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
- Taxes For Individuals Are Due April 18
- Why You Need to Start Preparing for Tax Season
- What You Need to Know About The Advanced Tax Child Credit
- Facial Recognition to Prevent Tax Fraud
- 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
Good day. I’m Dr. Friday and the doctor is in the house and are we busy. It is the season guys, the whole time that we seem to talk about taxes a lot. But now is the time that people are preparing tax returns. You should have received in most cases, most of your forms.
Dr. Friday 0:45
I will say do not rush to just file your taxes. Because in many cases, we are still waiting for information from like stock retirement accounts, where you may have taken distributions or earnings. So you know, make sure you have received the actual year in reports. And then you know, go ahead and put that information in and make sure that you’re doing all the forms.
Dr. Friday 1:08
Don’t forget this year, we’ve got some specialties when it comes to filing, of course, for the Advanced Child Tax Credit, as well, as you know, we still had a stimulus check or a rebate that we had for 2021, which was $1,400 per person. So you want to make sure that that is also coming through. So for all of you that are working on your taxes, don’t forget that you know you have line 30, that’s going to come across, if you did not receive the EIP 3 or the stimulus check three, that would show up on number 30.
Dr. Friday 1:42
And then you also had the advanced Child Tax Credit, that’s going to show up a little bit of a change where you’re going to also see in 2021, we do have the charitable tax deduction, which is now $600 for a married couple $300 for a single individual, which is now split up between 12 A B and then 12 C being the amount that shows as your true standard deduction.
Dr. Friday 2:07
So you’ll have your standard plus your your charitable to get you to what’s going to show up on 12 C. So again, just the one of the situations where we have some changes, and we’re working on all those.
Dr. Friday 2:20
But it looks like I am fortunate enough Dalton is in the line from Franklin Dalton. Let’s go ahead and start the phone.
Hi there. Thanks for the phone call.
Dr. Friday 2:29
No problem. Thanks for calling Dalton, what can I do for you?
Question. If you have a stock call it stock X that you bought 10 years ago, and you’re down $90,000. But you have a stock Y that you bought six years ago, and you want to sell 255 shares to bring in the $90,000?
Dr. Friday 2:52
Absolutely long term for long term? Perfect situation.
Okay. So you cant just take the $3,000, you take the 90 for the 90.
Dr. Friday 3:01
Right. So what you get to take is the 90,000 plus three. So if you had a $95,000 loss, and you only had a $90,000 gain, you could take 93 of the 95. That makes sense, Dalnton?
Sure does. Thank you so much. I love you program.
Dr. Friday 3:17
Thanks sweetheart. I appreciate you. Alright, and so just again, thinking about those kinds of things like Don brought up is wonderful tax planning, guys, because sometimes you end up especially I am not a financial planner. But we all know that stock market has its ups and downs. And if you can time one of your ups with one of your downs, it’s gonna save you a lot of a lot of headache.
Dr. Friday 3:39
If nothing else in my side, from the tax standpoint, again, I don’t know if you should ever sell a stock just for a loss or, or cash in a stock just for a game that’s outside my paygrade. But if you can make a match or work together, I will tell you that is a win win for most people because that way, then we get to have you know our cake and eat it too, I guess you would say we get to take the loss against the gain. And I don’t want to tell you owe a ton of money, or that you have a huge loss.
Dr. Friday 4:06
And you can only take $3,000 a year for 20 years, and then hope that you use it all. So if you can work those out, that is always a win win situation as far as I’m concerned. And if you want to join the show, you can give us a call at 615-737-9986. We are taking your call talking about taxes.
Dr. Friday 4:31
So if you’re working on your own taxes, or if you’ve got a friend, maybe they haven’t filed taxes in a number of years or you haven’t filed taxes in a number of years, you know, the last couple years has actually made that not necessarily the best plan. Because if you haven’t filed taxes in the last 3,4, 5 years, you may not have received any of the stimulus monies which may actually I mean, if nothing else, it may go back to paying for some of your tax debt, right?
Dr. Friday 4:56
I mean, if you’ve got $3,200 And there’s one are two of you because you’re single you you’ve walked away from 3200 that made made a small dent in what you owe the IRS. If you don’t have a problem, if you have a problem with back tax issues, it also can go towards paying other things back child support all these different things.
Dr. Friday 5:15
It’s money that’s on the table, that by not filing the tax return, I mean, I’m always shocked, I’ll be honest with you, I have someone that turns around and says, Well, I didn’t file my tax return, because only personnel get is my ex. Well, I hear those words. And again, keep in mind guys, I’m not married, I don’t have children. I don’t live in that world. But to me, if the government’s handing you $3,200 And if you could get your ex off your back by giving them $3,200 It seems like that would be a win win situation.
