A lot of ch-ch-ch-changes in tax laws recently. To learn more about these shifts in the taxation landscape, listen to this episode of the Dr. Friday Show. For this episode, IRS Enrolled Agent and tax consultant Dr. Friday sheds some light on the questions thrown at her by callers. She also talks about the following topics and more:
- Changes in Divorce and Virtual Currency Taxes
- Brand New W-4 Form
- Penalty Rate Increased for Failure to File
- Useful Tax Apps and Software
- 72 Years of Age and Required Minimum Distributions
- Having Your Primary Residence in One State and Buying a New One in Another
- 1040 Forms Intended for Seniors 65 Years Old and Up
- No More Schedule 4, 5, and 6
Transcript
Announcer 0:01
No, no, no! She’s not a medical doctor, but she can cure your tax problems or your financial woes. She’s the how-to girl. It’s the Dr. Friday Show. If you have a question for Dr. Friday, call her now! 737-WWTN that 737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day, I’m Dr. Friday and the doctor is in the house! A bit nippy outside a little damp that you know what? It’s a perfect day to talk about my favorite subject, which is taxes. I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. No, I do not work for the IRS. What I do do is help represent you in front of the IRS. So if you’re dealing with an audit or if you’re dealing with, like, haven’t filed taxes in a number of years, I really am just trying to get back on my feet I’m trying to figure out, that’s what I do. Deal with the Fed and the state on helping you get back on your feet and trying to set up the right plan to hopefully keep you growing and going in the right direction but at the same time keeping the IRS satisfied. So we’ve had some changes as we know when we had the tax law come in to effect in 2018, a couple things didn’t really come in effect till 2020. The biggest one was as of -I’m sorry, until 2019, excuse me. So what came in effect was divorce, right? So if you got divorced in 2019, starting on January 1st, 2019 moving forward, the way alimony is received has changed or the taxes on alimony, I should be more specific.
Dr. Friday 1:41
So, up until I mean, if you divorce in 2018, 2017, any of those years, normally what would have happened, you received alimony, you pay tax, you paid alimony, you deducted it as a tax deduction. Starting in January of 2019, it became more likely Child Support. So if you paid someone alimony, it is not a tax deduction to you. Now, this is only for people that actually were divorced on January 1st, 2019 and on, right? So moving forward, not anything, so I don’t want to confuse anyone if you have alimony and you’ve been doing it for a number of years, none of that has changed. Only for new divorce cases that started in 2019. So it is a big step. Basically, you know, the person receiving alimony is no longer going to be responsible for the taxes and the person paying it will be responsible for all of the taxes that really has, I mean, to be quite honest, at least in our office. The blessing is we don’t deal with tons of divorces, but it has affected many of our clients on the way that they would approach divorce.
Dr. Friday 2:49
It becomes a much larger conversation than before because before it might have been you paid a little bit more out knowing that the person receiving was in a lower tax bracket and the person paying was in the higher. So, it gave them the benefit of actually doing that. So, just remember when you go in and if you have separated or you’re divorced and you’re receiving alimony that will be a question that will be asked. Another big question on the tax return this year starting in 2019 is about virtual money. Do you have or have you had any on nomination to, you know, bitcoins or any of that situation specifically on the tax return? So, for all of you that though you might have been just keeping your head down and no one’s really asked me, you know, it’s not a big thing. I’m not really lying because I’ve never been asked the question. Well, now the question is specifically on the tax return every taxpayer will have to answer Do you or do you not have virtual currency. And if you say you do, just keep in mind that every time you buy and sell different currency that is a transaction and therefore the game should be reported or the loss. And you need documentation.
Dr. Friday 4:02
It’s a little different than when we buy and sell on our own stock. Not a whole bunch different, but the difference is we get a 1099 B, it says, Hey, I purchased so much Apple stock, and I sold it this much Apple stock and it has a trail and there’s an actual paper thing. And then it will be required for you to be able to keep track of that information. So again, making sure that you have that information. And you know, if you answer yes to that, the odds are you did not buy your first Bitcoin and still hold that Bitcoin. At least in my clients, many of them have sold, they went into mining and they went into loans. There are all kinds of different places and situations you can move your money into. And so just you know, keep in mind if you say no, that Bitcoin and some of them have released information about people that were holders of their accounts. So IRS is kind of just trying to say, hey, let’s see who’s telling the truth and who’s not. They may not or may not know the answer to all of it, but again, it is a question that you have there.
