Dr. Friday 22:46
Great questions. Um, I was actually just working on one of those before I left the office. It’s called an installment sale form, you’re gonna want to attach a 6252 form. And basically what you do is you put in there example would be I sold it for $500,000. They put $150,000 down on financing the rest at whatever your financing and then every year you put in how much you saved in principle and how much you receive interest. And that way it will track it till it goes down to zero the interest will automatically roll onto the Schedule B form which is where you always put your interest income, the rest of it will possibly be a capital gains but depending on how much money keep in mind you’re in a zero percent capital gains rate for up until you hit total including the capital gains a total amount of $50,000. So you know, if you’re single, I’m assuming you’re single…
Caller 23:43
No, I’m married.
Dr. Friday 23:44
If you’re married, then the combination of the two of you would be $100,000. You guys would be in a zero percent capital gains. So if your portion of capital gains for this year was $50,000, and your normal income is only Social Security, your minimal amount whatever that is, if it all ends up under, you could end up with a zero tax on the sale of that property. I don’t know your situation, but keep in mind that it’s there.
Caller 24:10
It’s gonna be well in under $100,000, that’s for sure.
Dr. Friday 24:13
Yeah, to take an account, probably kicking some of your Social Security becoming taxable, you know, because you’re above the $32,000. So you’ll have to throw it into your system this next year and just make sure that you’re still in the zero percent capital gains. But you could end up paying no tax in your scenario. So that would be awesome. But you know, you will have to look at the hall tax for 2020, since this is happening in 2020, I think. We have one more year of the hall income tax and that interest is taxable for the state if it’s over $2500.
Caller 24:49
Okay, okay between the two. So what was my best way of falling with Turbo Tax or something like it take care of it?
Dr. Friday 24:58
Sure, you can go to Turbo Tax or just, you know, go to an enrolled agent. But it’s a fairly straightforward situation. But make sure you do put the 6252 in there and track that installment year to year and that way then it will account for your gains as well as your interest.
Caller 25:16
Okay, okay. Well, I appreciate the help very much.
Dr. Friday 25:20
Thank you, sir. All right, we’re gonna take a quick break when we get back we’re gonna hit Julie and a couple of the phone calls that are calling in if you want to join the show, 615-737-9986. We’ll be right back.
Dr. Friday 25:43
Alrighty, we are back live in studio. And as I love it, my…. I was reading my screen. My phone lines are lighting up and Julie was cool enough to hold through the break. So I’m going to get to her really quickly here. Hello, Julie.
Caller 25:58
Hello.
Dr. Friday 25:58
What can I do for you?
Caller 26:00
I have a quick question. My son worked some grass working on landscaping over the summer. And he got 1099 but didn’t realize he’s gonna get 1099. So this is the first time he’s gonna have like a self-employment situation. What kind of expenses can he claim to help the tax burden on that?
Dr. Friday 26:21
That’s great question. So I guess the first question would be did he drive from job to job on his own? Or did he use his vehicle or did he get in a truck with one of the other guys and go from job to job?
Caller 26:32
Mostly going in their trucking job. Occasionally he went by his own okay.
Dr. Friday 26:37
So usually if, you know if you’re handling landscaping, you would have a truck with all the tools in it. The truck would be, miles in that truck would be a deduction. Doesn’t sound like you’re some probably had that truck. And then, you know, other than that, really, most landscapers any tools and equipment he may have had to purchase but it sounds like he was more of a hand and then just reading between the lines and Dahomey that I’m just sensing Sounds like more of a labor in this particular situation where they pick them up, put them in there and let it ride. And in that case, he has no deductions, because you can’t write off any kind of home office or anything because he really wasn’t in business. To be honest, he should not have been treated as a subcontractor. But between you, me and the wall, no one cares. But he was truly, truly an employee, he was told to get in the truck, we’re going to do this, this and this, and he had no choice of choosing which lawns to cut and whatever, he was basically an employee. So that being said, at this point, you know, he’s not going to have any major deductions, I can think of possible, you know, a very small usage of a cell phone if they use it to contact him to get back and forth. But, you know, that’s such a minimal amount nowadays that you guys probably pay the cell phone bill anyway. A lot of parents, you know, have the packages or whatever. So, it’s not going to be, unfortunately, anything I can think of, because he really wasn’t the owner of that business. He was not self-employed in reality.
