Welcome to another episode of the Dr. Friday Radio Show! In this episode, tax expert Dr. Friday answers callers’ tax questions and covers the following topics:
- The Importance of Paying Quarterly Taxes
- Do I Have to Pay Taxes on Critical Illness Insurance?
- Do Pastors Have To Pay Social Security?
- How to Choose the Right Type of Business Entity
- How To Approach the Estate Tax Process
- What Is the Age Limit for QCD?
- The Difference Between Capital Gains and Long Term Capital Gains
- How Much Will Charitable Donations Reduce Taxes?
- What HVAC System Qualifies for Tax Credit?
- How To Do Tax Preparation and Financial Planning The Right Way
And much more!
Transcript
Dr. Friday 0:01
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 0:27
Good day, I’m Dr. Friday and the doctor is in the house on another wonderful Saturday where we get to talk about my favorite subject taxes; how can you not love taxes, it’s already time for you to file if you haven’t done it yet. And for a few of you that may have rushed to the beginning, you may find that the IRS is still sending you some forms. So my suggestion is if you’ve prepared your taxes, maybe wait a few more weeks just to make sure that you don’t have a Charles Schwab or some sort of investment statement. I’ve had two that came in this morning, our clients that we thought were finished. But and in some cases, one of them. We never had this statement in the past.
Dr. Friday 1:10
So it’s something new; he didn’t realize he was going to generate some dividends and interest income which happened. So really just making sure that your reporting is I mean, it’s not that you can’t amend a tax return Well, absolutely, you can amend a tax return. But it’s always easier to file an original return. Many people who are listening probably remember, at some point amending a tax return and knowing it can take six to nine months. Sometimes it seems like we can now electronically file them but that hasn’t helped everything because we’ve done a lot of that as well and still end up with the IRS coming back saying oh we don’t have that information, etc, etc.
Dr. Friday 1:48
So very important to make sure that you you know get all your documents in a row and make sure you don’t have something that you know may have come in some sort of settlement. Employers that may have gotten ERTC’s employee retention tax credit, remember that is dated for the years that the credit apply to so many years many of you need to amend 2021 and 2022 and men 22.
Dr. Friday 2:14
But complete it. So if you are getting ERTC credits, you need to make sure that you are reporting them correctly in your tax return. And you will get charged a penalty and interest. The IRS has ruled that with the employee retention tax credit if you’re going backward, and now you owe taxes for that period, they are not waiving those penalties. Unless you know, unless you haven’t had some issues where you can come up with a good reason. But it’s not going to be in the book. So even though you got the windfall of extra money coming in this is not like PPP money, this is taxable income in the year that it was and some people even got some from 2020.
Dr. Friday 2:54
So don’t make the mistake of saying, “Hey, I received all the money in 2022. So I’m reporting that in 2022.” That is not the way ERTC is supposed to be reported. And you will need to correct each year that you received that ERTC. So very important to understand. Because last thing you want is the IRS because they’re gonna get notified right and not to have them correct your tax return, Are you ready to be the one correcting? So you know, it’s done, right?
Dr. Friday 3:21
All right. So you can join the show today, if you want at 615-737-9986, taking phone calls and talking about my absolute favorite subject, of course, taxes, and money, that’s the kinds of things I do enjoy talking about. And it’s amazing how many things in life go back to either taxes or money from inheritance to getting a new job and not having enough money coming out of your Chase stubs, another huge little bone I need to pick because many of you come in and we look at the federal withholding box.
Dr. Friday 3:58
And sometimes people are totally shocked that they’ve only had, you know, 3% taken out of their entire wage. And then they don’t seem to know it, you guys need to at least look at your pay stubs, you may or may not always know if they’re correct. But if you’re looking at your federal withholding box, and you’re looking at your gross wage, and you’re a person that’s making $75,000-$85,000 It needs to be unless you’ve got a number of children at home. So you’re claiming married and you know, three or four, it needs to be a minimum of 10% If you’re not seeing that if you’re only seeing 5%. And then you wonder at the end of the year why you owe money. It’s because it’s not coming out correctly.
Dr. Friday 4:38
And it’s not always your fault. I don’t want to say that but it is your fault for not looking at your pay stubs. Because in my opinion, the W four is very confusing, and not very helpful. And in many cases right now what we’ve all in my office, what we’ve ended up doing is just telling our clients, go back to your employer and there’s a box on the W four so just do Keep it with whatever you’re doing. And then let’s add an additional withholding up and whatever that dollar amount is, we have to add in.