Dr. Friday 5:02
We all know that starting in 2018, one of the new tax changes was that we were receiving $500 credit for children or dependents that were 17 and older. That would include a child with a disability. I had a big case wherein my office where, because the child was disabled. But in their 20s, you know, you can always claim a child as a dependent, but the problem is after the age of 17, that dependency changes from child to a family member or to just a normal dependency. So we also no longer have personal exemptions. We all know that that went away last year. We actually had personal exemptions within 2017, part of the tax law, so we didn’t have that in 2018. And of course, you know, we’ve talked a little bit about another big thing is the 529 plans. There have been some really big changes in there. So if you have or if you contribute to some sort of 5209 plan, that is something that you might want to review there. I believe they’ve released some information about homeschooling, costs of homeschooling, maybe be able to and also paying some money towards your student loan interest.
Dr. Friday 6:12
So, you know, again, just you know, changes are happening, you want to make sure they don’t apply to every single person but they are out there. If you want to join the show, you can if you’ve got questions about this, or maybe you’re getting ready to do your taxes. Remember, IRS is not opening up for E file until the 22nd of January. And many of us, you know, including most of my tax forms that we’re preparing, unless it’s a standard just tax return 48 series. Some of the forms won’t be available until like the 26th or 27th being approved. So again, for E file January 22nd, excuse me, will be the date that we can start physically sending them to the IRS for E file. So if you’ve got questions, join the show at 615-737-9986, 615-737-9986. I’ll be taking your calls, talking about my favorite subjects, we’re going to continue talking about different things that have happened in the taxes. But if you’ve got questions about a specific tax change or how something should be done, I will tell you. Also, a lot of people get confused with the W-4 form. It’s that simple. I mean, when we go get a job, the first form of one of the first forms we fill out is the form for the W-4. And so we want to make sure that when you’re completing the W-4 form, you have the ability to just take that information and get it on to the right form at the right time.
Dr. Friday 7:40
So, phones are ringing just in case you don’t have one. So that we want to make sure that they have the ability to get that right so they have a brand new W-4 form on the system. And you can fill it out what’s neat about the new w four form is asked some questions that we’ve never really been asked before and one of the big questions I liked – Is this a second job? Because the tax code has always had issues with taking out enough taxes when people work multiple jobs. So if you’ve actually started a job and then quit a job and started another job, you might want to read that because in some cases, you want to claim it is a second job because it’s going to take out more. Because every time you start a job, let’s say you work for three months, and then you start a brand new job and you work. It always looks as if it’s the first and only job you’ve had. So the tax code doesn’t take out enough money. So even though you’re actually claiming single and zero just like you’re supposed to, there are times when you may need to actually claim of additional withholdings. It doesn’t change the fact that you’re doing it right, but the new w four for anyone that’s had some issues with not having enough money coming out of their tax return. It’s really, really important that they actually take it to that next level, complete the 2020 W-4 Form, you may just find that they found some fix to a few the problems we’ve had. All right. Let’s hit Shirley, hey Shirley!
Caller 9:02
Hi, how are you?
Dr. Friday 9:04
I am awesome!
Caller 9:06
I love your show. I have a question about 1099. I listened a couple of weeks ago, and you were talking about how important they are to get it. And I do some work for a non-profit on the side, and I requested a 1099. And they said that they only do – so they didn’t give me one. And they said they only do a corporate report form 990, that’s what the accountant said. And then…
Dr. Friday 9:35
So, the accountant’s a little scary, Shirley, because the 990 is the form that the file just like you file a 1040 corporate file 1120s. It’s what the business in essence files to the government to account for them. What you were asking for is how much money did you pay me? Anything over 600 should have been sent as 1099 directly to the receivers. So whoever is handling their accounting, I’m already a little concerned. A few things, the 990 has anything to do with what you were talking about.
Caller 10:04
Okay. Well, that’s all they do. They said this accounting firm only does it corporate report. Well, they don’t do they don’t actually do a…
Dr. Friday 10:14
The 1099s, yes.
Caller 10:16
They don’t even – I don’t know what kind of reports they do every year when they hand in there. Yeah. Oh, you know, like I do what what it? I don’t know, I guess I do it. What I forgot what I do. But anyway…
Dr. Friday 10:28
Well, and there’s two things to that because if it’s a church or something that you’re working with, you know, a lot of times you need to send out letters saying you’ve contributed this much money to our charity, right? All of that needs to be being done as well. Hopefully, that’s following up on that aspect as well.
Caller 10:44
Well, this is like an association. And they it’s a non-profit association like a group of veterinarians. But I was wondering, so they said 1099 is not required for me to fill out my taxes since this form is not submitted to the IRS. So that is incorrect, and it was over $100,000. So…
Dr. Friday 11:08
Okay, so what you need to do, because what they do their problem, what you need to do is phase two. So if you never receive that 1099, the law says you’re still responsible to claim the income. So what you would do is just file it on a Schedule C, or file it as other income, depending on if you actually work to earn it. Or if it was something that was like an award, right? Where you may have given or somebody had given you, you won the lottery, something like that, other income. So in your case, it sounds like you actually worked for these non-profit sounds, like quite a bit. So you just want to file it on your Schedule C and then on line one, it says “How much money did you earn?”, you put in the total dollar amount, including whatever would have come from that 1099 that wasn’t reported. So usually we have 1099 income and then other income totally what was our total earnings for our business?
