Welcome to another episode of the Dr. Friday Radio Show! In this episode, Dr. Friday takes on the latest tax updates, answers callers questions, and talks over the following topics:
- Dr. Friday’s Tax Tips For the New Year
- PPP Information on 2021 Tax Return
- Mobile Apps Required to Report Commercial Transactions to IRS
- What To Know About the 121 Exclusion
- What If I Received Two Stimulus Checks In 2021?
- Taxes For Individuals Are Due April 18
- Why You Need to Start Preparing for Tax Season
- The Advanced Tax Child Credit
- Don’t Leave Money On the Table
- IRS Letters on Child Tax Credit and Stimulus Check
- The Difference Between E-File and Paper File
- How To Get Back on Track With the IRS
and much more!
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or 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. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Hey, I’m Dr. Friday and the doctor is in the house, we are here talking to you guys live. And we have all the information you’re going to need. If you want to join the show, you can at 615-737-9986, taking your calls, talking about all my favorite subjects, it’s really not that hard to do.
Dr. Friday 0:56
And all you have to do is do what we’re doing, which is just basically talking to about taxes and everything that goes with that. So you’ll be able to move forward and accomplish what we have. One of the big things I do want to talk about today. And it’s plain and simple. It’s talking about Venmo, PayPal, Cash Pal, all of these different apps that we use a lot of us I know I get my rent through Venmo.
Dr. Friday 1:21
Many of you will have different apps and as of January 1, 2022, there is a few things that are going to change when it comes to this. And we want to be able to make sure that we are all prepared for that change. Because when it comes to the end of the year, I don’t want to hear a lot of people saying, “Oh, why did I get this 1099K?”
Dr. Friday 1:43
According to what passed with the American Opportunity, the American Tax Act that happened in March March of 2021. As of January 1, mobile apps like Venmo PayPal cash apps are required to report commercial transactions totaling more than $600 per year to the Internal Revenue Service. This change in the tax code was signed into law by the American rescue plan Act and the COVID response bill was passed in March.
Dr. Friday 2:09
Previously, these mobile apps only had to tell tax authorities when a person had over 200 commercial transactions per year or that it exceeded 20,000 in total revenue. Starting January 1, the Internal Revenue says if a person accrues more than 600 annually in a commercial payment of an app like Venmo, then Venmo must file and furnish a 1099k for them reporting all commercial income they received through this app.
Dr. Friday 2:36
The tax reporting change only applies to charges for commercial goods or services, not personal charges from friend to friend like splitting a dinner bill. In the explanation document on the tax exchange, the IRS said these changes only apply to people who sell items on the internet auction sites like eBay, people who have holiday craft businesses such as Etsy.
Dr. Friday 2:58
So as long as they accept credit card payments through these apps, Pay Pal said that PayPal and Venmo offers a way for customers to tag their peer-to-peer transactions as either personal friend and family or goods and service by choosing the appropriate category for each transaction. So this is the point of the entire part of this conversation is, you guys need to make sure that if you are considered commercial, and what you know, what is a commercial transaction would be someone selling something.
Dr. Friday 3:33
Now in some cases, if you’re just on there, and you’ve cleaned your attic, and you’ve got one or two things, three things like at Christmas time, I got rid of a bunch of Christmas blow-ups I’ve had for a number of years. I sold them and I was paid through Venmo those are those that are personal that would not be considered a commercial sale, I actually sold them for much less than I originally paid for them.
Dr. Friday 3:56
But if you’re doing this all the time, you’ve got you know, 7, 10, 15 transactions or up maybe 50 transactions. Now it’s become a business as far as the IRS is concerned. And in most cases, you won’t have your original receipts from when you purchased this product.
Dr. Friday 4:14
So you need to make sure that if you’re going to be cleaning out your grandma’s and your family and different individuals or maybe your garage sale and you’re picking up something then you’re putting them on eBay or selling them or doing an Amazon shop where you basically you know go and buy something and list them on Amazon because in some areas things are harder to buy than others, then this very likely could become one of those situations where you could end up with this becoming income to you.
Dr. Friday 4:46
So what used to be in and so on those transactions that are your friend paying you back for a loan you gave him or you are, you know, a lot of times in our family a lot of us will go out one person pays on the rest of us transfer the money through Venmo to them to all split the dinner bill, you want to mark those as personal. And you can do that.
Dr. Friday 5:07
But it is going to be interesting to see after they get the first few years if there’ll be more sit down on how they describe, I do know Venmo is really pushing individuals to turn their accounts commercial if you have quite a bit of transaction. So I’m just saying if you’re an individual that uses Venmo, a lot, or PayPal, and you’re not treated like a commercial account, you may need to think about how that’s going to work or you know what you want to do.