Dr. Friday 5:08
So that way next year, you do not end up upside down, I don’t care. If you have a smaller balance due, then then you get a small loan from the IRS and you don’t owe any money. But if you owe money to the IRS, in most cases, you’re going to have to pay penalties and interest. Because of the underpayment and for self-employed people, we’re required to pay our taxes quarterly. So that means every April, June, September, and January, we have a tax payment due on the 15th. If you don’t make that payment, they can charge you fail to file quarterly fees on top of the failure to pay penalty. So very important to understand. Sometimes people are like, “Okay, well, if the penalty is only 5% or .5%, some of them are fairly small, I’d rather pay the penalty and keep my money than do the other.”
Dr. Friday 5:55
That is your choice, it is not something you know, I’m going but our job is to make sure that you understand your choices and what you’re going to do. So very, very important. There are a ton of credits out there that are on the table for possibly not being able to be used on taxes. But I am going to tell you one thing, very important to understand is that when you’re doing the solar, make sure that you have the information because there is still a solar credit out there is not as much credit for electric cars as people like to believe. But if you are purchasing an electric car, some of them may be eligible for the energy-saving credits that you’re going to get on your tax return.
Dr. Friday 6:40
But you know, again, you need to go on to the IRS website, if you’re thinking about buying a car, you need to have the VIN number and the making model and the I think it’s kilowatts that the vehicle has. And it will tell you if you qualify or not, I would not rely on my auto salesman to tell you this only because that law often change pretty quickly. And it makes for a more interesting situation and what you might want. And they may or may not know all the tax laws. So really important.
Dr. Friday 7:11
And they mean testing some of that when I say means testing, I just mean if you make a higher income, they’re going to disallow some of the credits, versus people that are in law, which is again, kind of funny, because electric cars are still not necessarily the least expensive vehicle out there. So if a person that can afford to pay it is in the higher income bracket just seems like that would be what you need to actually do. But hey, what do I know you can join the show at 615-737-9986. Taking your calls, talking about all of my favorite subjects, of course, taxes are my number one favorite subject, because it’s always changing. It’s always different I took in, I was updating my emails today and one of the emails came back.
Dr. Friday 7:58
And I always think it’s funny because the first thing you know, they’re getting ready to sell their primary home. And they think that they have two years to reinvest that money before they have to worry about paying taxes. Guys, that thing expired a good 1015 years ago, that is not the current tax law. Current tax law is you have to 50 exclusion or a 500 if you’re married exclusion above what you paid for it and improvements that improve the value of the home. So you know, you do not have to reinvest the money. It’s not essential. It’s not even part of the tax code.
Dr. Friday 8:33
So it’s really important for you to understand what is the tax code. So when you’re making good decisions, you have good information to make those decisions with that is vital. All right. We’ve got a caller getting ready to come on the line here. And it looks like and so we’ll take that call before the break if we can. We’ve got Al on the line. Hey, Al, what’s happening?
Caller 8:55
Well, I just had a question. I’ve been paying cancer insurance for 28 years and finally had to use it, unfortunately. And I was trying to find out if will I have to claim that on my taxes next year.
Dr. Friday 9:10
So in most cases, I know I have a policy as well. But in most cases we pay for that insurance with after-tax dollars, we pay for it out of our bank account, and we can’t deduct it. So when we get it it is tax-free, or was this a policy that was provided to you by an employer?
Caller 9:29
No, I paid for it.
Dr. Friday 9:31
Then you should be tax-free, because the wonderful advantage to it is that we get we have to pay taxes on the money as we go. So when we get this, it’s tax-free to us. Sorry to hear about your having cancer, but at least I can give you a little good news. You won’t end up with a big tax bill.
Caller 9:48
Well, that’s great. Appreciate it.
Dr. Friday 9:51
Thank you, sir. Talk to you later. Bye. All right. So if you have a question, this is the show I’m an enrolled agent licensed with the internet Revenue Service who did your taxes and representation. Basically, they were the only people licensed by the Internal Revenue Service to do taxes and representation. So if you’re looking for someone that knows about taxes, knows how to represent you in front of the IRS wants to deal if you’re at that point where you’re like, I am so ready to get the IRS back on track. I’m so ready.
Dr. Friday 10:20
And I’ll be honest, we’re going to be one of those because we live here we work right here in central Tennessee. And so we’re going to be your walking in my office, we’re going to tell you how it really is not so much about oh, we can give you 10 cents on the dollar. Or we can settle this case for this, we’re gonna tell you what we can do for your case, this is not one of those situations. Sure anyone that’s been doing this for more than 20 years is going to be able to tell a case or two that they settled for 10 cents on the dollar. But there are also going to be cases where we settled it 80%.
Dr. Friday 10:52
We have situations where we’re not even able to do an offer and compromise because no one wants to hear it. But the fact is, you have better assets, you may not want to pay the IRS, and you may not even have the real ability, because the money is tied up in retirement or in a home. But the IRS may not take it and take the job from you. Right. They may, may say the deal isn’t on the table, because you have enough money in retirement, you have enough money in equity in your home, you’re just not wanting to access it or your credit may not be able to access it. But they aren’t going to make a deal with you.