Dr. Friday 5:42
So all I’m gonna say is if you’re having issues are you wanting to deal with your back IRS tax problems, normally it’s more situation is, you know it, you got divorced, or you had a situation where you got behind for whatever reason, and it’s just hard to get started again, because it seems like every time you get into it or do something, it’s more painful than it’s worth, well, if you need help trying to get back on track.
Dr. Friday 6:05
That is what we do. As an enrolled agent, that is what I have studied and done for the last 20 years helping people get back on track with the IRS getting the the situation where they can, you know, buy a house without liens and levies, you know, reestablish their lives so that they can actually start moving forward instead of always trying to just stay ahead. It’s never that fun.
Dr. Friday 6:25
Alright, if we get a chance, let’s go to number one. And we’ve got Ross Hey, Ross, what’s happening? Ross, Clarksville?
Is it Rose?
Dr. Friday 6:40
I am so sorry. I am reading it wrong. Sorry, it was my fault. Okay, Rose. Hi.
Hi, I was calling because I just got my W 2 with my work, it’s a hospital, I was explaining that. The hospital recently opened another campus, we went I don’t know which one we started as an anchor and LLC. But I now have two W2′. And I wasn’t sure if I just combine those as one when I’m doing my taxes, or do I list them as two different W 2?
Dr. Friday 7:18
You’re gonna list them as two different W twos because most likely there are two separate federal ID numbers. To get the IRS to match the information because they receive copies of those as well, you’re going to want to list them as separate numbers on yours. So that they they can see it in the background of the tax software that sends to them, they get copies of what you typed in. So they’ll match that to the TOS turned in by your employer.
So another just to feed off of that, like we’re where it asks about I think it may be 12 or 13, where it asks about retirement and all that. Do I just put the same information or?
Dr. Friday 8:00
Only what shows up. Right. So whatever is in box 12 on that w two? I mean, obviously, you probably had a retirement plan both ways. So the box you would check, yes, I have a retirement plan, and then it would be their CO D. Or if it’s a 403 B, it may be a co E, whatever. And you would list that along with maybe DD if you have health insurance or C for life insurance, you know, whatever they’ve listed in box 12 individually, so whatever is showing on the one W 2 with that EIN number, match it, whatever, then do the same thing in or twice.
Okay, so necessarily, they won’t necessarily be the same thing.
Dr. Friday 8:39
Oh, no, that’s what I’m saying yes, because depending on how they rolled it over, it might not have been in a split year, you know, or whatever. So whatever those W 2’s put them in individually, because if you I mean, again, it may not apply in your case. But in some cases, what happens also is higher earners, people that made more than 140, they may have overpaid Social Security tax, and they’ll actually get a credit back on their tax return. I’m not saying that applies or not. But that’s why we want to put both W twos in because as they started over again, they would have started with zero on the tax code as if it was a brand new, like you switch jobs like you went to a new employer even in your case you did. It’s the same scenario.
Okay, thank you. Very good. Thank you.
Dr. Friday 9:21
Thanks. Rose. Sorry about that. Thank you. All right, Thomas before our break. Hello, Thomas.
Hi. I was going to ask you is key employee life insurance? A deductible premium?
Dr. Friday 9:38
For the company or off of your own W 2 if you’re the key employee?
Well, if I’m self employed, can I count my life insurance as key employee life insurance?
Dr. Friday 9:51
I wouldn’t do it. Because what could happen is theoretically, with most life insurance, it’s usually paid with after tax dollars. Now if you’re The most things we have as a company, right, so I have my, let’s say, so my top employees, I have life insurance on them. So if something happens to them, the company will get the money, so I have enough money to go hire another person to do that job.
Dr. Friday 10:14
My company when I receive that money since I paid for it, theoretically, it’ll be taxable to the company, because I wrote it off as a tax deduction. If you don’t write it off as a tax deduction, it becomes tax free money. So you have to make the choice. But normally, companies with key employees will write off key health insurance as a tax deduction because the company then will absorb it and have the tax write off of the new employee. If that makes sense at all, as a sole proprietorship, it’s a little less clean, because as a sole proprietorship, the likeliness of who’s going to hire the new employee if you’re the primary owner.
Dr. Friday 10:49
So really, what you’re taking out is life insurance for maybe your spouse or someone else to be able to survive, why they they try to get the business back on its feet or sell it or whatever. So that would be more general life insurance, then key employee insurance. That’s my I’m not an insurance salesman, Thomas. But in that case, I would definitely want to file it with, I want to do with after tax dollars, so if my spouse wants to inherit the money, they’ll inherit it tax free.