Dr. Friday 5:37
That means, we all heard back when their build back better plan, they were trying to find ways to find out, when people were going to get you to know more than $600 how they were going to track that and what they were going to do with it. Well, this is one of those steps, guys, they’re going to try to go to these organizations, and they’re going to say, “Hey, you are now required or responsible for doing this particular thing.”
Dr. Friday 6:01
And right now, it’s the apps, they’re going to go after the apps, you know, and see if they can track individuals that have small businesses that they are not reporting on their tax returns. So if you are one of those individuals that you’ve always kind of thought of it more of a hobby, but you are getting for it be honest, more than $500 a hobby is now a business, if you’re actually bringing in income, you should be reporting it.
Dr. Friday 6:27
But you know, if it is really truly a hobby then the income becomes income, and you don’t have as much to write office expenses, either way, you need to make sure that you’re not stuck there. Because next year, you get a 1099k Because you did $4,000 worth of something through Paypal or eBay or you know, Venmo, any of them any cash app, then it’s going to be a different situation on your tax return.
Dr. Friday 6:53
So just putting this out there, this started as of January 1, you can supposedly go on to the app, and you can mark it as personal and or, you know, if it’s not marked as personal, it sounds like to me, it’s automatically going to be considered a business and they will be 1099. So I thought that was an interesting situation that we should probably cover because I know for a fact that many of my friends and individuals use PayPal a lot to you know, just or Venmo or whatever to track and pay things and other people paying them back on things.
Dr. Friday 7:29
So again, guys, just making sure that we have all the right information. So you don’t get surprised next year. I’ll sit there and go wait for a second, what do you mean, I can’t do this, or what is this form for. And that’s what it’s going to be for you selling something or using it to buy or sell well, it’s if you’re buying, it’s only if you’re selling. So if you want to join the show, you’ve got a comment on that.
Dr. Friday 7:52
Or maybe you’re working on your Texas this weekend, just like I am working on many people’s taxes. 615-737-9986 is the number here in the studios. 615-737-9986, again, is the number here right now or live on the radio. So if you want to join us so you can ask questions or see what you want to do as far as adding to these or maybe you have something more to add to that particular conversation organ.
Dr. Friday 8:21
If you’re working on your taxes, It’s tax time, we got all kinds of questions about different situations. Obviously, so far, one of the biggest things is we’ve had many of you may have done I had a number of clients in 2020 that took up to $100,000 out of their retirement Ira 401k And we converted it and we rolled it over into the three-year plan which means every year we pick up 1/3 of it through the next three years so 20 We paid 1/3. This year we’ll pay a third and in 2022 we’ll pay the final.
Dr. Friday 8:55
That form the 8915 is not available yet for the E file. If you’re a paper retire you may be able to do it but I know we’ve got a hold on a number of clients because we can’t yet e file those returns and there is also the injured spouse is on hold right now. It’s not going to be available and we’re being told a lot of these aren’t going to be available to almost March mid-March, to be honest.
Dr. Friday 9:18
Alright, let’s see if Susan from Nashville can help me out. Hey, Sus.
Dr. Friday 9:24
Can you hear me? Hello?
Yes, I can.
Dr. Friday 9:28
Yes, I can’t hear her if she’s on.
Okay. Hello. Yes, I’m here.
Dr. Friday 9:38
Okay, there you are, girl. I found you. Go for it.
Okay, yes. I missed a distribution from okay, I missed a distribution.
Dr. Friday 9:53
Turn off your radio if you’re hearing me because it’s okay.
Okay, yes, I missed an RMD Is that what it’s called because last year, my husband passed away in June, I’m not, I don’t qualify to do it yet, I’m only was 70 and 71. Last year. So on my portion, I did not have to take, take a distribution. But my husband apparently did, he passed away in June.
And the company that it was with, we wanted, I wanted to transfer that to a different company where I had the rest of our retirement monies make it easier on me. And that company was bought out. And there was a three-week blackout period in September. And immediately after that blackout period, the money was transferred from that company to the company where I had the rest of my retirement money. And because of that, when they are my distribution was sent to me, it was only sent on the portion of my husband that was with the company that it is now with, and we missed the distribution on the previous company.
So at this point, what is my best recourse with the IRS? I’m going to be getting that distribution in a couple of days. And I know that it’s going to be on this year’s income, I believe, but as far as dealing with the IRS and not getting penalties and fines on it, is there any recourse with my husband passing away? And that blackout period that took place?