Dr. Friday 11:23
Or if you have children, but those children are in private schools and you have you know, high-end car payments and you live in a nice neighborhood and you’re in your mortgage is higher than what the IRS considers a normal mortgage, they will maybe extend a period of time. But you know, they’re saying you’re choosing to spend that money, which is IRS money, and you’re choosing to spend it on your own lifestyle. And they’re like, We don’t agree with that. We’re not going to have that happen. All right. Looks like Todd is on let’s get Todd real quick. And then we’ll take a break. Hey, Todd.
Caller 11:57
Well, hey there. My question is, oh, thank you. My question was, is this if you are a pastor, and you exempted from paying Social Security, can you change that exemption back?
Dr. Friday 12:11
My understanding is no. Now, I will tell you, I haven’t ever been asked that question. But we have dealt with several cases where people have opted out. And I believe it is a one-time deal. You either opt in or opt-out at the time it happens. And you guys are one of the few the world of taxation where you can actually opt out of Social Security and have your own retirement plan.
Dr. Friday 12:36
Now, that being said, if you were to go to work on something outside, again, this is just outside of the ministry, like say you come to work for my firm, we would have to take out and you would be paying into Social Security, you’re only opt out of your ministry pay, not other types of pay. But I think your question is if you went to work for another church, you know, can you opt into having social security? And the answer is, as far as I know, no. And I can double-check that, Todd, if you email me, I will be more than glad to pull the IRC on it and just see if that is 100%. Correct. But that’s my understanding if my memory is correct.
Caller 13:14
Well, thank you. I really appreciate that.
Dr. Friday 13:16
No problem, buddy. All right.
Caller 13:18
Have a great day.
Dr. Friday 13:20
Thanks, Todd. And so Todd, if you’re still listening, my email is friday@drfriday.com. Friday, like the day of the week @drfriday.com. All right, we’re gonna take our first break. When we get back, we’ll get some more of your phone calls at 615-737-9986.
Dr. Friday 13:46
All righty, we are back live here in studio. And I’m Dr. Friday. And this is the Dr. Friday show. And if you’ve got questions concerning taxes, or maybe you have an inheritance and you’re not sure if it’s been taxed, or if you’re selling property, how much will your capital gains be? Or any of those questions? This is the show we can give you the basic information. Keep in mind that all the advice we do give on the show, you do need to check with your own personal tax person to make sure it applies directly to you.
Dr. Friday 14:15
We are trying to get you the basic information. But tax law is a little bit more complicated than sometimes. So you need to double check and make sure that that what I’m saying is going to apply directly to you. And if you need more, you can always call our office and we’ll be more than glad to try to help you out. So again, we are talking about taxes. We’re talking about different types of credits, different things that are happening right now in the news or what we’re expecting to see. Obviously, we’re talking about another thing that I always think people that make, you know lower than I think it’s a single person making less than about 35, a married couple making less than about 60.
Dr. Friday 14:54
They have what’s called a savings credit you might want to check in so if you have been concerned median, I would suggest contributing to a Roth IRA. Because you’d be in the lower tax bracket Mizel contributes now in the lower and let it grow. So you earn tax-free. And again, I am not a financial planner. So you might want to check that out with somebody that is a financial planner. But if you’re in the lowest tax brackets, it seems to me you’d want to let the money grow tax-free, but you also get a savings credit. That’s where I was going. And there are savers credits out there.
Dr. Friday 15:25
So there’s an advantage if you put $2,000 in to actually earn more money onto your tax return up to $2,000 credit. So these are important numbers to be able to make sure that you’re able to continue doing what you want, and how you’re going to be able to maximize your tax credits. Because so many times there isn’t really much of a tax credit for especially people that work a W two job, maybe have a small mortgage, you know, charitable contributions, none of that’s going to work very well, if you don’t want to. I mean, if you’re trying to find ways to save money, it’s straight tax, right? I mean, you put your W two in whatever your income bracket taxed at that bracket. charitable contributions this year, unless you are over the standard deduction, which many people are not, you’re not going to be able to itemize.
Dr. Friday 16:15
So therefore your charitable deduction this year is not going to have any additional credit as we have had the last two years. And then for people that are 70 and a half or higher, and you want to start taking your required minimum distributions, you need to talk to your financial planner because it is my understanding that you can do what’s called a qualified charitable deduction. This is where you’re able to give money directly from your IRA or 401 K, mostly, by the time you hit your RMDs, you usually have it all rolled already into an IRA. But whatever your IRA, you take that money, they will issue a check to your charity, you take the check, put it in the mail, or give it to them directly.