Caller 12:00
Right. Well, this was for 2018. So I’m going to get stuck probably with penalties and everything, aren’t I?
Dr. Friday 12:08
Yes, in theory, yes. And I will say that the IRS basically says it’s not the duty of the company to tell you, you are supposed to report it to the IRS, no matter if you receive the form or not. Just telling you so you, you know, even though theoretically, it would be nice if every business did things correctly, they’re saying, well, we all know that’s not going to happen. So if you’re getting paid, and this is just that you Shirley and anyone listening, if you’re receiving money from somebody else, and its earnings from doing something, then you need to make sure that’s on your tax return. Because in the assumption that the money went through the bank, if you’re ever audited, they would easily find it and then the penalties and interest is a lot higher, you might get a one-time exclusion from penalty, Shirley. If you haven’t really ever done anything wrong with the IRS, we’re all entitled to first time abatement. And you could use that when you’re dealing with this issue. Possibly.
Caller 13:00
Okay, okay. And you know, when I was, I do Turbo Tax. So every time I tried to put it in, they asked me, well, I need their…
Dr. Friday 13:09
Federal ID number?
Caller 13:10
Yeah, I needed all this information then they wouldn’t take it. So I will, I will call Turbo Tax and see how I want to have to. So I would just read by…
Dr. Friday 13:21
You just need to amend. It’s called amended 1040-X. And then you would actually if you don’t have it already, you need to do a Schedule C, and that’s where the money would go directly onto that form.
Caller 13:32
Okay, very good.
Caller 13:33
All right. Thanks. Great call. Seriously.
Dr. Friday 13:36
Thank you so much. Thank you, sweetheart. I’m gonna hit David real quick before we take the break. Hey, Dave.
Caller 13:42
Hey, thank you for taking my call. I bought a tractor from a farm at the beginning of 2019. Can I still depreciate that over five years? Is that still going on?
Dr. Friday 13:53
You can and since tractors are usually larger you can actually do and they’re considered equipment, you can do what’s called a Section 179 and depreciate it all in the first year that you had it in business, so, okay.
Dr. Friday 14:04
You have either way. Yes, sir. All right?
Caller 14:06
Great. Thank you very much.
Dr. Friday 14:07
Thanks. All right. Bye-bye. All right, we’re gonna take a quick break. If you want to join the show you can 615-737-9986 and we’re gonna be right back with the Dr. Friday Show.
Dr. Friday 14:32
We are back. Live in the studio. I’m Dr. Friday. If you’ve got questions concerning taxes, this is the show and it is the season. That’s right. Taxes are here for 2019 filing. I know we’re in 2020. We’re filing our 2019 tax returns. So just want to make sure everybody is on-site because you know what? Tax law has increased the penalty rate for failure to file to fail it to file is a fraud. Agilent the penalty rate is increased from 5% per month to 15% each month and part of a month that return is late. The maximum amount went from 25 to 75%. This is for your failure to file. So guess what? Let’s not make that happen. All you have to do, one of two things, file an extension. But even when you guys file extensions, remember, there is a due date. So if people walk in years later and say, you know, I filed extensions every year, yeah, but you still missed the window. People, when it’s when you say every year and you didn’t file tax returns for three or four years, you kind of missed the window. So filing the extension is great. Make sure you take the time to make sure you file. If your taxes are complicated and rushing in by April the 15th isn’t practical, make sure that extension is filed and you really do need to make sure it’s filed.
Dr. Friday 15:57
In that way then you have until either the Businesses until September 15th. And again, let’s go through the due dates. If you have a corporation and LLC partnership, a Sub S corporation, pretty much all standalone entities, those are all due March 15th. So if you file an extension there then do September 15th. And then the same thing and keep in mind the state requires franchise excise on all those entities to be filed by March by April 15th. And you must file an extension, minimum of $100 or equal to what you owe the year before, whichever is higher. So that is the rules on that one, then you go to your sole proprietorships and some corporations, things like that, those would be due April 15th. The extension date would be October 15th. So again, this is only talking about extending the paperwork that, which is the penalty I just read about. So if you don’t file the tax return, by that time, that’s where the penalties going to come. And then you have failure to pay still out there. You have failure to pay quarterlies, and a few other failures. So it’s really, really important that this year, come on, let’s make this our new year’s resolution. Let’s file the taxes because I know a lot of people sit there and go, Well, if the IRS doesn’t know how much I owe, then I don’t have them harpie, Mommy.