Dr. Friday 11:36
Well, in my personal opinion, yes. What I would do, if I was handling your taxes would be we put a note in this happens, I hate to say it more often than not, you know, things get mixed up and transfer it in, you know, and it’s not as smooth, especially in a year in which someone has lost a loved one. But what it comes down to is taking the distribution as you’re supposed to pay it, but then we ask for forgiveness, basically.
Dr. Friday 12:00
You know, it’s a one-time situation so far knock on wood, the IRS has been extremely good with us as far as being able to get these required RMDs out, we file we pay, and then you know, then ask for that forgiveness, and make sure that you know that, you know, hopefully, they will forgive you because the penalties fairly steep on RMDs not being taken out. But so far, we’ve been pretty lucky with those.
Dr. Friday 12:26
So that would be whoever your tax person is. Or if you do your own, I would just attach a letter, you know, as part of it, just basically saying we’re requesting a waiver for RMD, you know, because of the following circumstance was not taken in a timely manner.
Dr. Friday 12:39
You know, just what you told me, but you know, a little bit more probably, you know, in writing, you probably more eloquent than myself, but you know, just put it down, attach it to the return. And like I said, normally, we’ve been very lucky with them not following up with requests of additional penalties.
Okay. So, that would be attached to the letter would be attached to my 2021.
Dr. Friday 13:02
It won’t show that distribution, it’s only going to show.
Dr. Friday 13:09
Right. I’m sorry, it will not, it will be, we would attach it to 2022 showing that we took the distribution in the year of 2022. It’s being taxed today. But it was supposed to be taken in 2021. I would only bring the attention at the time that we actually are filing the tax return with the OVR or the RMD in it.
I’ll wait till next year, then next year, another whole year. Okay. That’s where I was confused as to how to contact them and when.
Dr. Friday 13:36
Yeah, because otherwise, they won’t really know what it is until it’s actually attached. Okay, they’ll know what was taken and what wasn’t.
Okay, very good. Thank you.
Dr. Friday 13:47
No problem. All right, let’s get Darlene really quick. Hey, Darlene.
Yes. Hello. I want to ask, how does the new taxes income tax affect people that are like animals like chickens and puppies?
Dr. Friday 14:06
Well, um, those are small businesses. I mean, you know, so depending on, you know, your county, I mean, I have a couple of people that sell dogs and make a fairly good living out of selling their dogs, their AKC, you know, I mean, and so they sell it to their puppies for like, $2,000 each. I’m not saying that you know, but I mean, and they can have, you know, one or two litters a year.
Dr. Friday 14:27
So, you know, it is something you want to report, again, on chickens, depending on I mean, I suppose if you’re selling quite a few, some of that could be hobbies, there would be no sales tax. So, you know, it just depends on the amount, I guess you would be paying on those or you know, what you’re selling, I have some that will sell chicken and eggs at the little farmer’s markets, you know, and that’s a business as well. So, you should report that information on your tax return if you’re making money or if you’re losing money.
Okay, All right. Thank you.
Dr. Friday 15:02
No problem. Thank you, sweetheart. All right, we’re gonna take our first break. When we come back, we’ll take more of your phone calls. You can join us here live at 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 15:27
All righty, we are here back live in the studio. And I thought I’d bring to attention something that I don’t know if even I haven’t heard a lot of people talking about it, but it is on the tax return.
Dr. Friday 15:38
So if you have a PPP loan forgiveness for 2020 or 2021, there is a place on our current tax returns for 2021, where we are supposed to be reporting the statement that you applied or received forgiveness, the amount of the exempt money for the year, which year was forgiven 20 or 21, whether the PP loan was granted as of the date of your file this return so if it’s been granted or not.
Dr. Friday 16:04
So I know we haven’t talked a lot about PPP money, because we talked a lot about how to get it. But now all the forgiveness is are coming through the IRS, which we are hoping that actually, we would apply for the forgiveness, the person that applied for it would hold their letter, keep that information on file. And if the IRS needed documentation, they would go directly to that taxpayer.
Dr. Friday 16:24
But no, they decided they’re going to actually make it a bit more challenging. So people that have sole proprietorships, schedule C’s, there’s a question on there, where if the PP loan was forgiven and 20 or 21. And so this also includes anyone with a PPP that last, you know, so this was actually for 20. Many people in 2021, and 2020 had forgiveness.
Dr. Friday 16:46
Now, if they had received this forgiveness, or if you applied for forgiveness, I think they’re trying to make life more I mean, every year being a tax person is challenging, and a lot of fun, I will tell you that. But on the other hand, they’re having a steal. I mean, for a while there, we were having to track people’s insurance. Now we’re having to bring something like PPP onto the tax code. It has nothing to do with actually filing your taxes as far as I’m concerned.