Okay, one more question. All right. So I was expecting some 1099. And I still have not have reset received those yet. So what’s my responsibility in in trying to get those?
Dr. Friday 11:31
My idea in that conversation is I don’t care if someone wants to 1099 because I have reported 100% of all my sales and my clients that we do the bookkeeping, same thing, we’ve reported to the best of our knowledge, at least every dollar. So 10 99k 1099 are usually just for the IRS to match up to say, This person got I don’t know, let’s say $200,000 in 1099, but their schedule C is reporting 300. So we’re fine. Right? Right. So that’s usually the problem I have ever run into that is when people wait for other 299. And then they come in and say this is my only income.
Dr. Friday 12:10
I very rarely believe that because what’s the likeliness that every single business in any of our worlds have really 1099? Everyone you know? So that’s the only thing I would say on that one. Thomas, if you’ve done your accounting the way you probably have, which means you’ve just put everything in and you’re ready. You don’t have to wait for anyone’s 1099.
So, will that be matched up somehow?
Dr. Friday 12:34
Yes, the IRS will match up. So let’s say, for example, I’ve been issuing 299, this weekend for some of my clients that didn’t have the information. And we’re now just submitting them right, even though we all know that they should have been submitted a week ago or January by January 31. We’re still sending them out. And I’ll send them out through October in all honesty, if that’s what it takes for my clients, because I’d rather than submit them.
Dr. Friday 12:58
But if you’re waiting for those 299 thinking this is the only income the IRS knows about, I’m probably not your best suggestion. Because if I’m sending something out in October, and you’ve only matched the ones that you thought you were going to receive, then likeliness is you could eventually get caught up because the IRS will say, Hey, we’ve changed your tax return because we’ve gotten information now additional information that you didn’t report enough income, and then how do you come back?
So I just list the company and the amount whether or not I get the W two, I mean, the 10.
Dr. Friday 13:32
Right, I mean, you don’t have to list. Normally on the schedule C we just list gross revenue, we don’t necessarily list everybody we received it from now if you have a physical 1099, you’ll have an EIN or social security number. And we will usually list them, they’ll fall in a separate line on the schedule C, where they’ll run through the 1099 in any C’s or 1099 miscellaneous, depending on what kind of income and it will roll to the schedule C on a separate line, but it will then usually be subtracted from what we already knew was gross revenue.
Dr. Friday 14:02
So yeah, I mean, as far as you know, like I said, as far as the IRS is concerned, they’re just trying to match up total income reported to you by other people and what you’re showing as total income reported on your schedule C or your 1065 or corporate return whatever return you’re filing. But they will match.
Alright. That makes sense. Thank you.
Dr. Friday 14:25
Thanks, Thomas. I appreciate it. Alright, love it. Let’s go ahead and take a quick break and then we’ll hit George in Mount Juliet and anyone else that wants to join the show at 615-737-9986 and we’re going to be right back.
Dr. Friday 14:48
All righty we are back here live in the studio. And George was nice enough in Mount Juliet to wait through the break and George we’re gonna get you online. What can I do for you, sweetie?
I’m a longtime listener, first time caller, this is my first time to fill out or figure out trying to figure out Social Security. Oh, last year, I filed, but I sold some property I had in Florida and I got penalized. And of course, I got penalized that whole year. But this year, I didn’t draw anything but my Social Security, it was like 22,000 to 26. And I was just wondering, I think if more I understand on the back, I don’t have to pay any tax.
Dr. Friday 15:44
You don’t even have to file any taxes.
Well, I know, but I filed taxes for 50 years. It feels weird to not to have some kind of paperwork. Here. You know, fight.
Dr. Friday 16:03
Right. You know, I mean, there’s nothing stopping you. You can go I mean, I don’t know if you’re a paper guy. Or if you’re up into doing online, there’s nothing stopping you from filing zero return. Okay. All right. So so do you usually go to like, more than AARP? And some of them have some free locations? Do you do that? Or how do you normally get your taxes done? Or do you have a tax personally,
generally, I have mine done because I had that rental property national. have it done by a tax advisor? Did I use the lemon? For years? It makes him charges like $165 a page. I didn’t want to pay that if I didn’t have to.
Dr. Friday 16:50
I mean, and there’s no reason you need to, to be honest with you as long. I mean, the only other thing is, since you have sold some real estate, are you sure you don’t have any investment income, like it hasn’t grown any stocks or anything that you need to report dividends or anything?
I’ve got a couple IRA’s. But they’re not taking any money out during the bank and my personal nine.