Dr. Friday 16:57
And then we get a dollar for dollar deduction. So if you have $10,000, you take all of your RMD required minimum distribution, and you say I want to give that all to my church that they will issue a check to the church at the end of the year, we will pay zero tax on that $10,000 They came out of your IRA as a qualified charitable deduction, I believe you can do almost $100,000 a year. So you know, you need to talk because nowadays they’ve increased the age for taking RMDs, which is 73.
Dr. Friday 17:29
And I think last week, we had a slight, or someone called with a question on this. And so I talked to my friend, who is a financial planner, and he said no, they still can activate it at 70 and a half for the qualified even though they may not be required to take the requirement on distribution until 73. Important information because this is a great way to reduce your IRA. And if you’re already giving it to charity. I mean, a lot of my clients give good money to charity, so why not take it out of there versus doing it on the other side? So really, really important to be able to understand how the qualified charitable deduction should fit into your master plan when it comes to your inheritance or into your financial estate planning. Okay, we’ve got Rosie on the phone. Hey, Rosie.
Caller 18:22
Hi, Dr. Friday question. I am doing our texturing right now as we speak, and I have a question about line 12. It’s our year to bunch and so on the itemized deduction, because on line 12, It says other than by cash or cheque if you made gifts of any gift of 200 Rs 250 or more, the instructions and so I have attached that form before 8283. But if the individual contributions aren’t more than 250, but they, in the aggregate, total like you know a couple of 1000. Do I need to attach a 283?
Dr. Friday 19:09
You do and I would have told you a year ago the answer would have been no. But we’re actually in the middle of an audit and we have been very well educated on this and I can’t say I totally agree but you know it is an auditor so at the moment we’re looking at IRCs but anyways, they’re saying that even though this gentleman had $40,000 But everything was five and $10 right all individual little things but he had inherited a huge amount of clothing and junk and mail wasn’t junk you know what I mean?
Dr. Friday 19:40
Just items and probably should call someone stuff didn’t come across well, anyways, so in he did a great job in documenting all of the individual things, the shape the whole thing and provide, you know, attach the form they came back and audit him and they’re now auditing saying he should have had an appraisal is all because it was over $5,000, even though it wasn’t one item over $5,000. So that’s what we’re having a discussion.
Dr. Friday 20:08
So at this point, from what I’m learning during this time, and I guess I’m always that’s what I love about Texas constantly learning, the answer to your thing would be yes, go ahead and attach that form. So that way you have the 80 to 83, you know, in there to at least show the documentation of how you came to that information? A
Caller 20:31
They need to change those instructions.
Dr. Friday 20:36
Very confusing. Yeah. Yeah, I mean, because it makes it sound like any one item. And that’s why I’ve always interpreted to be quite honest. And now I’m changing my thought only because of this audit. And maybe I’ll change it back if I win, and they will tell you how to do it, Rosie. But right now, my suggestion would be is to attach the 8283, we would have normally done that because the combination of all of it would have still been over the 500 or 250. situation. So probably just safer to attach it than not. At this moment. Exactly.
Caller 21:09
I haven’t. I hadn’t dug into the 1040 instructions before I called, and that meant I didn’t say that either.
Dr. Friday 21:09
No, it does not. Yeah. Thank you, Rosie. I appreciate it. Thanks. Bye. Bye. All right, you are listening to the Dr. Friday show. And I always appreciate all my callers, because you guys always have the courtesy of calling, which is not something a lot of people want to do to a crazy radio station, to a crazy lawn on the radio station. So it’s always thankful. Just keep in mind, I don’t care what name you use, or what you know how you want to be addressed. It’s really more important. It’s just asking the questions, because I’ve always found after 13-14 years on the radio hear that the questions you ask I have so many people walk in and say, “Hey, I heard this person asked this question, I heard that person asked that question. And it really helped. Because it made me start thinking about this or that.”
Dr. Friday 21:59
So it is very helpful when people take the time because I’m not always sure what other people are thinking or doing or, you know, wanting to hear necessarily on the radio. So we’re gonna cover all the subjects to the best we can and then go from there. When it comes to anything else, when it you know, just the tax law, we do want to talk about the mixed news for the designated HVAC systems. They are, of course, if you have a new HVAC air conditioning system, just keep in mind that that credit is still part of the lifetime credit. So if you have since 2009, taken energy credits, and I’m an amateur, hopefully, you’re still using the exact same software, so you’ll be able to track it.
Dr. Friday 22:44
But if you haven’t, you may need to go back and look at tax returns, which could be interesting because, theoretically, we only have to go back seven years to saving taxes. But other people have to deal with this kind of question. So hopefully you have at least the digital format of the taxes to see if any of those years you took some or part of the energy credits. The other thing is a large number of 1099 C’s coming in this year, those are discharges of credit, which people have been able in the last year or two. And sometimes, those forms take a while. I had a client that had a discharged in 2021 early, but they didn’t receive anything in 2021. They just received it now in 2023.