Caller 27:58
Okay. All right. That’s But I want to check on.
Dr. Friday 28:00
No problem, girl. Thanks.
Caller 28:02
Thank you.
Dr. Friday 28:02
Bye. All right, let’s see here. The next person we have was Keith and then Carol than Scott. Hello, Keith.
Caller 28:09
Hello!
Dr. Friday 28:10
hat can I do for you?
Caller 28:12
Well, my dad is in the process of selling his business and he was looking to leave each of his three children a substantial amount of money and he’s just trying to figure out the best way to do that with the lightest tax burden. If there was like an early inheritance kind of thing or anything like that?
Dr. Friday 28:30
Not really. The thing is, he’s gonna sell the business and he’s gonna have capital gains the businesses only in pops name. So he’s going to have to deal with the capital gains on that sale. Once he’s paid those capital gains, he can give each you guys a couple million dollars each, if he wants to. We have $11 million worth of gifting of at least right now for the next five years. I probably…
Caller 28:52
Oh, okay. That’s awesome. I thought it was like a $15,000 limit and he’s wanting to leave like $100,000 each child.
Dr. Friday 29:00
No, no, he has no problem with meeting that. Obviously gifting laws change every year but we’ve very rarely been below the million for a long time. So if it’s only something like that. The way you’re thinking is he doesn’t have to file a gift tax return. If he does $15,000 or less, he would have to file the return of more but there are no taxes due. It’s truly just the paper trail. Just says, “Hey, I gave baby boy one this much money. Here’s his name, and Social Security. Baby boy two, girl…” Whatever. So it’s really just a paper trail the IRS requires to take out of his lifetime of gifting.
Caller 29:33
Oh, gotcha. Thank you very much.
Dr. Friday 29:34
No problem. Thanks. Alrighty, let’s go to Carol who’s been holding for a while. Hello, Carol.
Caller 29:41
Hi. You just mentioned the Hall Tax with the previous caller. Could you explain what the Hall Tax is and how does a person know they are required to pay this tax?
Dr. Friday 29:53
That is an awesome question because many people do not know that they’re supposed to pay this tax. So the Hall Tax is Only based on interest dividends and capital gains, earned, and you have an exclusion of $1250 for single, $2500 for a married couple. And obviously, when you’re preparing your taxes, you’d be able to know. Now if you have interest from a local bank or any Tennessee bank, that is tax-free, but if you have interest from an investment like LLC, or if you’re self-financing mortgages, even if they’re in the state, those are not, I would suggest going to tn.gov if you think any of that might apply. You know, I mean I don’t know you personally or what your situation is. The good news is is that 2020 is the final year unless they extend it for some reason. It will then be off the books and it is down to 1% this year of 2020.
Caller 30:51
Okay, well if you did not know that you were supposed to be paying this tax, what happens?
Dr. Friday 30:56
Well, if the government I mean they do a matching with the Internal Revenue service. So it’s likely that it probably didn’t apply. I mean, in many cases, but if you’re not sure at all, I mean, you can obviously contact, you know, a local accountant, tax person that does taxes, and they could actually review your taxes and see if there was something missed, then you could then file those returns with the excuse that, you know, hey, I did not know this even existed, you know, please waive any penalties, here’s my money due. But I would say you have pretty good odds that it probably wasn’t due Carol.
Caller 31:28
Okay. So it’s a taxpayers obligation to know this situation and know that they’re supposed to pay this tax, the IRS doesn’t, you know, send you a letter or something.
Dr. Friday 31:39
I have had a few cases like I say they I know they match with the federal government because I have had some cases where people have come to my office where the state of Tennessee has come to them saying we think you needed to file a hall income tax, and then we would comply. In some cases, they did not require it because the income, the interest that was paid was not taxable to the state. But in some cases These people didn’t need to file them. But, you know, so the state has been known to notify people in some circumstances. I don’t know how often or how that matches up in the situation, but it is something kind of like the US tax where if you buy something out of state, the state says in Tennessee that you’re supposed to be reporting that every year on a US tax return. I know very few people that ever do that.