Dr. Friday 17:13
Okay, but I’m just saying for tax purposes, if they’re an IRA, and I don’t know how old you are, Georgie, but are you over 70?
Dr. Friday 17:23
Okay, fine. So you haven’t paid. Okay, you don’t have to take any money out of those then. So at this point, you would be at the point of, there’s nothing saying that you have to file a tax return, there’s no rule. I mean, under your case, you have no reason to file that tax return.
Or you can’t find yourself as a dependent or nothing like that anymore.
Dr. Friday 17:46
No advantage. I mean, it mean, you already had zero security by itself without other earnings as already tax free.
My wife has been deceased for 20 years, and I’ve been the widow word and and you know, my house is paid forward. I don’t owe anybody anything.
Dr. Friday 18:02
Good. That’s where we’d like to retire if it can be done, my friend.
Not to worry with it.
Dr. Friday 18:16
Not to worry, don’t lose a moment sleep as long as you know, the only income that you need to be reporting is Social Security. So security in itself is tax free money. Unless you have other earnings. And he doesn’t sound like in your case you have it.
Now, just for a minute amount of interest, and I’m talking minute.
Dr. Friday 18:36
If its 1000 you don’t need to worry about it.
Dr. Friday 18:38
no, I’m talking about $4. And I mean, I don’t have any invested I’ve just got to intubate, you know, under an hour.
Dr. Friday 18:53
Yeah. Nothing to worry about seriously. But I would contact Medicare. If you get some time on, you know, and sit on the phone, because I know it’s always so much fun for you Georgie but you may need to submit something to them because they base those changes the means testing that you were talking about why your Medicare rate went up? Because of selling that real estate, you need to talk to somebody and find out if you know how you make sure it goes down again, because that was a one time event you should have been able to get a waiver on it.
They are backed up this year.
Dr. Friday 19:27
That’s my point. You need to call someone.
Well, they sent me a letter and they told me you know that it was going and it went back up to more than what it was before they got into it.
Dr. Friday 19:43
Well, they, everybody, you know, it was funny. I love all the politicians say hey, we give you almost a 6% increase because of inflation to all the people on social security. Right. So your Social Security supposedly went up by 6%. But so did Medicare go up so most people didn’t see it. any real income or adjustment on their social security because they increased social security, but they also increased what you guys pay for Medicare?
Yeah, I went from bringing 145 to 149.
Dr. Friday 20:14
Yep. I know. I’ve got more than one people walking in telling me that. But sorry about that one, Georgie.
Well, I’m making more social security now. It was, it went up over $500.
Dr. Friday 20:33
That’s good. All right, Georgie. Thanks for listening.
Thank you, honey, thank you for the information. I listen to you all through the years.
Dr. Friday 20:42
You got it. Thanks, Georgie. Bye, bye. All right. And if you do want to join the show, or if you’ve got a question, for us, you can join at 615-737-9866. One thing that George did bring up, which I appreciate when you guys call, because sometimes I never know what people are thinking or what kind of topics we need to cover.
Dr. Friday 21:07
Always, there’s a lot of different topics when it comes to taxes, but is people that are in their retirement, and many times you have obviously other properties, or maybe you even inherit a property once you’re into retirement. And when you do and you sell it, and you end up making 100,000 or $200,000 on this property and increases your income, you will end up paying for another year.
Dr. Friday 21:33
And it’s actually kind of weird, because obviously, let’s say you sell it today, you won’t file a taxes for 2022 until April of 2023. And then Social Security finds out about it a few months later. So almost two years after you receive the money, they’re then going to increase your Medicare for 12 months cycle until you file the next tax year. And in Georgia situation, he’s not filing he has no requirements. So I believe you have to contact them. And they will then I mean, again, I’m not absolutely positive, they may require him to file a zero return just to bring it back down.
Dr. Friday 22:12
That would be my biggest concern on that. So definitely would say if I don’t know if anyone knows the answer on that. Otherwise, you need to call and get that resolved because you really don’t want to be paying more money on Medicare than is necessary.
Dr. Friday 22:26
All right. We’ve got Lee in Hendersonville. Hey, Lee, what’s happening?
Well, not much, but I was wanting to know, I received a settlement for my car wreck, and I had to have surgery and a new car and everything that was not my fault. And I was wanting to know, are there any taxable money from that, that I need to be paying this year?
Dr. Friday 22:52
My guess would be that you might have been paid for loss of wages. And I’m guessing this I have no idea. But if any portion of that settlement was for loss of wages, that is taxable income to you, because if you have been working.
I’m a retired nurse.