Dr. Friday 17:29
But is it really worth it when you consider that you could end up with almost paying twice as much, in fact, almost guaranteed, you can almost pay twice as much. So if you owe $5000, when you file it on time, or you end up waiting, and you file it late, and now you owe $10,000. I mean, seriously, that isn’t a good plan. We need to figure out better ways to do it. And there could be zeros on that maybe you own 50 grand, maybe you own $500,000 I’ve seen all of those numbers, and they’re all doable when you consider the other options. I would not want to go from 5, 10, 15, 20 to, you know, 10, 15, 20, 30 doubling those numbers overnight. That would just be crazy. So if you’ve got questions on if you haven’t filed taxes what we need to do to make sure your extensions are filed or Hey, wild idea let’s file the taxes now. Well, not right the second most of us do not have tax papers yet. Keep in mind with a prior was it surely that called asked about the 1099 if you are an employer or if you have rental properties, and you have people that work for you, like repairmen, people that have done your roofs and all that in their LLC or sole proprietorship you are responsible for filing 1099 forms on them. And I know some people are sitting there going but I don’t even know their legal name, and I certainly don’t have their social security number or federal ID number.
Dr. Friday 18:51
If you are going to be running a business in which rental properties in the eyes of the Internal Revenue Service are a business, before you write a check to anybody and any business owner should know this. Before you pay somebody, you get that information, you have them fill out a W-9 form, and they then have it even if you only pay them $500. What’s the worst. Do you have information that you don’t need? I mean, in a year, sometimes you may call the same repair person back multiple times, especially if you have multiple rentals. Or if you have one rental and yet to put a roof on it. Most people pay more than $600 for a roofer, and most roofers are LLC that I have dealt with. So it just a matter and individuals are supposed to do this to keep in mind, but normally it’s rental properties. and business owners, right? Those are the ones that are just right on top of it. They should know how much money they’re paying because it’s a tax deduction to you. You’re writing off that repair or you’re writing off what you pay just in that story was sure whatever they paid to her. They’re listing her on a tax return as if it was a deduction on that non-profit. Well, if it’s a deduction on one side, it has to be increased on some other body’s side. Somebody’s got to pay tax on that money.
Dr. Friday 20:04
So keep in mind 1099s, W-2s, are supposed to be in the mail by January 31 supposed to be already filed with the Social Security Administration by January 31st. If not, they have also increased some of those penalties for failure to file the social your W-2s on time and they can charge you a penalty for not only that but missing information, they actually have. So right now, basically, if you file any you know, they can assess you up to $50 a W-2 within 30 days of the dude at the maximum penalty per year. And a small business could be $187,500 they can penalize you $187,000. If you’re a big company, the maximum is $536,000. It’s a percentage of what your W-2s were. So, like I have a guy that’s a labor business and his W-2s are around $5.2 million. So you know, just think about it. They can, he could theoretically if those were not filed on time, they could theoretically charged him a penalty of somewhere between $187,000 and $536,000. Is that even a conversation you want to have? It’s not in my book. And nowadays everything is pretty simple. Use a system like QuickBooks all we have to do is hit submit the W-2 is automatically submitted to the Social Security Administration.
Dr. Friday 21:35
You want to do something like that if you need help with 1099s guys. And I don’t get paid by any of these people but this is the but we use. We use e file for business if eFile, no eBiz for – Nah- eFile4Biz! Sorry, that’s what it is, eFile4Biz. And that’s your W-2s and 1099s can be filed directly and they’ll handle a filing with the Federal and the State offices. So it’s important as business owners that we’re responsible about whatever we deduct on the tax returns that we have the documentation, the proper forms, and if you’re deducting people’s labor or consultants or professional fees if you’re paying attorneys or whatever that need to transfer on to 1099. And that all needs to be done by January 31st of this month, which is only a few days away. So many of us are working very long weekends to make sure that can happen to the best of our ability. If you do not have the Social Security number on the person, you know, this is what we do. I’m not gonna tell you this is exactly correct, we still issue 1099. And we put all zeros under the social security number and we submit it. You will get a love letter from the IRS and it will say if this person is still working for you, that you need to start withholding 25% and sending them the money.
Dr. Friday 22:55
Well if they’re still working for you could get the ID number and then correct the 1099. If they’re not working for you anymore, then you don’t have to worry about taking 25% because you don’t have it. But that way, at least you’re doing your absolute best to comply and eliminating the possibility of a penalty. That goes for W2s or 1099s. If for some reason someone’s Social Security number isn’t a good number. So again, just keep in mind, that is so vitally important. And we have a very quick deadline here. It’s already the 18th. And we only have till the 31st to get that information before, theoretically, penalties could start happening. So if you need help with that, you could always call our office, we’ll do our best to help you meet that deadline. But right now, you can call right here at 615-737-9986 615-737-9986. If you have questions about that or filing your taxes, or maybe something happened this year, you sold something or you’re thinking about doing a 1031 exchange, any of those things that might happen and we’re going to talk a little bit about some changes. We’ve talked last week about some changes in when you have to take Required Minimum Distributions. So keep listening, this is going to be an awesome show. We’re going to take a quick break when we come back, we’ll hit your phone calls, and also ask a few more questions that come through the email bag. We’re gonna be right back with the Dr. Friday Show.