Dr. Friday 17:10
But if you do your own Schedule C, make sure you’re filling that information out this show is about helping you figure out what you need. And you know, so you don’t do something wrong when you’re doing it. So just making sure that you have that on there. And that you’re answering that question. It is a new question that we have in the system. Okay, we’ve got John in my town, Smyrna. What’s happening, John?
Good day, I have another one of those RMD questions. I turned 72. Last year, therefore, I should be taking a required minimum distribution this year. But I’m still working and still contributing to a 401k. Do I still have to take an RMD this year, based on last year’s?
Dr. Friday 17:56
So in the year, you turn 72, you’re supposed to take it just to let you know. So if you turn 72 Last year, theoretically, you should have taken it in the year 2021, but only on IRA or 401k Is that are not contributed to the work you’re doing today. So let’s say just as a general thing, you working for GM and you’ve been working there for 35 years and all of your retirement is with that company, then you’re not required. But if you’ve worked at other jobs and had retirements that you’ve now either still have in 401k, or roll over into an IRA, that money would be the money that you’re looking at having to take the RMD on.
Okay. And so I’m still working, so I do not have…
Dr. Friday 18:41
You don’t have to take it from the place you’re working now. And you can still contribute, I believe under the new laws. No expert on that. No, you don’t have to take it until you stop working.
And I am planning to retire this year, then when does that key that in?
Dr. Friday 18:58
So you need to take it in this year. But if you retire this year, you will take your RMD by the end of this year from all of your retirement accounts, not just the ones that were active before you would take all of them. You know, because sometimes when we work, we end up with a couple of different locations of our retirement. You put them all together and take that RMD base, you can take it out of one of the total amount, but you’d have to take it from the total of all of your retirements.
Okay, thank you very much.
Dr. Friday 19:26
Thanks. All right. So thanks for listening. I really appreciate that guys, and I appreciate the questions. So 615-737-9986. So we’ve talked a little bit about the PPP that you have to make sure you’re putting on to your tax returns. You need to make sure you have that forgiveness information.
Dr. Friday 19:51
You can pull that out of certain forms. I know I just completed one recently and I was fortunate enough to be well as I helped this individual. So I had a copy of the forgiveness that was issued. So I actually had the dollar amount, the loan number and the date that was forgiven, and everything on it. But I mean, many times, we don’t have all that.
Dr. Friday 20:12
And remember, your tax person may or may not even know that you even receive PPP. So it’s a question that needs to be added to all of our questions. Because every year, they seem to like to add something new for us. And we’re constantly learning what that new question is.
Dr. Friday 20:28
So again, if you’re a sole proprietor, if you file your own tax returns, or if you have a tax person, make sure that they’re asking or make sure in your paperwork. And this goes for my clients, guys, make sure in your paperwork, if you received a PPP loan in either 20 or 21, and you received it or did not receive forgiveness yet on it, make sure that information is in your information, we need that documentation that’s come down the line.
Dr. Friday 20:55
So it is now something that we are now being asked about on the 2021 tax return. And these things are changing. I mean, again, if any of you guys probably remember last year, when we filed taxes in February, and then they passed tax law in early March, and they changed the unemployment, big, huge nightmare as far as I was concerned.
Dr. Friday 21:20
Because they moved it backward. Well, some of the forms we’re working on right now have not yet been approved, which means there could be changes to some of the things that we’re filing. Now, if you’re just doing a basic 1040. 1040 itself is e-fileable. And it’s there, it’s some of the additional forms, like I said, if you did an extension, or if you did the three year stretch on the 2020 COVID retirements where you took money out up to 100,000, spread it over three years, that form is not available yet. If you have an injured or innocent spouse, those forms are not yet.
Dr. Friday 21:55
And I’m sure there are a few others, those are the ones I’ve just run into recently. I also know that the 990, is a nonprofit, that form is not yet ready. And the K ones if you receive a k one, from somebody as a source of income, like you’re an investor in or partner in an LLC or corporation, those forms have not yet been cleared, at least in my software, you guys may use different software’s and it may be something different in your world.
Dr. Friday 22:23
But these are all ones that we’ve got a whole cycle on. And let me tell you, it’s making life exciting. If people we filed the taxes are prepared him in January, and they’re like, when can we file them and I’m like, I have no control over this people. All I can do is keep you informed.
Dr. Friday 22:39
So again, we’ve covered the PayPal apps or the cash apps, we’ve covered some additional changes for documentation that you’re going to need, especially for my self-employed, you know how I love my entrepreneurs want to keep you guys all out of trouble. These are some of the changes. But if you’re working on your taxes, just take the time to make sure you’ve got everything on them. Sometimes things will come in late sometimes, I mean, to be quite honest, I’m issuing 1099 today for a couple of companies.