Dr. Friday 23:08
So all of it was medical, as far as you know. Okay, then you are. I mean, it’s horrific as it was, at least on my side, I get to say you have good news, because medical is not a taxable situation.
Okay. All right. We were kind of concerned about that. And I didn’t want to mess up and not recorded if I was supposed to.
Dr. Friday 23:30
No, you should not. And, and you might get I mean, again, if you get a 1099 the lawyer would most likely be submitted to you. I’m assuming you went with a lawyer. If you did, then they would submit something to you, but then it should have been under medical and then you would have your medical to write off against it.
Okay. All righty.
Dr. Friday 23:51
Good job. All right. Thanks. All right. Thanks. Bye, bye. Bye. All right. Alright, we’re gonna take our second break here and if you want to join the show, you can at 615-737-9986 or you can email into the show at firstname.lastname@example.org. Either way, cuz I know it takes a brave person sometimes to call a radio back. I don’t know if I’d be brave enough if I wasn’t on the other end of this. So if you want a question or you have something you want to share with us you can 615-737-9986 and we’ll be right back with the Dr. Friday show.
Dr. Friday 24:37
All righty, we are back here live in studio. And as always, I love my callers and we’ve got Tim on the line. So let’s see if I can help out Tim. Hey, Tim, what can I do for you?
Trying to file my taxes like I normally do online. They won’t let me file because it says it’s waiting on a Social Security worksheet, something to do with the retirement railroad fun.
Dr. Friday 25:05
So did you get your 1099 from the railroad? Fun, you know, cuz those are a little different part of that form. I was on the
I got, I don’t even have I don’t even understand what that is. I don’t have a railroad.
Dr. Friday 25:19
Okay. So is it possible? Do you have Social Security? Did you receive Social Security?
I did. I just retired last year forced into retirement to be a caregiver. I did take a small disbursement of my 401 K last year. But I’ve been mad, I don’t know what’s going on. It’s asking me to, I gotta wait for some kind of update from the IRS on a Social Security worksheet, something to do with a Railroad Retirement Plan, which is not making sense to me.
Dr. Friday 25:54
So when you put in your Social Security benefits that you received, was it possible that you took on the what is it a 1099? Trying to find it really quick. I’m wondering if it got checked on the wrong box thing is like a 1099, R E, R B, something like that. I’m trying to you know, cuz that’s what I’m thinking when I we have some people that actually do work for the railroad and receive, you know, those, those forms?
Dr. Friday 26:33
So normally, I mean, in most tech software’s, you would just have an SSA 1099. Right? Okay. But you, but I’m wondering if somehow it got put in as an RRB 1099. It box F instead of on box, one of the Social Security form, it’s on box F, at least in my software, I’m looking at just so I can help a little. But I’m wondering if it’s on the wrong line, and therefore it thinks that you’re getting railroad not. So security, because they both fall in the same form.
Okay, I’m gonna go go back. And I’m gonna check that because it just wasn’t making sense.
Dr. Friday 27:11
Yeah, so that’s the only thing I can think of is that, and there’s a little box at the top of mine that says Social Security real world benefits received in 2020, which, of course doesn’t apply in this, but I’m just reading off what’s on the forum to help. But I know when I put in an RRB 299, it makes me check that off, and you know, there and it won’t apply in your case, because you should just be putting standard SSA 1099 in, but I don’t know how the software you’re using works. Okay?
I’ll go back and recheck.
Dr. Friday 27:43
Just double check it and make sure that it’s showing up under just the you know, box five of an SSA. Just double check that because it sounds like the software thinks that you’re on a different form, which is an RRB. But I’m just saying double check, because, as far as I know, I mean, I’ve been sending off them and that went for typical social security. The IRS is accepting those forms and the software is up to date. There are other forms that I’m still waiting on, but that one should not be holding you up.
Okay, all right. Okay. Thank you so much. Okay, thanks.
Dr. Friday 28:18
All right. And now we’ve got Gary in the big town of Dixon. Hey, Gary. Are you there? Dixon. Have I got the right name?
You got me. How you doing Dr. Friday?
Dr. Friday 28:40
I am very good. What can I do?
I have an IRA question. I turned 72 in March, and they’re going to check Send me a check every month, I guess for certain amounts that have to pay taxes.
Dr. Friday 29:00
If it’s from a standard, traditional IRA, the answer will be it could be taxable at least the first 12,000 If that’s the only income you have, it would not be but if you have other income, most likely that portion will be taxable because you sent it in deferred. So now you’re having to pay the tax.
Okay, so if it’s over 20,000 a year?