Caller 32:22
Yeah. Okay. All right. Well, thank you. Appreciate it.
Dr. Friday 32:24
Great question. Bye-bye. All right. Let’s go to Scott in good old Nashville. Hello, Scott.
Caller 32:32
Hey, Dr. Friday. Hey, my wife has inherited a piece of property within an estate and the estate is in probate. I’m trying to determine whether or not we need to sell it while it’s in probate or if we need to wait till after probate to sell it. It’s probably increased in value quite a bit since it was purchased.
Dr. Friday 32:57
Okay, so the good thing is the date that she received it. I mean, the date that the person passed away and it went into an estate, that would be the basis date. So what was it worth it that day is what you need to know. That’s the appraisal that would be your wife’s cost basis. So not the date of when it was originally purchased, but the date that it went into, or the person died and she inherited. Um, so that would most likely be within the last year. If it’s in probate unless it’s been a really long time.
Caller 33:24
Well, it’s been probate for about three years now. So
Dr. Friday 33:27
Holy moly.
Caller 33:29
Yeah, I know. And the price of natural property is going through the roof and it’s five acres.
Dr. Friday 33:34
I wouldn’t have to.. You know, in that case, because normally probate I mean, to be honest, I’m not an attorney, but in most the cases we have usually 12 months or less that you can get something through probate unless there was a hole that no one we had a few years ago – no, a few months.
Caller 33:48
There was, yeah, there was a…
Dr. Friday 33:51
God if you can actually – can you actually sell it while it’s in probate? Do you have the ability to?
Caller 33:58
Yeah.
Dr. Friday 33:58
Well, I mean, as you say, I would say put it on the market and find out if you can get the price of the money you want. I mean, me, I’m assuming you don’t want to hold on to it anyways.
Caller 34:07
No, no, we’re gonna sell it either way. I just didn’t know what the difference of capital gains will be after probate or before, I didn’t know.
Dr. Friday 34:20
Is it in an actual trust? Or is it, if it’s in a trust it went to probate. So, I’m assuming it is an estate,
Caller 34:27
They didn’t put it in a trust, it’s in an estate.
Dr. Friday 34:30
Which happens whenever we pass away and it goes into probate, it goes into an estate. So it’s going to have the same capital gains rate as you and I do. I mean, you know, it’s gonna it’s going to fall into ordinary capital gains rates. So there’s no additional tax to be in that estate. So I would say sooner you probably I mean, right now the market is good, but who knows stock markets not doing so hot so you know, sooner or later, that’s going to trickle down possibly. I mean, I’m again, I’m not an expert on any of that. But I would say if the price is right, go ahead and get it my opinion.
Caller 34:59
Okay, so no difference in the tax?
Dr. Friday 35:01
Nope.
Caller 35:03
Today or next week, I mean, other than, you know…
Dr. Friday 35:05
Additional capital gains or price dropping, but yep, you’re in good shape.
Caller 35:10
Okay, cool. Thank you.
Dr. Friday 35:11
Thanks. Bye. All right, those are awesome questions, guys. I do, I truly appreciate all the phone calls because it makes my life so much easier here in the studio. If you do want to join the show, all you have to do is pick up the phone at 615-737-9986, 615-737-9986. As an enrolled agent, what I do is basically taxes and representation. So if you get the love letters, or maybe you’re trying to figure out how do I finally get caught up, I really want to go buy a house or I want to get married or maybe you just tired of not filing taxes and not being able to do certain things. I can help guys I really can. It’s not it doesn’t take a lot. All you have to do is be organized, get some power of attorneys get some things going and we can help you get straight on track with the Internal Revenue Service and the first thing We have to do is get you into compliance. So figuring out what that is, is what we need to do. But if you want to join the show 615-737-9986. And we’ll be right back.
Dr. Friday 36:21
We are back guys. We have a few minutes left, and we’ve got at least three callers on the line. So let’s see if we can get all of you guys before the break. Here we go. We’re going to start with care, Carl, excuse me, Carl. Gotcha, buddy. What can I do for you?