Dr. Friday 23:28
For the discharge that happened they do have time because apparently, the process we found out through this interesting conversation is they actually negotiated the discharge, but it was not actually taken until 2023 from the credit card or merchant service credit card. And so that’s the year in which they sent out the 1099 C, which was a big shock to the clients since they’re like, “Oh, I thought I would have had to pick that up in the year it happened. But the credit card company said did not.” There is a way of not paying tax on that. But you have to fit into the insolvent definition, which is really having more debt than you have income. If you have that, that’s great.
Dr. Friday 24:11
I have a person that we saw last week and she’s going to have a student loan fully forgiven, but the student loan $171,000. So that’s going to have a huge effect on their taxes. And in their case, they’re not going to meet the insolvent definition. So even though she is going to eliminate 171,000, which I would do every single day of the week, if you had the ability, she will end up paying about $35,000 in taxes though better than 171. So again, we will take it. Alright, so we’re gonna take another break here. So if you want to join the show, you can 615-737-9986, and we’ll be right back
Dr. Friday 25:04
All righty, we are back here live in a studio or in the third quarter. So if you have questions, or you’ve been waiting to find out something important, maybe you’re thinking about your 2023 taxes, because we are in 2023 people. So even though we’re filing 2022 taxes, you may be thinking ahead. So that way, you don’t end up with the tax issue at the end of this year. And to do that, all you have to do is pick up the phone at 615-737-9986, take your phone calls, talking about taxes, taxes, taxes, and cash it is tax season, and we are buried here, which is always a blessing. It’s what I work hard to do, but always a fun time in this time period. And there are always some changes in some different situations.
Dr. Friday 25:50
And also, it’s a great time to think if you started a business, if are you operating under the right type of entity. Because if you have a business entity and you are operating as a sole proprietor, I used to operate as a partnership and LLC, a sub-S corporation, a C corporation, are you trying to run everything under an estate or trust, there are different reasons, a limited partnership, a lot of people go with that for family estate planning. So these are all important questions. And after we take this call, we might dive a little bit more into it. But let’s see what Bryant from Lebanon has to say; hey, buddy.
Caller 26:27
Hi, thanks for taking my call. My brother passed away last September, and I’m the executor of his estate. He was a self-employed pollster in California. And he kept no records and has no receipts for any income, other than social security. So I’m wondering how I approach that as far as filing for his taxes this year.
Dr. Friday 26:55
So one way to approach it would be using bank information. If he has, I mean, obviously, the difficult side would be people paying him cash, you’re going to have a very difficult time for an estate because you don’t have that information unless you found an awful lot of money under his mattress. So I would actually first start with his bank account his Venmo if he took them, that’s very popular nowadays, or PayPal, I would go to those different types of transactions and just see if you can back into at least the best of your ability.
Dr. Friday 27:29
And that’s what the tax law says we have to do. If you can create his income expenses, you can only use what went through the bank, and those kinds of situations, you might also be able to go to supply houses because maybe he buys his material, his glue, his I don’t know what they use, but whatever it takes to do his job, he may have only one or two supply houses that he goes to, and you may be able to get them to print out all of his purchases for the year. Many of them are very helpful.
Dr. Friday 28:00
So that’s where we would start he may have gotten some 1090 nines; if he’s working business to business, he should get to 90 nines. But if he does work for individuals, as we all know, that’s not going to show up as easily for you, Brian, but that, I mean, that would be at least the place to start. See if you can get a Do you have access to his personal banking, I know you’re an an executor but doesn’t always mean that they will give you his bank statements from prior to his death.
Caller 28:27
They’ve been pretty cooperative with me. And I think they may they may do that. So give that a try.
Dr. Friday 28:35
Yeah, that’d be helpful if you could download it into like Excel or into a QuickBooks, some sort of format that you can move things around, versus having to hand do everything might make it easier for you. But you know, either way, you can also use the old highlight thing. This was all supplies, this was all this, you know, hotels, travel, whatever he might have had. And I would also like if you have access to the last couple of years’ tax returns. Do you think he prepared himself? Or was there actually a tax preparer on his payroll? Or at least something he went to every year?
Caller 29:07
I am searching for that now. You know, he wasn’t very good with paperwork.
Dr. Friday 29:12
paperwork. All right. That’s all right. Well, I was just gonna say if you get fortunate enough to maybe have someone that has been helping him or preparing his taxes, they may have been able to lead you in the direction of how he was preparing the numbers, you know, was he just using a pen and paper and saying this was my sales, here are all my supplies, here’s my miles, you know, whatever.
