And the doctor is in the house once again! For this episode, enrolled IRS agent Dr. Friday went overtime to accommodate all tax questions from callers. Dr. Friday also talks about the changes in the tax forms and other topics which include:
- Updates of the Form 1099 for 2019
- Married Filing Jointly When Spouse Is Deceased
- Cd in Another State
- Missed Taking a Required Minimum Distribution
- Paying Tax for an Inheritance
- Solving Tax Issues When Your Business Partner Disappeared
- Canadian Pension
- Why Some Businesses Require 1099s From Customers
- Taxes When You’re Selling Your House
- Self-Employment Tax
- Tax Credit for Adoption
- Injured Spouse and Innocent Spouse
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
All right, we are here live in the studio. So if you want to reach us, it’s 615-737-9986, 615-737-9986 And we’ll go right to the phones since Bryan’s holding. Hey, Brian!
Dr. Friday! Great intro music. My question is I didn’t file federal last year. I want to know if there are any changes. My total income is $255,234. That is social security.
Dr. Friday 1:00
No, I mean, you would still not be required to file.
Oh, you’re the angel. Thank you.
Dr. Friday 1:05
No worries. Thanks, mate. All right, now we’ve got that going. Has anyone seen the 1044 for 2019? Is anything kind of looking familiar? Well, as you know, they made a few more changes in December of 2019 for us. And they move some more income on the first page. And guess what, we are now signing the taxes on page two again. So it’s a little bit of a test. They’re trying to see if we’re actually paying attention, I think. So they’ve moved a lot of things around. They’ve moved some of the information so we have more income sections, IRAs, pensions, qualified dividends, all of that now on the front page. As you know, we had Form one through six last year, we now have one through three. Part one is going to cover income and allow for certain adjustments in your like alimony and tax cut jobs act and any of the important things. And then at number two is generally going to be your AMT. Tax insurance is different things, self-employment tax, unreported Social Security, Medicare contributions, pensions, etc. And then three covers all refundable credits. So just pay attention if you’re doing your own taxes because it’s different again, I mean, for many of us that’s been doing this 20 plus years, you know, for a while we actually knew every line that something was going to fall on, we knew how it’s going to come through the tax return.
Dr. Friday 2:27
And then in 2018, they changed the trying to make what they called a postcard. Obviously, that did not work, it never really was the size of a postcard, but there again, they were trying to simplify it by adding six new reports. I’m not too sure if their version of simplification and mine is the same. But then of course in December of 2019, they came in with the Security Act and in there they added some more things or took some things away and added some, right? So they move for more information to the front page, extending the tax return again on to the regular 1040, reducing the number of extra schedules we have, they also added the 1040 s are for only taxpayers that are 65 and older. So it’s basically the exact same form 1040 or 1040-SR. The differences is the standard deduction is already on there. The type or the text or font is larger. So if you’re trying to look at those, most of the people, I know I shouldn’t say, I do have a handful of clients that still use paper to prepare tax returns. But most of my clients are now becoming more and more IT smart, so they actually are still doing them on computers, which you can change the fonts for anything you want.
Dr. Friday 3:47
Big changes, I think, because I do a lot of entrepreneurs as you guys know, and business owners entrepreneurs, we had the qualified business deduction and it was up to 20% of what your profit was or part of your equipment that you may have purchased and combination of payroll, right? All those different things came into play. A lot of confusion about QBI. So they came up with a better worksheet, I guess you would say. It’s the 8995, we had that but it didn’t really ask a lot. Now there’s like 17 additional questions that have to be asked. So just keep in mind that is going to be much more interesting on what you know, to make sure you go through there and all of you I think I’ve said this in the past but on the tax return, right in one of the top questions you’re going to have is do you have virtual money so do you invest in Bitcoin? Are you having any of that and that is a question for everybody has to ask on the tax return. And you know, if you say no and you do habits, just see keep in mind that the government is going to be able to track that in some ways, I just want to make sure you have that information. Any of you that use the file the Form 2555, which was employees unreimbursed expenses, obviously that one has been discontinued.