Dr. Friday 23:07
And that means that those people that work for those companies if they’ve already filed their taxes, will be amending. Now, I want to also put out there, even though I’m issuing these 1099. In most cases, these businesses should have already picked up that money. So it means that if you filed your taxes and you filed it on all the income coming in, it would make zero difference if I 1099 yesterday or a year from today because you picked up all of your income.
Dr. Friday 23:32
But if you’re an individual that’s out there, and you just wait for the 290 days and you come in and you say this is all my income, just what’s on those 1099 Normally, most people know I always think that that’s probably a stretch and you never everyone 1099 you the odds of that probably limited. Also, fact that you probably know, you didn’t receive any other forms of payment. So just keep in mind, this is what the IRS is also thinking.
Dr. Friday 23:59
So if you’re doing-especially my small business owners, that’s why they’re trying to look at these apps because they think a lot of people are not stating income. But if you’re running a business and you’re using Venmo or Paypal or any of those cash apps, again use my business as an example but if you pay me and some of you guys pay me through PayPal.
Dr. Friday 24:19
I don’t do too much through Venmo have a couple all that money is reported anyway, so it makes no difference if it came through a 1099k it was the positive one way or the other into my bank and therefore it was income. So just doing your own accounting will keep you and save you a lot of headaches. Alright, guys, we’re gonna take a break, you can join the show 615-737-9986 We’ll be right back with the Dr. Friday show.
Dr. Friday 24:56
We are living here in the studio and having an awesome time I’m working on my taxes and talking to you guys. So if you’ve got questions, now’s the time to do it. 615-737-9986. And let’s start with Chris in Nashville. Hey, Chris, what can I do for you?
Well, it’s not a tax question more of a mortgage question. On a previous show, I heard you discussing a new type of mortgage that didn’t take into consideration your current mortgage against your, I guess your debt ratio.
Dr. Friday 25:34
I probably not my show. I don’t probably talk mortgages. That was probably Tonya Escobal. Yep. Yep. She’s a sweetheart too. But I think you’re on lots of different voices on the same show. But I don’t Yeah, that would be outside my expertise, my friend.
My apologies. Love your show.
Dr. Friday 25:55
But that’s all right. Thanks. Bye. All right, let’s get Clare a Nashville. Hello. Hello, sweetheart. So can you hear me, Clare?
Yes, I can hear you now.
Dr. Friday 26:07
Okay, what can I do for you?
My question is about taxes and selling and selling the home. I sold my home. And I was told that, that if you net under too much into 50,000, you don’t have to pay taxes on it.
Dr. Friday 26:27
As long as you lived in that home two out of the last five years? That is correct.
Okay, so any interest or anything like that has nothing to do with the sale of the home. So I’ll have to put it on any tax form.
Dr. Friday 26:44
No, that’s not true. You do need to file the sale of the home there is a tax form that you’ll need to file for a home sale so that you can actually elect to take that exclusion. So you would need to file that on the year in which you sold the home. So that way the IRS knows you’re taking the exclusion and that you’re you know, you brought them home, whatever, five years ago, three years ago, and you lived in it for that period, and that you’re contesting that this is your and was your primary home of for sale.
So there is a tax form that you just give them information on. But it’s not counted in the income.
Dr. Friday 27:20
That is 100% correct. Yes, by accepting the exclusion and zeroes it out. But yes.
Do you know what form that is?
Dr. Friday 27:27
I knew you were gonna ask me that. Look it up as we speak. So I can tell you that form number, because I’m thinking and I got the publication, see if I can bring that form. You would think that that would be something this is where the dad would always say you should know what you have.
So that form will be found with the whole tax return.
Dr. Friday 27:54
Yes, yes, it is part of the home worksheet. I’m just trying to find I’ve got the publication. I’m just letting’s see if I can find it in the publication really quick. Or on the radio. Go ahead.
Okay, from the phone that I do have, if I get interested in that, is that reportable?
Dr. Friday 28:17
If you like to sell to finance the home? Is that what you’re saying? Like you carried the mortgage for a little while?
No, no, no. I’m the seller of the house. interest earned off of that money. Is it?
Dr. Friday 28:32
Yes, yes. That would be under your Schedule B as interest earned from the bank or if you invested at someplace. But yes, that would definitely be reportable. Schedule B. Yes.
Okay. If it’s over $2, okay.