Caller 36:34
Yes, My oldest brother has a business in Tennessee and he files quarterly. And last year he filed he went and grabbed the paperwork from where we do our taxes. We had the same tax lady. And the information that was on his paperwork was all my information and not his. And he didn’t catch so I actually mailed the check. And so far he has not been able to find out any information from he’s tax lady or the IRS on where that money went.
Dr. Friday 37:16
Carl probably the easiest thing to find out would be for you to contact or you to grab some transcripts from your 2019 information and see if it’s sitting under your name. Because then what will happen is you’ll just add it to your 2019 as additional income and give him a check when you get it whatever, you know, in that way, because nine times out of 10 what’s happened is he can’t find out what you under you because the government can’t release information right? Even though you’re sibs, whatever, they’re not going to give him anything about you. So nine times out of 10 it’s sitting under you because that’s where he had put it. Now, you know, since it’s not under him, there’s only two places likely for it to be. So I would actually just see if you can find out either call the IRS or go to irs.gov and see if you can pull your 2019 transcripts.
Caller 38:07
Okay, I appreciate that.
Dr. Friday 38:08
No problem. Thanks, buddy. Appreciate it. Bye-bye.
Caller 38:09
Thank you. Bye-bye
Dr. Friday 38:12
Great question. Now that is something that doesn’t happen every day. All right, Laurie is next than Jeff. Hey, Laurie.
Caller 38:19
Hello.
Dr. Friday 38:20
What can I do for you?
Caller 38:21
I started driving over this year, and I’ve never been self-employed before. So I need to know what I can deduct. Can I deduct the mileage from my house in Lawrenceburg? Because I can’t actually Uber until I get to almost Nashville.
Dr. Friday 38:36
Okay, so the tax law says not till your first pickup. So, you would have your home to your first pickup. So you might want to look if anyone in Lawrenceburg needs a liftin, because
Caller 38:47
I can’t. They don’t cover.
Dr. Friday 38:50
Yeah, well, Spring Hill doesn’t have a lot either. But anyway, so I hate to say it but if you were ever audited, they would say that your first job started with your first pickup. And then from there to your end last pick up. The rest of it is commuting under tax law. Now I know there’s gonna be a lot of people that will tell you otherwise. But if they’re ever handle an audit, that is what the revenue officer’s gonna say to you.
Caller 39:15
Well, that’s what I wanted to know. Thank you.
Dr. Friday 39:16
You got it girl, no problem. Thanks. All right and Jeff. Hello, Jeff.
Caller 39:23
Hello.
Dr. Friday 39:24
What can I do for you sir?
Caller 39:25
My question is we sold my parents house this past year. There’s four kids and that the profit was split. But my mother is still alive and it was in a trust. So the income went to the four kids and they owned house for 50 years. But tell us the basis, explain what that is and is that.
Dr. Friday 39:54
Okay, so when dad passed away the house went into trust?
Caller 39:59
It was actually in a trust before he passed away.
Dr. Friday 40:02
Okay, so it was in an actual irrevocable trust so it actually was being not irrevocable where it went became a trust when he died or no was actually in an irrevocable when they were had a living trust a life was a life estate to live in it until…
Caller 40:18
Correct.
Dr. Friday 40:18
Okay. And so mom is no longer living in it? She moved into a facility or living someplace else?
Caller 40:24
Correct.
Dr. Friday 40:25
So you guys sold the house. But the basis under those kinds of situations, since mom is still alive, and it isn’t, you know, we’ve been as dads. Well, depending on when it really was effectively in the trust would be the date of the trust and whatever the value mom and dad paid for it originally.
Caller 40:46
Yeah, I mean, they owned it for 50 years probably paid.
Dr. Friday 40:49
Nothing. I mean, in comparison to the American what we would be paying now. There would have been some upgrades, possibly 50-year-old homes, I’m assuming there were some upgrades done to it. But yeah, unfortunately, that’s never the best way to do it because mom would have had an exclusion of over $250,000 from what was and she would have gotten a step up for half the house because the husband, this is where estate planning may not have been the best plan. But it’s too late to have that conversation. So, that being said, you don’t have much basis.