Dr. Friday 29:23
Your total earnings, everything. Yeah, your total and it could be almost like 13 Five, I guess but your total that would be Social Security, pensions and everything else if you’ve got pensions, or if you’re on Social Security, I would say you want to go ahead and least set aside. And again, I don’t know your taxes at all, but I would say a minimum of five to 10% going to Uncle Sam and if you’re in the higher brackets, obviously you can go higher but
Okay, all right. That’s what I wanted to know. Thank you.
Dr. Friday 29:53
You got it, boss. Thanks. Appreciate it. Alright, so if you’re working on your taxes, which sounds like many of you are which is so much fun I am to working on taxes for individuals. You know, just make sure when you go in through just like, you know, some of the calls that came in and everything, just want to make sure that everything looks right double check and also match it if if nothing’s really changed from 21. And then from 20 to 21.
Dr. Friday 30:19
I mean, I think all of us tax professionals do the same thing, kind of make sure you’re using the same forms that the same information. Now if you had a home sale, and you’re using a home exclusion, you’ll have a different form, if you have some sort of stock or or investment sale, you might have a Schedule D rentals, obviously, you’ll have your E and then a rollover to Schedule D, if you sold it, those forms are all out there.
Dr. Friday 30:41
But make sure you’re you’re kind of using the same forms, because most of us have the same incomes from the same sources. Most of the time, I know there’s changes in this year, most of the changes is going to be capital gains for many people sold a home some something where it came down, and you have a situation where now you’re dealing with capital gains.
Dr. Friday 30:59
And hopefully you’ve already checked with your tax person to find out what the taxes might be, if any, depending on the situation. But if you have questions, you can certainly call the show 615-737-9986. We’ve got Steve in Nashville. Hey, Steve, what can I do for you?
Hello, Dr. Friday. I’m calling on behalf of a friend who couldn’t be able to call today. And they were their teacher. So their income is based upon half of a year when the school year starts in August. They’re contracting contract or their their appointment is for from August to June. My question is in the selling of a house. And regards to capital gains, you had mentioned something about that the profit from the sale of the house plus your income plays a role in the capital gains tax. Can you explain a little better, please? Well,
Dr. Friday 31:53
basically, they look at our overall income. So anything, for example, this sounds like a married couple. So I’ll use that as a Szenario. So a married couple that would take their regular wages plus their capital gains. And this would be an investment, not your primary home. But if you have an investment and it’s under $250,000, all of that together, your tax bracket for capital gains would be 15%.
Dr. Friday 32:19
So if you exceed that, then you’re going to be adding the 3.8 up into almost 500,000. And when once you exceed 500, you’re going to be going to 24 3.8 or 24%. I usually say but so that’s how it plays in because they look at your all your income to determine what your your capital gains tax is going to be.
Okay, well, okay, so if the Senate House occurred this calendar year, and the profit on the house, let’s just, if you could just work with me here. Hypothetically, hypothetically, if that house was purchased for 200,000, and they’re going to sell it for 500,000, that would be a profit of 300,000. Correct?
Dr. Friday 33:02
Right. Now, this isn’t their primary home, right?
Yes, it is.
Dr. Friday 33:06
Okay, and how long have they lived in that primary home?
Dr. Friday 33:10
Okay, so I’m going to stop you because they can actually have a $500,000 profit and have zero tax, because we have the exclusion of 250 per person on our primary homes, if we lived in them two out of the last five years. So, it’s not gonna fall into the normal capital gains as if that home was a rental, let’s just say, right? So their case, they’re fine, because they can actually sell for more than 500,000 and still have a zero tax.
Okay. And so the income does not play a factor in that, correct?
Dr. Friday 33:48
in that particularly right in our exclusion, you can make all the money it’s not based on there’s no means testing on that particular tax deduction.
Okay. And one last part of that. So, in other words, when the fall the taxes for the calendar year 2022. If the sale, if the sale, the house occurs this year, and that person exceeds to 500,000 profit, then made the income would play a factor for next.
Dr. Friday 34:17
Correct. So let’s say they, they they sold the house for a million dollars for sake of conversation, and they only paid 200. Now we’ve got an $800,000 profit 500 would be excluded, but they would have 300k in taxable income. Now the play of how much money did they make, besides that 300 would determine how much of their capital gains is going to be, you know, 15% 18.8 and 24% 23.8.
Gotcha. And then the extra profit you just said is that is determined on the calendar year?
Dr. Friday 34:53
In the United States. Everything we do is always on the calendar, even their W twos even though they may have contracts that run from August to July there W twos are still based on a calendar year.