Dr. Friday 24:25
We are back live in the studio. I’m Dr. Friday, an enrolled agent license with the Internal Revenue Service to do taxes and representation. So that’s what we’re talking about. Alright, looks like we have Thomas and then Johnny. Hey, Thomas.
Caller 24:40
Yes, ma’am.
Dr. Friday 24:41
What can I do for you, sir?
Caller 24:43
Well, I have a really odd question I need some information on I had a friend of mine who started a business and was making money with his business but needed a bank account. Therefore he came to another individual to help him open his business account. However, we’re under the business EIN. And I wonder how the tax responsibility fell on that particular situation?
Dr. Friday 25:08
Well, the bank account was actually opened under the EIN, but let’s just say that other individuals didn’t have great credit. And nowadays, you can’t easily open bank accounts. So the other person, as long as the person is not on the company, it’s not in the company files, all the property taxes under the EIN number, which would be under the other individual, there should be no liability, as long as nothing is done, you know, wrong in the bank account. So, you know, as long as that person’s monitoring, make sure the bank accounts being run properly, and that, you know, it doesn’t affect their credit for bad management, then I would say there shouldn’t be a problem as long as that person you would, that person would want to make sure that they get proof that the taxes had been filed and paid because you’re tied to that bank. And so if there’s any levies or lien, it’s going to go against the person’s name as well as the bank account that’s being held even though it’s under an EIN number I would be concerned.
Caller 25:59
Okay, well, one A little twist, and that is the business ultimately moved to Puerto Rico to take advantage of the tax laws, and they eventually found there. So how that affect it?
Dr. Friday 26:12
Isn’t Puerto Rico still part of the United States?
Caller 26:15
Yes, they are. But they have tax exemptions for people bringing their businesses down there to open up. And for whatever reason.
Dr. Friday 26:23
Well, again, that would really just fall on how the tax return was filed. It may give them some credits that they could take advantage of, kind of like if you have you purchased certain equipment, different things, you get credits for it, it would all file on the tax return. Again, that the person has the name of the bank account in you know, in their name, but under the Federal ID number. The only concern they have is that the taxes were filed properly under that Federal ID number so it doesn’t bite them. It doesn’t really make a difference as long as they’re taking advantage of all the legal tax credits. There’s nothing wrong with that. So you just need, if it’s yourself or your friend or whatever, then just make sure that those taxes are filed, that would be my concern. Just get a copy and say, has need to know that these were submitted, you know, in that way, then you would, you know, you would have conscience of knowing that the business is running properly. People have issues sometimes and bank accounts aren’t always as easy as people like to think.
Caller 27:16
And should it not be a concern?
Dr. Friday 27:18
Then I would have concerns, I would Yeah. Because at that point, the IRS is now looking for something and theoretically you’ve tied your name or whoever’s names on that bank account is tied it to that company. You know, legally if they open the bank account, which is a legal document. Well, okay?
Caller 27:36
Alright, I appreciate it.
Dr. Friday 27:37
No worries, thanks mate. All right. Let’s get Johnny, Johnny, Johnny, Johnny! Hey, Johnny.
Caller 27:43
Hello! Hey, how are you?
Dr. Friday 27:44
I am awesome.
Caller 27:46
Right. Thanks for taking my call. I have two questions for you. I got a 1099. And I haven’t filed for a few years. Well, on the radio, I kept hearing about commercials about the Fresh Start Initiatives and Tax Relief Program. Are you familiar with anything like that and how does that work?
Dr. Friday 28:13
I use it every day. That’s why what I do as I’m as an enrolled agent that’s what we deal with. And I deal with truckers a lot too. But, to be honest with you, it doesn’t work for everyone. I have some pretty successful truck drivers. And in that case, sometimes it’s the Fresh Start won’t always work because basically with the Fresh Start does it says hey, Okay, you know what they’re paying now their taxes for one you’d have to start paying your quarterlies on time and be good for basically the next five years. Then they say okay, so this is what the cost of living is and they have a set number of cost of living that you have minimum, and then we maybe can prove life insurance or whatever and then let’s say it’s $3,000 a month that they say you can use is legitimate, but you’re making $8,000 a month, they’re gonna say you can afford to pay us $5000 a month, just rough numbers may not apply Johnny but you know, I’m saying. They’re looking at a set of numbers and then what you actually making out. When I say $8,000 that would be after the cost of your actual profit, not what you’re bringing in the door. So this would be after your miles, your truck, your repairs, your tires, all the things you have to pay for.