Dr. Friday 28:53
Like giving me the form number that’s home-sale exclusion residential form. I may have to I you know what, keep listening. And they’re in the break up on my tech software, and I will put the form number out there for you.
Okay. Thank you so much.
Dr. Friday 29:13
Okay. No problem. Thanks. can keep going on that one. All right. And let’s see here. I’ve lost my other screen. No, because you know what, I get so many screens going here. And then I end up moving things around. So let’s do this. Here we go. Alright, live videos. Go ahead and take the next caller. If there’s one. I’ve lost my screen.
Dr. Friday 29:37
Al, what can I do for you?
Well, I talked to you before, I’ve got a friend who’s now in a nursing home and we had to sell his house to help pay for his health care. So and so I needed to know again, the specific schedule or something if I needed to file that or his taxes because he sounds so scary. And they really don’t make enough money otherwise to file a tax return. Okay.
Dr. Friday 30:08
Well, so again, in his case, you’ve sold his primary home to help pay for his nursing home. Is that what I understand? Okay, yes. Again, after this break, I’ll be taking here in just a few minutes, I will look up the exact form and you’ll use the same one that she did when you file the taxes just to claim the house, and then you’ll put the exclusion in there.
Dr. Friday 30:31
And then that way, it’ll become tax-free and the IRS doesn’t come back because a lot of times, there’s a form called 1099 S filed, and then they’re looking for someone to turn around and pay taxes, you know, so that will be, but I’ll look that up. And after this next break, I will put that out there if you keep listening, okay?
Dr. Friday 30:49
Okay, I do appreciate it.
Dr. Friday 30:50
No problem. Thanks, mate. All right. Let’s hit Bob in White House real quick. Hey, Bob, what’s happening? I am doing awesome.
How are you doing? Good. I hope you can answer. This has been bugging me. Anyway, I had an I did my taxes last year it came out where I owed $1,500.15 $114. And I got on that pay thing that you can get on with IRS and read it I would pay $300 a month for five months, I guess. And a paid that last letter I got from them said your balance was $314. So I took that to say that’s what I owe them period. And it was my last payment. So I paid him $314 Well, now I’m getting this letter that says I owe them $237 doesn’t say what it is. But it says I still owe them $237? I don’t think I do. Well, I paid it was there every month.
Dr. Friday 31:50
Right. And I think that and I hate to say this, this is one of those situations where you might want to call because it may be that there was additional penalties or something that hadn’t been added in I mean, every month they add the penalties once a month, it’s it could be a timing issue on that situation. And I am wildly guessing the answer on that because I honestly don’t know the whole set, you know, situation. But if you owed $1,500, you got to imagine that they’re going to charge you about 25% penalties and interest. So you would end up paying them closer to 18 or $1,900 in the six months.
Why would it be a penalty if I pay them every month, make a difference?
Dr. Friday 32:32
IRS charges you a 5% up to 25% penalty for failure to file your taxes on time.
So they want you to pay right now and you’re going to get penalized.
Dr. Friday 32:43
You got it sir. They’re not your loan officers is what they love to say when my arguments on those conversations because it’s like well, okay, yeah, but someone Yep. All right. All right.
Well, I appreciate it very much.
Dr. Friday 32:54
Hey, no problem. Thanks, buddy. All right. And while we hit art real quick, Hey, 401k. What can I do for you, sweetie?
Hey, Doc, thanks for taking my call. I wanted to follow up with you. I actually just recently filed my taxes. And then I got a statement to know what to do with a 401k loan that I’ve been paying back on. I’m about two years into it. But I didn’t. It actually nondefault about halfway through the year due to some job loss. And then I did not follow it on these taxes just yet. So I’m wondering what I need to do before how quickly I guess and what I would need to do to make sure I don’t they don’t come looking for me.
Dr. Friday 33:34
So when did you take the distribution? Was it in 21? Or 22?
I took in 21.
Dr. Friday 33:42
Okay, so when you took it. Did you have any money come out? Like advance?
Yes, I did. I did. I took the initiative in 2029 and it was paid back with each paycheck on top of what was coming out it was a loan.
Dr. Friday 34:01
So that was a 401k. And I mean on that one? Obviously, while it’s alone, it’s not taxable. Can you hear me? I can hear you. I don’t know if you can hear me or not. Are you still there?
Dr. Friday 34:17
All right. So while I was alone, it was not taxable. But when the job went away at that time, it became that whatever was left became taxable income to you or you could pay it back at that time, but normally it just rolls over on a 1099 R to you as a distribution. How old are you are amazing? Say this, are you over under 59 and a half?
There you go. I’m under. Thank you.