Okay. Okay. That’s awesome. I think you’ve answered my question. Clearly. Thanks. Thank you. Have a great day. No problem.
Dr. Friday 35:12
Thanks. All right, guys, we are getting to the last break here. So brace yourself, if you have a question, now would be the time to get some advice. Now, again, most of these scenarios, I’m going to always put the caveat out there. I mean, some of them are straightforward, easy answers that we can deal with.
Dr. Friday 35:29
But always double check with your tax person to make sure there’s not something I don’t know about, right, I’m giving some basic generic things, hey, if you make this, this, this and this, but what if you have a rental and you have, you know, inheritance, and because inheritance can be different than investment, or different than, you know, primary home, these all play different steps.
Dr. Friday 35:53
And so always double check with a tax person, a professional and EA, preferably, or CPA, someone that knows what they’re talking about. So that way you can make sure that you’re going to pay the right amount of money to the IRS and you can sleep really well at night.
Dr. Friday 36:08
Okay, so just want to put that out there. But if you have questions or you need help, you know this is the show to get the ball rolling we can actually send you in the right direction, find the right things or in some cases even send you the right tax law. So if you have questions, you can join the show 615-737-9986. And we’re gonna be right back with the Dr. Friday show.
Dr. Friday 36:40
All righty, we are back here live in studio for the last bit of time. So if you really been waiting, find out what you have going on your taxes are you’re in the process of preparing and you have a question? Now be the time 615-737-9986 We have Bruce in McMinnville. Hey, Bruce, what’s happening?
Hello, Dr. Friday, you helped me with this property once before. I’m calling back today. My father passed in 2014. And he left his property to my brother and myself. And we’ve since been renting the property. We’re now approaching a time when we’re going to be selling. And obviously the property has gained value. How what will capital gains be? How should we estimate capital gains tax on the syllabus property?
Dr. Friday 37:37
So you’re gonna have two things you’re gonna be actually thinking about on this one, Bruce, first, you gotta have standard capital gains. So back in 14, you came up with a basis, that was your share and your brother share whatever. And just for sake of conversation, let’s do you know, give me a number. What was the property worth? Give me a ballpark?
I’m gonna say 250.
Dr. Friday 38:01
Okay, let’s just use 250. I mean, just there’s a number for radio, okay. So under the current market, let’s say it’s going to be worth 500 Right now, okay, and maybe I’m low or whatever. But for sake of conversation, you’re going to have 250k, split in half 125 Each in capital gain with this scenario.
Dr. Friday 38:21
So that would be the capital gain portion. But from 2014 through 2021. part or all of that time, it was a rental property on rentals, we also depreciate and even if you didn’t depreciate tax law says you have to take depreciation when calculating your rental properties. So that means that whatever if it was 250, and let’s say there was a portion of that was land, but let’s just say $20,000. In the last was it six, seven years, you’ve taken in a depreciation that has to be recaptured, and that is at ordinary income rates. So up to 25%, or whatever.
Dr. Friday 39:04
So you’re going to have an I don’t know your income. Bruce, you know, I’m just saying, but let’s just say that, you know, with the 125, along with, I don’t know, let’s just say you make 100 grand a year or 250 already, and then you’re going to have another 10,000 or 50% of the recapture that’s going to fall into ordinary, which would be a part of your wages, or if you’re retired, you know, I don’t know what you have, but you know, normal income, it would not fall into the capital gains tax, which we know goes 1518 points, or 18.8, and then 23.8, it would be ordinary, which starts at 1222 24, whatever.
Dr. Friday 39:44
So it’s not as black and white, I guess is what I’m trying to say it you would probably have your regular capital gains, which, depending on your other income would be somewhere between the 15 and probably 18.8. And then you might have some ordinary income tax on On the depreciation portion, is that completely confusing you or helping a little bit?
Slightly, but it’s gonna be expensive. That’s what’s you’re saying.
Dr. Friday 40:12
Yes. Yeah. And again, I mean, if that home I mean, I’ve had some people in Nashville area that they brought the home or inherited, let’s say at 250. But they’ve sold it for a million you know me as a big piece of land that you know, people are tearing down the houses putting three or four houses up on these properties selling them for 800 each.
Dr. Friday 40:29
And so, you know, you can end up with a lot bigger capital gains that what I just said. And if that’s the case, obviously, your capital gains rates will be different. And I would definitely suggest yourself or whoever, if you have a tax person has someone do some number crunching once you have a better idea of the value, as well as the recapture depreciation just so when you do sign your name on that, you know, hey, you know what we’re setting 20% aside for taxes or whatever that number is, just so if you reinvest money, you don’t invest money, that’s really the IRS.