Dr. Friday 29:20
But if you’re making $100,000 a year, and they’re saying that an everyday person could live off 40, if you’re a single guy, you theoretically have more money. You have enough money to start making payments, they might think. It really depends on how much money you have. If you have a million dollars, then we can make a deal probably, but the deal may be too high for what you can actually pay off in the time limit they’re going to give you. So there are rules and things but sometimes it works. Sometimes it doesn’t. So I would just be careful. I know there’s a lot of other people you can call on this. But make sure they don’t talk you into saying oh yes, they’re paying us, you know, hey, it’s gonna cost us five grand pay us $2,000 down and $500 a month and we’re going to help you out, Johnny. Well, to be honest, how can I help you out unless you get, first, how much money do you owe? And, you know, what kind of income Are you really making? I mean, you know, there are rules, and we have to follow those to find out if it really applies to you. Or if it’s better, make a partial payment plan, or get you on a non-collectible for a year and get find out exactly what your situation is. You know, I mean, there are different steps that’s available to us. I just can’t guarantee that a deal is gonna end if the Fresh Start would even work for you.
Caller 30:26
All right, I see. Okay, my second question is, last year I bought a truck. And I paid like 20 grand for it and I rebuilt the motor was like another grand. I still have yet to put it on the road. Can I write it off as an income or write it off as a loss or how’s that work?
Dr. Friday 30:49
Well, the tax law says that we cannot write off equipment until it’s actually in use. So the IRS looks at that $21,000 or roughly that you put into that as an investment. At some point, you’re going to turn that investment into making money meaning that you will put it on the road and start driving it or have another driver in it or whatever the situation might be. But right now, it’s an investment. So either you sell it, you use it. That’s the two options. I see.
Caller 31:18
Oh, I see. So by using it and make a loss, then I can write it off.
Dr. Friday 31:23
Right, exactly.
Caller 31:25
Okay. Okay. Well, thank you so much.
Dr. Friday 31:28
Appreciate Johnny. All right. Thanks. Great questions today, guys. Seriously, these are really good questions. Because not you know, I know a lot of you guys call in some people don’t really like to call if I always say I never call the radio station till I was on it. And it was never something I thought about doing. Even though I always thought it would be cool to say something or ask something. It’s not as simple as you like to think. So I always appreciate all my callers to make those phone calls. And today we’ve had some really good questions. So again, thank you. You. So let’s talk about a couple of things that happen at the end of the year. One of them was 72. Does that mean anything to anyone else besides maybe a good football number? No, not talking about the Titans yet. 72 years when they change the RMD, or Required Minimum Distribution. So it used to be 70 and a half, and now it is 72. So anyone basically, that was supposed to turn 70 and a half come the first of the year. So basically, anyone born after July of 2019, would be turning 70 and a half in 2020. All of us are all those individuals, not myself, and not quite that age. But all those individuals that were born after July of 2019, pretty much going into, you’d be 70 half in 2020.
Dr. Friday 32:45
Now your required minimum distribution day is 72. I always think that’s a better number. I mean, even numbers, right? I mean, always never understood why the whole 70 and a half, you know, I mean it just never really made a lot of sense. So now, 72. So if you turn in August of last year, you turned 70, you are not required to take your requirement on distributions until 72. So this may be an awesome time for you guys to definitely start contacting your financial people. You know, I had someone last week, you need to start talking to someone because there may be some windows there that you might need to do some conversions, Roth conversions or something. If you don’t need the money, sometimes people are taking requirements on distributions and they don’t need the money. It’s just a mandate because the IRS is like, hey, you’ve had my money for a long time you’ve been growing and growing and we want our share. So that some of the changes, in fact, many of the changes that were in the secure act signed back in late December of 2019. A lot of the things that are in here are really about how they’re going to raise money because they’ve limited the years that people can take socially inherited IRAs.
Dr. Friday 33:59
Not spousal for my understanding. And again, I’m not a financial planner. But these are things that are going to change in your financial plan. I know it’s gonna change your mind. So I’m assuming anyone else that may have retirement, 401ks, IRAs, and you may have had expectations of certain things that we’re going to go into estates or trust, you really do need to talk to your estate attorney or your financial planner, because, you know, I mean, now they’re saying an estate has to basically cash it out in five years. And many times before, it used to be over the lifetime of a certain person or an entity. So big changes they’re making in that situation. So I think it’s important that everybody kind of, you know, regroup, make sure that your documents are in good shape, make sure that you have everything you need in the right way because, to be quite honest, you don’t want to be caught with some of these changes, and some of them could be great. Maybe if you were doing conversions.