Dr. Friday 5:14
EZ, Schedule C EZ, there is no longer an EZ form. That has been eliminated. Pages four through six have been eliminated. And the 8965 is not needed after 2018 because that was for the health insurance, right? So there’s been some forms that are going to come out some new forms going in, and the fun begins. So if you’ve got questions, all you have to do is pick up the phone 615-737-9986, 615-737-9986 taking your calls. And we’ll talk a little bit about some other questionnaires that are going to be in there. Maybe you run a Sub-S Corporation or you have an LLC and there’s going to be additional questions on activities for risk. because if you are all at risk or not at risk depends on if you can take certain losses. So they’re going to be asking more of those questions and make sure those are being taken correctly. All right, let’s head to the phone lines. We’ve got Bill. Hey, Bill, thanks for calling.
Hi, how you doing?
Dr. Friday 6:14
I am awesome.
Question. My wife died this past December. And I understand I can still file jointly, married filing jointly.
Dr. Friday 6:24
Oh, my question is downward requires her signature. What do I put down there?
Dr. Friday 6:31
Just put deceased?
Dr. Friday 6:33
Yes, sir. And there’s actually, when you’re completing the boxes, usually where it will say you would just claim married filing jointly as you always have because you were married for the whole year, no matter when she would have passed away and then normally you would put down at the bottom deceased so that way would come up on the return so that they understand there’s no reason for her to sign. And if there’s a refund, there’s also going to be an extra form in there. You’re going to need to look up because they’re going to want to make sure you’re entitled to that refund.
Dr. Friday 7:05
Okay, so if you need help just give us a call at the office, but it’s pretty straightforward to be quite honest. Do you use paper or do you use technology?
Or use paper and pencil? I have been since 1963.
Dr. Friday 7:18
That may have been before they had computers? But let me know there are computers now, Bill, just saying, you know? I just want to let you know, you can upgrade to that but if you need help with some of the schedules, if you working through it, they’re going to want in you know, theoretically, I’m assuming that you’re over her states. So you shouldn’t have any problems with that.
Okay, does that work the same way on the Tennessee Hall Tax?
Dr. Friday 7:43
Absolutely. Absolutely. Yes. And that we’re down to what 2%
I think, yeah, 2%
Dr. Friday 7:51
So we’re almost done. Bill almost get that out of our hair. That was so sweet. All right, buddy. Thanks for the call.
Dr. Friday 7:57
Sorry for your loss. Bye-bye. Alright, and we’re going to keep the phones going and you can join us 615-737-9986, 615-737-9986 And we’re gonna go ahead, Linda? Hey, Linda. What can I do for you?
All right. If I have CD in another state and my residence is in Tennessee, what forms or how do I know what I have to report to that particular state, as far as whatever tax they have like what we have?
Dr. Friday 8:33
Right. So you would possibly depending on how much interest we’re looking at, those would actually qualify possibly for the hall income tax here in Tennessee for our state. Even though we say we don’t. And then you would file in a non-resident in whatever state that it is in, in that many of them have a minimum. So you might need to just again, if you can use the computer, it would pretty much tell you you need to file if you make more than by thousand dollars, whatever it is. And you know, depending on how much CD interest you’re looking at, it may not be enough to actually trigger a state tax. I mean, even here, it has to be over what $1250 if that’s the only interest you have for a single person or twice that for married. But if you need help Linda, you can give our office a call or just email me and we can give you the link. You know, we can copy that to you and just say this is for whatever Colorado or wherever it is, I don’t know where you’re at.
Thank you so much.
Dr. Friday 9:30
No problem. Thanks, sweetheart. All right. And that is for anyone that works or receives money from other states. Keep in mind that most of the time, it can trigger other states needing to be filed. So sometimes you may get refunds back sometimes people will work in another state. state of residence is always an interesting conversation. I have people that swear that they’re Tennessee residents, but they’re working in let’s say, Ohio. Well, they can’t come home every night. So They’re physically living there for six or four days a week, coming home for three. Do the math, you’re there longer than you are here. Therefore, you are truly a resident of that state even if your home address because you’re renting a small apartment because your boss makes you know, you have to live there. But you will have to file as a resident if your residency test makes you truly a resident there. All right, really quick before the break. Let’s go to Beth. Hey, Beth.