Dr. Friday 34:39
Okay, so you’re going to have the 10% penalty. Plus, you’re going to have whatever that distribution so 20 grand, whatever it is, you’re gonna have ordinary income tax on it as well.
Okay, so that would be just wondering what did they own approximately four grand what would be 10%.
Dr. Friday 35:00
Can you give me a ballpark of your other income? Like? Are you married? Or single? Married? Okay. Your combined income? I don’t care who may what, give me a rough ballpark of what besides that four grand, what would your income be?
Dr. Friday 35:16
Okay, so you’re looking at 12% tax plus the 10%. So 22.
Okay, perfect. All right, well that already with that, I will follow up with them to get that sorted. Thank you so much.
Dr. Friday 35:30
No problem at all. Alright, so we’re gonna take a quick break here in a second. And we get back, I will talk a little bit more about the section 121 home exclusion and what form you need to be reporting that on, as well as if you have questions, there’s still be some time when we get back from this last break. This will be our last one. So if you have a question, now will be the time to jump on board and take a look at it. You can join us at 615-737-9986. And we’ll be right back with the Dr. Friday show.
Dr. Friday 36:19
All right, we are back live here in the studio. And we are working on talking to you about taxes and what we’re going to be doing. So why don’t we go ahead and hit Pam, who’s on the phone right now? Pam, what can we do for you?
I have a question about selling a home and counting the profit that you made off the home for income, it doesn’t count as income is that what I’m understanding?
Dr. Friday 36:47
So if you’re selling your primary home in which you live the last two out of five years, and you haven’t taken the exclusion in the last two years, then you can exclude 250 as a single person 500,000 as a married couple. If you’re selling a rental real estate or an investment property, then no that would fall on a Schedule D and it would be a part of the normal income of capital gains.
Okay, thank you. And one other question, if you have time. I withdrew some money out of my 401k in 2020. But the everything that they kept as far as faith and stuff, I thought they kept the taxes and I paid the taxes and everything was cool. But that sounds like I need to go back and pay the taxes on that money that I took out?
Dr. Friday 37:39
Well, you would report it on your tax return, even though they may have withheld something on the 1099 R but you’d still need to report it because they just withheld a percentage just like a paycheck or anything else. You may still owe taxes, you may still owe a penalty. I’ve had people that are taken as little as 5% out and obviously, they went 20, 25%. And then people take out 30% They only owe 20. So it really I mean, they’re just doing an estimate when it comes to withholding the money from your thing. Yes, it is something you’re going to put on your tax return and file.
Okay. All right. Thank you very much.
Dr. Friday 38:18
Hey, no problem. Alrighty. So again, if you just joined the show, we are. I am Dr. Friday, an enrolled agent licensed by the Internal Revenue Service to do taxes and representation been doing this for plus 20 plus years. And so if you have a question, and you’re trying to deal with some tax issues, obviously, this shows been here for this is our 13th year lucky 13.
Dr. Friday 38:43
And we will be hopefully going on for much longer. But if you’ve got questions, you can also call our office Monday through Friday. And that will be a direction you can go as far as getting some additional help and dealing with your tax issues or what you want to do on your taxes. You can also email us questions at firstname.lastname@example.org.
Dr. Friday 39:05
And just want to put out there that all the things I put out here on the show, you should always still go and talk to a tax person because each one of you guys has a little different situation. It could have been that you inherited the house through a divorce or separation, that it was a rental property for a period of time and then it became your primary home.
Dr. Friday 39:26
These are different situations in which even though you may qualify for a portion of exclusion, there may be recapture of depreciation still needed. There are other extenuating circumstances I just want to make sure that when you’re doing the tests for the exclusion of gain on your primary home, there are situations you need to make sure that you take the test and that you apply for the right situation that you’re dealing with anyways, so it makes sure your ownership and all of that I’ve had situations where like a mom and daughter brought home together and then maybe the daughter passes away, or, and then what portion of that home is inherited. So you have a step-up basis that you would go into.
Dr. Friday 40:07
And these are different, you know, things that can be a part, but like a vacant piece of land cannot normally meet the exception for your primary home. So I just need to make sure that you know, what I’m giving you here is obviously something I’ll hopefully make you go and move into the next level of the forest, where you’re going to go and what you’re going to get for it. Alright, we’re gonna be able to probably take one more phone call looks like it’s coming in. And then we’ll be able to get the rest of the information out there that you guys need. If you are filing your own home exclusion under the section 121 exclusion.
Dr. Friday 40:45
Alright, looks like it’s Bruce. Bruce, what can I do for you?
I’ve got two daughters, 20 and 22. One is in college, one has graduated. If I supply their rent, you know, water electricity. Now, can I count them as dependents if they don’t claim themselves on their taxes?