Dr. Friday 34:51
Right now, I know I’ve got several clients there with Hank Parrott of Estate and Financial Strategies, and he has this plan but normally it stopped at 70 and a half Well, boom, now you can go all the way up to 72, possibly if again, depending on your birthday, and the other great thing is, many people in their 70s are still working. I have a lot of clients that are still working and at 70 and a half, you are not required or you are not allowed to contribute to an IRA. After the age of 70 and a half, that law has changed as well. So that’s a great one. So now we’ll be looking at more people that may want to, you know, still have that small job on the side getting themselves some busywork, and you may be able to move some money into an IRA. If you want to, again, that’d be the question for your financial planner should be a Roth or should be a standard IRA. All right, we’re going to get our last break for the day. So if you’ve been holding your breath and like oh, I need to ask her some questions, well, now be the time to pick up the phone 615-737-9986, 615-737-9986. We’ll be taking your calls, and we’re going to be answering a few questions. We got through the email bag. So if you have some questions again, last part of the show, so pick up the phone 615-737-9986 We’ll be right back with the Dr. Friday Show.
Dr. Friday 36:26
Alrighty, we are back live in-studio last part of the show, guys, and then oh my goodness, next 24 hours from now we are going to be watching the Titans win. Okay, that’s my prediction, of course, so I may be a little biased. Alright, let’s go to Randy on the phone. Hey, Randy.
Caller 36:41
Hey there, thank you. I live in North Carolina with a state income tax. I’m married always filed jointly. I do want to buy a house in Florida where there is no state income tax I work out of my house. So I would like to declare my resident as long as I live in Florida for six months and a day. It’s been in Florida so I can save on state and federal, or state taxes, but my wife would stay in North Carolina. So, it’s complicated. So I just want to figure out how the taxation work.
Dr. Friday 37:11
Okay, it is a bit complicated. So you can file jointly on a federal and married filing separately on a state, just to let you know, it is an option. The, I mean, I guess the hardest thing would be is to prove that you were living in Florida for six months and a day away from your family or your spouse. I’m not saying you aren’t, but kind of makes it a little bit more questionable. You know, just to avoid state tax. Um, I get it. My sister, my niece lives in North Carolina, and the taxes aren’t I mean, compared to here, I would much less live in Texas or Tennessee. Sorry. Yeah. So, you know, I mean, you could do it. No question. As long as you stated the correct information. You can do all of that. I just think that and I have some couples that truly do live in multiple states, usually has to do with either the type of work they do or military, you know, we’re one lives in another state and the other one. But if your job doesn’t mandate you to live in a different state, which your wife’s kind of mandates her staying, it sounds like in North Carolina, yours doesn’t, you could change the family residence but then you also have the problem or an exclusion to a point of you living in the primary home. Two out of five years for the exclusion. If your primary homes in a different home, you’d be splitting that exclusion in two homes. You know, if you’re going to sell one home versus the other. I’m just putting that out there, Randy that, you know, once you say Florida is your primary, the net 250 is gonna eventually after two years would be part of the new home, and she would then have a $250,000. That may be enough on both homes as far as I know. But you know, just putting that out there that you would have a split primary residence.
Caller 38:51
Yeah, okay.
Dr. Friday 38:52
I don’t think there’s any problem as long as you document it. You got it baby.
Caller 38:56
All right. Thanks. Bye-bye.
Dr. Friday 39:00
Alright, an interesting problem to have I guess. I don’t know if anyone’s asking me because I would not want to live in Florida year-round. I had a condo down there for a number of years in St. Augustine and still love it still going down there. It’s just that sometimes in the summertime it was just too hot for me. So we had clients down in that area for a number of years that we used to do taxes and things so that being said, it is a wonderful place and I do like the fact that they are they have some good marriage laws as well as good tax laws, especially compared to North Carolina. That being said, alright, so we are talking about my subject taxes. There are so many different tax laws. I do want to also bring out if you’re a senior, somebody that is over the age of 65 filing taxes, there is a 1040-SR. The SRs solely for seniors. It has your standard deduction already on there for people over the age of 65, which is a step up. The print is also much larger. So the font is a bigger font. It makes it simpler for calculations.
Dr. Friday 40:13
So again, if you are especially you know, I still find a number of seniors not a lot but a number of seniors that actually print the forms or even still go and get the forms or order them from the IRS so they can hand do their tax returns. And I will say this to you is that if you’re one of those people please look for the form 1040-SR. You will find that it will give you a better font as well as the calculations will already part of them will be on there for people over the age of 65. So that will give you some help moving in the right direction. It is not required. You do not have to file that form. But it is a brand new form that just came out in 2020. So we’ll find out if that helps people that are older that are trying to file taxes on their own. Otherwise, most people just hit monitors and they get bigger and bigger monitors. So the text just keeps getting bigger and bigger anyway. So if you have questions about filing, there is been some changes, right? We lost schedule four or five and six, out of the one through six. We’re now through one through four, one through three. I guess what I think we have four forms right now.