Dr. Friday 29:34
They may be helpful. Your other alternative would be to be able to go to the IRS, you could have since you are the executor, you could file a power of attorney with them and pull his taxes from prior years. It won’t be as simple as seeing if there was a preparer, but it might tell you something, they won’t they won’t have the preparer’s name listed, so you wouldn’t be able to get that, but it would give you the breakdown on the schedule. See since he’s the sole proprietor To help you at least get you in the right direction, but the bank will probably be your best friend if they can help you.
Caller 30:07
Okay, I appreciate that. Thank you so much.
Dr. Friday 30:09
No problem. Thanks, buddy. Appreciate. All right, let’s hit Ron in Gallatin. Hey, Ron, what’s happening, buddy?
Caller 30:18
Hey, I’ve got a question about a qualified charitable distribution. The investment company sent me a 1099 R, but they’re listing it as taxable. And I’m just wondering, on the tax form, do I have to do anything to indicate to the IRS that it was donated to the charity?
Dr. Friday 30:39
Yes, great question. Because if people are doing their own taxes, so you will receive what Ron is saying is he did a charitable cause qualified charitable deduction, but on 1099, it’s gonna look like all of your other ones. exible, inbox two, and the distribution usually the match or similar. So if you’re filling in your own tax return, and this is probably going to be different on different software I use an Intuit product.
Dr. Friday 31:05
But if you go down below where you would normally check if it was a Roth conversion, or if you’re paying insurance, and you’re a military individual, there are places one of them’s going to actually say qualified charitable deduction, and you’re going to fill in the dollar amount of what was truly qualified because some people don’t do 100% of the distribution. But however, it works for you. But yes, on your tax return, again, on mine, partway down, the different things we can deduct out of 1099 one of them asked about qualified charitable deduction; some people can do 10 different charities, and we just list each one. But the great question, Ron, because it is; if you don’t put it in there, you’re gonna pay tax, period, the IRS does not know directly about it until you tell them about the charitable deduction.
Caller 31:58
Well, on 1090, on the 1040 form, item for eight says the total distribution, and then for B is the taxable part of it. So I’ve already done that. Do I have to attach any paperwork to the form?
Dr. Friday 32:15
So you don’t? Don’t you? Because I think even though it doesn’t show it on the 1099 R, it is my understanding when they send in the 5500 on your IRA every year, like what’s going on in it sent to the IRS, that information is computed over to them. So unless somehow I would hold on to it, you don’t need to attach it.
Caller 32:37
Alright, that was my question because I read through all the tax publications, and it’s just quite confusing.
Dr. Friday 32:44
Tell me about it. But no, this is how it’s worked great. And congratulations on using the QCD. Because I totally love that, that option when it’s available to people over 70 and a half. Such a good job.
Caller 32:59
All right. Well, thank you.
Dr. Friday 33:00
No problem. Bye, talk to you later all right, so that there’s a man that has maximized his tax credit. I mean, no one. No, let me clarify, at least none of my clients I don’t feel give money to a charity just for the tax deduction. We all know that it doesn’t happen. But in some cases, just like Ron who called in where you’re giving out of your gross income instead of your net because every time you walk in, you go to church and you’re the tithing, you take a little check, or you take a 20 or 50, or 100 out of your pocket, and you put it in, that is after-tax dollars. And we don’t really have any place on the current tax code to deduct it unless you’re getting quite a bit of money.
Dr. Friday 33:40
But if you are old enough, 70 and a half or older, and you have IRAs, or 403, B’s, or 401 K’s that convert, and you are required to take requirement on distributions, even at 70 and a half right now, you don’t have to you can start making qualified charitable deductions, and you’re giving it out of gross, that can save people 30% 35%, our highest tax bracket is 37%, up to $100,000. So that can save a lot, even if you’re only in the 12 or 20%. It’s still that, and then I’ve had more than one of my clients sit down and say, “Well, if I do that, how much am I saving in taxes?” And then they add that to their tithing, so they’re able to give more money?
Dr. Friday 34:21
Because they figure, “Well, what if I pay tax on it anyway, so I’m just going to do…” you don’t have to I’m just saying that’s the way the game is played. It’s a wonderful thing. And you know, it does help individuals that want to give money to charities is a great way to do that. So just putting that out there. Big advocate. I’m also a big advocate on health savings accounts. And I see a lot of entrepreneurs or small business owners that do not maximize a health savings account.