Dr. Friday 41:07
Well, theoretically, you know, it’s the 50% tests. So you have to provide 50% of their care if they’re out there. And they’re making $15,000 a year even though you may say that’s still not meeting, I think the IRS would say that they have the ability to support themselves. If they’re making $5,000, then I’d say yeah, between their car insurance, home, food, rent all of that you’re probably meeting their needs. So I think it would depend on how much money they’re making.
Thank you very much.
Dr. Friday 41:41
No worries. Thanks, Mike. All right. So again, we have just a few minutes looks like maybe enough time for one more. So we got on to the home exclusion. And to be quite honest, guys, I’m trying to get my software open to give us the easy answer on that hasn’t quite decided to participate in today’s radio show. So as soon as I find that, I will get that information out to you guys.
Dr. Friday 42:05
It’s not as simple as you might think. Because everything on the internet seems to talk about the 121 exclusion, but it doesn’t actually tell us where you apply it, even though I do it quite often, especially this year, oh, my goodness, I can’t tell you I probably going to do you know, a lot of those papers, because we had quite a few people that sold their primary home this year, either relocated, moved, moved in with children, expanded other homes, all kinds of cool and fun things.
Dr. Friday 42:33
And that’s awesome. That’s what life’s all about. But to try to find the exact form is working a whole different situation on getting that as far as I can tell. So I will find that form. Again, I get to cheat usually in it usually is in my tax software. And I just click it and I do it and doesn’t always work apparently that way for all the rest of us. So if you are working on your taxes, these are the kinds of things you want to make sure, you want to make sure if you sold any kind of real estate that you do report it if it’s your primary home, and maybe it is tax-free.
Dr. Friday 43:06
Keep in mind, the IRS may not know that they are going to get a form called 1099 S, I’ve had one or two individuals that I’ve actually helped through the audit side of that, because they didn’t think they were thinking, hey, it’s a free exclusion. And it’s a fairly simple audit All in all, but anytime we say the word audit and the IRS never a good thing.
Dr. Friday 43:25
So you want to make sure that you put that on there. The same thing, I’ve had more than one case where somebody has taken money out of retirement account, they thought the money was already taxed because they took out 100 And someone kept 20. So they thought they’d already texted and therefore they didn’t have to report it. Big mistake, because those usually don’t have enough money come out of the 90% of the time as far as I’m concerned.
Dr. Friday 43:49
So you need to make sure that you’re reporting it. And that you add that to all of your other income, which is usually what causes the problem. Especially it seems like sometimes when divorce and things happen, unfortunately. So you want to make sure you have that and then all your W2s. Unemployment, if you received any this year, it is not excludable so your pay tax on 100% of whatever your unemployment was where last year you had that 10,000 What 200/400.
Dr. Friday 44:16
That was excludable and then also claiming your children. You know, again, we do have that advanced child tax credit and so far, I’m going to say I am really impressed with my clients because we have gotten everybody that has had children has brought that letter in so either the IRS finally figured out how to get the proper form to the proper people at the proper time or whatever but it has come as part of people are walking in with that information and doing it properly in the taxes. So make sure you have that as well.
Dr. Friday 44:51
Now I have quite a few people that are coming in and saying Wait, we received two stimulus checks in 2021. We received one in Jan worry for six or 12 or whatever, $600 a person, and then we received another one in March or April for the $1,400. Keep in mind that 600 that you received in January of 2021, was actually reported on your 2020 tax return. It was a distribution according to the IRS done in December, it hit the banks possibly later, but it was part of your 2020. So you’re not going to be reporting that and I think it probably explains how a lot of people thought they didn’t get all their stimulus money.
Dr. Friday 45:32
So they applied for it on their tax return. And then boom, they turned around and said, Wait a second. Now I’ve got it in January, and people are looking for places to put it on there, Texas. Not going to happen. Alright guys, so I will make sure next week, I will make sure.
Dr. Friday 45:47
If you want to call or email email@example.com. The phone number, you can reach us at the office at 615-367-0819. And if you have a question about what form to file, the home exclusion, I’ll make sure everyone has that information for you. So that we can make sure that that will come upon our dashboard.
Dr. Friday 46:10
So, individuals, they’ll give it to you or you can call me and I can get it for you. I hope you guys are having an awesome Saturday. The weather is so much nicer today than it has been lately. So again, my phone number is 615-367-0819, firstname.lastname@example.org or email Friday. I’m sorry, website drfriday.com is the wide website. And so hopefully you guys will have an awesome Saturday. And we’ll be here next Saturday.