Dr. Friday 41:19
So we lost five and six, I believe. So, remember they’re simplifying the tax returns by giving us additional forms don’t make a lot of sense, but it is the government so simplification is in the eye of the beholder. You’re also going to find some things like capital gains that used to roll over to schedule one in 2018. Now it’s going to be rolling on to the 1040. So just keep an eye on the return would be my secret. If you are filing your own taxes, cool. Nothing wrong with that. Many people especially if you just have 1040, your W-2. I mean really, you don’t have to be a genius probably to be able to put those numbers in there and throw out a tax return. But if you have rental property, Schedule Cs, you know, Schedule Ds, those may require extra work. And you may want to make sure that you’re getting full advantage of them and taking full advantage of the situation. If you’re itemizing, please, on the tax software, make sure they’re giving you the sales tax exemption.
Dr. Friday 42:16
I know less people are itemizing, I get it. But there are still a large number of us that itemize. And if that is the case, then make sure because one of the biggest things I noticed about people that do their own tax returns, and most of them are using something like Turbo Tax or some online software is the fact that they are turning around and they’re missing that deduction. So I don’t know if there’s a question on there that says, hey, do you have anything for sales tax or do you have a state income tax? And if you say, No, it doesn’t automatically trigger. I don’t know, I don’t use the desktop version of that, I use the professional. So all I can tell you is look at the return.
Dr. Friday 42:51
And also if your refund is a lot larger than it was last year, or if you owe a lot more than you did last year, and nothing’s really changed, then there’s probably a mistake. Okay? So just keep in mind that the tax code is almost exactly I mean, the code itself is the exact same with the exception of a small increase in the exemption, right? So instead of $12,000, it’s 12,200. Instead of being $24,000, is $24,400. Anyways, minimal differences. So if you paid $1,000 last year, expect to probably pay $1,000 this year. But if you had a child, that was 16 last year, and the child is now 17 in 2019, if they turned 17 in the year 2019, you may have just lost a $1500 dollar deduction.
Dr. Friday 43:42
This could be some of the reasons why your taxes are going up. Nothing to do with the tax law just that your children are growing up and therefore, it changes so I just want you to be sure when you’re doing your own taxes or if a tax return just doesn’t feel right or look right, you need to go ahead and have a second opinion, it’s that simple. Have a second opinion. It’s going to make things a lot easier and a lot faster and simpler. So if you need to do that, or if you’ve got questions because we’re run down to the end of the show here, if you’ve got questions, you can email me friday@drfriday.com. Again, friday@drfriday.com. Or you can give me a call Monday morning, 615-367-0819 615-367-0819. I will try to get to Howard. Let’s see here. I’ve got only like a minute or two left of the show. So let’s see if we can do it again. We’ll try to get Howard right now. Hey, Howard, what’s your question?
Caller 44:42
Hey, I have a suggestion. Why won’t the government just take 5% of everybody’s salary and income and not have anything to count. If you have 10 kids, that’s up to you. If you want to do something else…
Dr. Friday 44:56
Because of two things, I’ll tell you my personal opinion on that. One, the Government has a large number of control. Two, 75% of Americans don’t pay federal tax, they usually get refunds. So, you know, just saying those people are going to really not like to have to get more money than they’ve already had to pay for it.
Caller 45:14
But how do people get money back? They’ve never paid any.
Dr. Friday 45:17
Because of children. Children or college credits.
Caller 45:19
All right, thanks a lot. Take care, bye.
Dr. Friday 45:20
You got it, boss. Thanks. All right. We got that one in. I mean, I have said the same thing. I’m all for the straight tax guys. Let me go buy a candy bar, pay it then charge me 20 cents more on it or whatever, and never have me file a tax return. I’ll be the first person in line for that kind of tax. The problem is lose or loss, in my opinion, loss of government control, right? Because all of us have some control with the government because we have to be accountable. So it’d be interesting to see it’s kind of like getting terms on our politicians. I don’t think it’s ever, ever going to happen. But if it does, it’d be a great day. So if you got questions 615-367-0819is my direct number. 615-367-0819. Next, you can email friday@drfriday.com. Again, friday@drfriday.com If you want to make a tax appointment now would be the time guys I know it’s a little early for some of you but go ahead and make it for March or April because the dates and times are filling up. All you have to do drfriday.com that’s my website drfriday.com. Click on the appointment and choose the date and times available. And that way then we’re set to go ahead and get you taken care of get everything filed. If you need more help again, just give me a call. Go Titans! Alright, call you later.