Caller 41:23
Okay, just whatever I can prove as far as upgrades.
Dr. Friday 41:27
Exactly, I mean, you may be able to go back and figure out mom and dad paid $50,000 for the property, the land, whatever. And you know, if there’s been some, I mean, at some point, they put heating and air conditioning and everything in this house, because if 50 years ago, that wasn’t part of it. So there would have been some decent upgrades and then divide that by one fourth, and that would be your basis. All right? Sorry, Jeff.
Dr. Friday 41:48
Yep. Thanks. That’s when you really want to sit down his probably back when dad put that or mom and dad put it into trust at that time, the estate planning was actually a great plan. But things change people. And that is exactly why you need to sit down with your estate planners and your attorneys that handles your estates as far as the legal side. And make sure, Imean laws are changing, right? I mean, right now, I was just reading an article earlier today where, you know, of course, I was just saying that the state gift tax, right now a federal gift tax is like $11 million, but that expires in 2025. So if you go ahead and give all $11 million away now and it drops down to five, and you’re still alive. Now the gift, you know, now the gift law, you’ve overextended your gift, and you’re going to end up paying a gift tax at the time, the estate, you know, the time you pass away. So all I’m saying is, stay cognizant of what’s happening in the world and make sure that the estate is being updated as things change. I mean, I have a lot of people right this second that basically says, I don’t need a trust, I don’t need to do estate planning. I’m never going to have $11 million in my name therefore there’s no tax on any of it.
Dr. Friday 42:58
But hello, unless you plan to die in the next five years, that may or may not be part of the situation, right? So and then also keep in mind that estate and will and trust and all that is not just for the exclusion of how money is going to go in and out, but also for how you want to handle the money because personally speaking, I don’t think it’s always good, especially if you have a very large estate. you know, 5, 6, 7 hundred thousand dollars and you then immediately give it all to the child. The problem is that it can change lives and maybe not in a good way. Also, if your child is married, you know, you don’t always know where that relationship is going to go. And now you’ve just paid off the home and now the spouse that they’re married to get 50% of her inheritance or his inheritance because the house is 50% theirs. There are a lot of things you need to consider other than just the basic estate planning. So if you have small children who’s going to take care of the kids? Where’s the life insurance going? You need to think about these guys. I am not an attorney, that is not my expertise. But every day I talked to people and I know the importance of making sure that you at least have a really goodwill.
Dr. Friday 44:08
And then possibly a good estate plan, in my opinion, and I’m single I don’t, you know, but a good trust, because I don’t want A.) probate. I don’t want my estates to have to go through probate. And B.) I want to make sure that even if the taxes are a bit higher in the trust that so much money is being distributed a certain time for certain things for my nieces and nephews or brothers and sisters, whatever it is, that is being done. Not all of it goes out at one time and then you know, it’s just not a good plan. Alright, so if you do have questions, this shows pretty much over so you’re going to need to start calling the office on Monday and that phone number will be 615-367-0819, 615-367-0819. If you have questions you can reach me Monday morning. You can also look to book tax appointments. What is still available is going to be at drfriday.com, click on appointments and you can set up an appointment to do your taxes. Keep in mind if you are an existing client and you do not see anything left on the calendar, do not stress. Give us a call directly in the office we do have time set aside for our existing clients. New clients, unfortunately once that client is there, the calendar is full, very difficult to squeeze in.
Dr. Friday 45:03
But existing clients, we still have plenty of openings for you if when you still want to use our tax services. So returning clients are always awesome. If you need help, you can go to drfriday.com. Again drfriday.com, set up an appointment, you can email me through the website. You can check out our blogs and all the other information right through our website and you can reach me live at 615-367-0819 on Monday. 615-367-0819. If you’ve got questions that you couldn’t get through the radio, sometimes the easiest way to do it is emailing. That can be simply done by emailing my first name Friday, just like the day of the week, friday@drfriday.com. Again friday@drfriday.com. Do not file your 2019 tax. Make it a goal. If you haven’t filed for years, make sure 2019 has been filed. And if you need help guys, we can file an extension and always file you a few days late. We’ll take care of you. Call you later.