Dr. Friday 34:47
Because I don’t know why high deductible insurance because most of us don’t even go to doctors or go only when we really have to because we’re really busy working, and we don’t let a little sniffle hold us down; we’re self-employed people bowl very proud. And so you know, health savings account, the nice thing is you can put up to like 3750 as an individual if you’re over 50, I believe there’s a ketchup for another $500 or $1,000, you can put in, and you can ask your health insurance person, I use Farm Bureau, they are awesome when it comes to this particular thing, at least I in the health savings. And you can also use hsa.com, which is a Health Savings Bank for your other side. So you have a high deductible, and then you have a health savings account. And keep in mind, again, that is coming out of gross as an entrepreneur, or small business owner. I can write off all that money. It’s a direct tax write-off as well, as I get to spend it out of gross, not out of the net. It’s a win-win. I don’t think it’s a doesn’t take a genius to figure that one out. If it’s offered at your work, I would definitely suggest going that way. Alright, guys, we’re gonna be going into our last break for the show. So if you 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 36:16
All righty, we are back here live in the studio. And we’ve got a couple of callers on the line. So why don’t we go with Rob? First, rob from Colombia? Hey, Rob, what can I do for you, sweetie?
Caller 36:28
Hey, I’ve finished my taxes. Sam is about $2,500. I’ve got about 15,000 I was getting ready to buy a CD. now. But I read where I could; I could invest in an IRA and deduct that from last year’s income. Is that true?
Dr. Friday 36:51
So you have to have earnings? Do you have a W2 job? Or do you have a self-employed something where you actually earn? Are you retired?
Caller 37:00
No, no, I earned from I work for a company.
Dr. Friday 37:04
Okay, so if you don’t have a retirement account at work, like a 401k, can put do? Okay. Depending on how much you may still qualify, it would be a question depending on how much money you earn. So and I don’t have the chart in front of me, Rob, but if you want you can either text me or ask Do you have someone that you have? Do you have a form? Do you have an IRA already set up?
Caller 37:30
No, I don’t have an IRA, I do have a 401 K that I tribute to contribute to biweekly?
Dr. Friday 37:36
Do you maximize it every year? Or do you just put in 3% or 5%? Or something?
Caller 37:41
No, no, I’ve put in 15%. And I met six, but I put in 15%.
Dr. Friday 37:48
So it sounds like, and again, I’m not a financial planner. I would definitely suggest going into your bank, they set up IRAs all the time. Or if you want to text me or email me, I’ll be more than glad to send you at least the chart for single or married how much you because it’s based on income, right? So if you’re making less than $100,000, and you’re a single guy, roughly, I’m just throwing out there, you can put so much into your total retirement, you may be maximizing that on your 401 K, so you cannot put it into your IRA. It’s not quite as black and white saying yes, you can or no you can’t. Are you married?
Caller 38:23
Yes. Yes. Is your wife work? No, she does not.
Dr. Friday 38:27
You could contribute to her IRA for $7,000 if you’re over 50. Suppose you’re under $56,000.
Caller 38:35
I am over 50. Okay. And doing all this would benefit me from last year from 20.
Dr. Friday 38:41
Right? Yeah, you have until April 30, which is tax day. To lower your 2022 tax return; you can contribute up until April 18 and 2023.
Caller 38:51
Okay, and you’re saying the best place to get these IRAs is through your bank? Well,
Dr. Friday 38:56
That’s usually where I send some of my clients unless you have a financial planner or someone that you already have some other investments, they may be able to help you, but if you don’t, the bank is a great place to start.
Caller 39:07
Okay. Okay, so I can reduce my total income from last year and pay you less money.
Dr. Friday 39:14
Yes, sir. Yes. All right.
Caller 39:16
Thank you.
Dr. Friday 39:17
Thanks, Rob. All right. Let’s get Claudia in Nashville quickly. Hey, Claudia, or Claude, Claude. Nick. Claudia.
Caller 39:23
Thank you for taking my call. And thank you for what you do for everybody that gets to call in, and I’ve got a question. I’ve had a home for 40 years, a rental house. And I’ve sold it, and I got to 30 forward to myself, but I’m wondering the capital gains or his anything like most Americans wonder, how much less we can pay and, and there’s any advice you can give me on that?
Dr. Friday 39:45
Well, the good news is it is long-term capital gains. The bad news is since there’s a rental and you’ve had it for a long time, you’ve probably already exceeded the full depreciation. Some of it may not even have to be recaptured. But the basic math is going to be, what was the actual sale price? What were your actual purchase price and the difference in simple math, I know there’s gonna be improvements, roofs, AC, all of that needs to be added in. The difference would be considered capital gains. And then there’s another part of the calculation that is we’ve been depreciating all these assets over a large number of years. We have to do a certain number of years to be recaptured. That’s going to come in at ordinary income. So you’ve got capital gains rates, that is, if your true capital gains are under 250,000, are you single or married?
Caller 40:36
Single.
Dr. Friday 40:37
So under 200,000, if it’s your income, plus this capital gain works out to be under two, you’re at the 15% tax bracket that goes, the anything that jumps over that 200 is going to be at 18.8. And then ordinary income rates, again, if you’re at 200,000. For a single guy, you’re at the 24% tax bracket, basically.