And so the fact that the property was inherited is no advantage.
Dr. Friday 41:05
Only to the fact that the basis went up from when your parents purchased it to when you inherited it. So you got the advantage back end 14 It won’t be an additional damage now.
Okay. All right. Very good. Okay. All right. I had one other question. Okay. And, and I am, I turned 66 this year. And I still work. I don’t have a huge income, but I still work. I plan to continue to work. I’ve delayed taking Social Security until I’m 66 and four months.
Dr. Friday 41:40
Okay, that’s your actual retirement age. Right?
Correct. So okay, and so will my Social Security be taxable?
Dr. Friday 41:50
Yes, as long as you’re working, because you can only earn and it’s 50%. If that’s called the provisional tax code, they take 50% of what your Social Security added to whatever other earnings and interest in anything you have. And if that comes above, I think it’s 30 for a single 40 for a married couple combined, then you’re going to pay tax on your social security. I usually prep most of my people, if you’re still working, you’re going to pay tax on your Social Security up to 85%. They can tax so they won’t tax 100% of your social security, but don’t close. Not what you want to hear. Sorry, Bruce.
And they’re gonna take most of it back
Dr. Friday 42:32
No, not really, come on, you’re in what now? So you’re in the 25% tax bracket, you’re still keeping 75 of it. It’s better to take it now. You can’t take it with you and you can’t leave it to anyone. And I’m not a financial planner. So I want to put that caveat out. I’m sure some people will say, alright, Bruce, I got one more caller on the line. But hopefully that helped.
I appreciate your help. Thank you.
Dr. Friday 42:54
Thanks, Bruce. Appreciate it. Alright, let’s hit William real quick in Mount Juliet.
Hi, Dr. Friday. I have a question concerning home health care. My wife has advanced Alzheimer’s, she is confined to bed, she can no longer speak, she cannot stand up or walk. And I’m keeping her at hand, probably as I also am battling breast cancer. So I have limited capabilities. And the I have hired a company to come in and do three hours a day, four days a week, which comes to about $100 a day. And then I did that to us off of my income tax?
Dr. Friday 43:34
You can deduct it under the medical and it will start adding up because at $100 a day, obviously, you probably are going to exceed the standard deduction and anything else along with charity or property taxes, it would fall under medical but it would be 100% deductible. If that helps, okay.
Publication 502. And it gave me some information. But it was a little bit ambiguous. So I didn’t know exactly.
Dr. Friday 44:02
Yeah, your wife meets the criteria, you have to have those criterias of where, you know, she can’t feed herself. She can’t dress herself. She can’t give herself medicine. Those become instead of in home care, it becomes hospice, in essence. And at that point, you’re you’re now meeting medical needs, not someone that’s coming in cooking meals for you or whatever.
Well, qualified hospice care. Right.
Dr. Friday 44:28
But this is an addition, but it would still meet the criteria, I think, because I’m assuming the knees that you’re dealing with is someone that’s dealing with her needs because she can’t take care of herself, and maybe even helping yourself because you’re getting to a point where you might need some assistance as well.
Okay, very good. I think that answers my question.
Dr. Friday 44:50
Thanks, William. Appreciate you.
Okay, thank you very much. Bye bye.
Dr. Friday 44:54
Thank you. Bye. Alright guys getting to the end of the show. And so here let’s go through some of the basics. Information, you’re going to need to know if you want to email me you can at email@example.com.
Dr. Friday 45:13
You can also check me out on the web, if you’ve never heard me, drfriday.com. I’ve been on the radio now for almost 13 years. I think we’re getting into the 13th year right now. So I have to appreciate all you guys for listening in all those years. And then also, if you want to call us the phone number is 615-367-0819.
Dr. Friday 45:35
Again, I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. That is what I do. So I try to help as best that I can. individuals that need help with filing tax returns businesses, obviously that file tax returns, and just try to get people back on track. There are many ways of doing that. But just beware of companies that don’t you call real quick and you tell them oh my gosh, I got an lien I’ve got a problem. And the first thing out of their mouth is, “Oh, we can help you start paying us money.”
Dr. Friday 46:05
How do they know they can help you? How they even know what they can do without pulling transcripts and doing something? If they already have you on a payment plan for $5,000 I would second guessed that it’s about my best advice for you. So if you want to reach me 615-367-0819.
Dr. Friday 46:20
I hope you guys are having an awesome Saturday. It’s a bit nippy outside but I still hope you guys are enjoying yourself. Stay safe. Stay at home off the crazy roads and we’re gonna see you or talk to you again next Saturday 2pm on the Dr. Friday show. Call you later.