Dr. Friday 40:59
So it’s not a black-and-white answer. Unfortunately, I’d love to tell you simple math just multiplied by this, but you need to get your basis and all of your repairs and all, that you’ve. You may have put some more in before the end of the year. I don’t know. You know, before you sold it, I’m saying. But you do probably need to talk to somebody just to help you make sure that you’ve got the right numbers when you get ready to do your tax return. But all of it won’t be taxable, but a portion of it because you’ve had it for so long, you’re not going to have as much you’ve taken advantage of some of the losses throughout the year. years.
Caller 41:35
We’ve helped around 1.3% or something.
Dr. Friday 41:40
That’s the highest, but you have to be over 465,000 To get to 23% capital gains.
Caller 41:46
All right. Thank you so much for your time.
Dr. Friday 41:49
Nobody likes to appreciate your phone call. All righty. So if you guys do have some questions, well, at this point, you’ll have to try to emailfriday@drfriday.com. I will tell you, we are doing our best to keep up with the email bag is probably getting to be more like a 48-hour or longer response date. So if you do need help, please, either email or you can text the number 615-367-0819. Again, you can text 615-367-0819.
Dr. Friday 42:19
And if you’re having trouble, you need to have someone help you do some back taxes and get straight with the IRS. You know, you’d be surprised sometimes it isn’t as traumatic as people like to think it is. Sometimes you don’t even have to file as many tax years as you think you might have to, you might not have as much to worry about as you think sometimes, we put more strain on the worry side of things than we actually need to worry about. So all I’m saying here is the best thing to do is to get straight with the IRS.
Dr. Friday 42:47
So you can go out and buy a house or, or you can go and enjoy not worrying if you have a tax refund that the IRS is going to be keeping it or not file taxes because you’re afraid that if you have a refund or you owe money, they’re going to come after you it’s not a way to live, it’s no enjoyable, and you need to be able to focus on what you do. And as an enrolled agent, that’s exactly what we do.
Dr. Friday 43:09
So if you know if you’re outside of the basic area, and you can’t get to Brentwood to come to me, you need to go when you’re looking for a tax person. Look up EAS Enrolled Agents; that’s what they’re licensed solely is dealing with taxes, nothing but taxes. And they’re really you know, most of them are very, very good at what they do. And you want to have someone that can negotiate, not just prepare a tax return and throw the money on it.
Dr. Friday 43:32
But you really want somebody that’s also going to be there when and if something happens with the IRS. So you want to be able to deal with the issue, make sure that you have representation to help you deal with the issue. And then, you know, hopefully, never have to deal with the IRS again. But if you haven’t filed, if you’ve got a friend that you know needs some help, then they need to give us a call. 615-367-0819 is the number you can call. And also, if you have someone and you want to look at the web because you’re not too sure who I am, you can just go to drfriday.com.
Dr. Friday 44:14
Pretty straightforward and pretty easy. And the last thing is Friday at Dr. friday.com is my email. Keep in mind that whenever you’re working your taxes, make sure you’re dealing with the documents that you have. If you’re missing something, don’t just go ahead and sin if you’ve called someone and they say that they’re not going to issue something. Again, tax law says we have to claim all income that we receive. It doesn’t say only people that 1099 us, it doesn’t say only if we get a 1099k from the merchant service. It says all income that we receive. So just because someone has not issued you 1099 does not mean that you do not have to file a tax return. So I just want to make sure we have that clear or that you don’t have to put it on a tax return if somebody has paid you cash.
Dr. Friday 45:04
And the IRS is also looking at things like lifestyle. So you show your tax return, and you’re showing you made $17,000. But yet you have a wife and two kids, and they’re trying to figure out your mortgage or your rent every month is $1,500. How in the heck did you live? There’s common sense that needs to be applied. And just because, again, you have cash doesn’t mean it’s not being used or being able to be seen by the IRS. They can see it sometimes, guys, so very important to make sure that you’re reporting everything that you have, not just what you think the IRS knows about. It’s much easier to fall asleep at night when you don’t have to look over your shoulder and worry about what do I have to do.
Dr. Friday 45:48
Why am I doing this? Can I get away with this just much easier? And then also, if you ever want to get a loan, do you ever want to deal with mortgages or banks because you want to expand or buy a piece of equipment? If you’re not showing your true income? How are you going to apply for those things? Just a little lesson. All right, guys, that’s the end of it for this wonderful Saturday. I have to go back to work finishing up taxes. I hope you guys are enjoying this Saturday. Take a little time looking at your tax records. Start thinking about what you’re going to need to prepare them so that you don’t make any mistakes and you file them only once, not having to amend them. If you need help, you can reach me at 615-367-0819.