Okay, my question is about the required minimum distribution. I think I messed up and missed taking one that I was supposed to because I got a paper and it didn’t list it for the year. And I heard your one minute moment where you said there was a form I’m supposed to fill out a 2210. Right. And I want to know all the steps I have to go through I would assume I have to take the distribution and then fill out some forms. Is that right?
Dr. Friday 10:56
That is correct. You’re going to need to go ahead and take that distribution out. So it’s out, right. And it may fall into 2020 where we’re in now. So you’re going to get taxed. But if you file that form and request for the underpayment, we have had a lot of success asking them to waive that penalty.
Do I send that form in separate? Or do I wait and send it with my taxes?
Dr. Friday 11:20
I would fight we’ve always attached it to the 1040.
Oh, well, thank you very much. And thanks for giving out this information. No problem.
Dr. Friday 11:28
Thanks, Beth. Talk to you later. Bye. Bye. All right. I am an enrolled agent license with the Internal Revenue Service. I’m Dr. Friday. So if you’ve got questions on taxes, or you’re thinking about buying a business, selling a business getting into business, this is the show you want to ask the questions and now it’s the season guys! Tax season is open officially. We are filing taxes and there are going to be some changes so spend a little extra time if you do your own tax return. I mean given if you only have W-2s, let’s be honest, it’s not something that you really need probably an expert to help you. But if you’ve got rental properties, you have a small business. Maybe you have inheritance, K1s, things like that, and you’re not sure exactly how that’s going to work, then you might need to get an enrolled agent. Somebody that can help you. And that’s all we are Enrolled Agents. The difference between an enrolled agent a CPA really comes down to is one is a certified public accountant, which basically means that they’re certified in public accounting, an enrolled agent is only licensed in taxes, right? So we do representation and tax preparation. Some Enrolled Agents are CPAs, and some are just EAs. So you know, bottom line is if you’re looking for someone that’s going to help you get your taxes back on track, maybe you haven’t filed or you have some other issues. This is the show you want to listen to and this is the girl you want to call. Well, we take a quick break. When we get back, we can get back to your phone call 615-737-9986 and we’ll be right back.
Dr. Friday 13:11
Alrighty, and we are back live in the studio. And if you’ve got questions about taxes or money issues when it deals with small businesses, this is this show because you know what we have some changes, you know?PMI, mortgage insurance is back on the table for 2019 and 2020. We’ll keep helping you guys understand what you can and can’t do. But first, let’s talk to Danny. Hey Danny!
Hey! Dr. Friday as I understand it, you don’t pay income tax on an inheritance. Is that right?
Dr. Friday 13:45
It’s not necessarily correct. I mean, there are some things that you could inherit and have to pay taxes on. It would depend on what it is. I mean, if you inherit a house?
No, it’s just money.
Dr. Friday 13:56
If it was money in the bank, then normally, as long as it was just money in the bank, normally the person that passed away would have already paid tax on that money.
So, it was all CDs?
Dr. Friday 14:06
CDs would have interest. So someone has to pay the tax on the interest. So if they catch the…
The state took care of that.
Dr. Friday 14:14
Perfect. then you’re perfectly fine. Just someone had to pay the tax.
Do I have to list it over our tax?
Dr. Friday 14:21
Only if they send you a K-1. If there’s a trust otherwise, no.
alright, there’s no trust. Alright, thank you.
Dr. Friday 14:28
No problem. All right, so you want to make sure that the state is closed. All right, Darryl, let’s talk to Darryl. Hello, sir.
Yea, Dr. Friday, what I have is, I worked for GE for like nine years and I’ve been going from there like 25. So in 2019, they sent me that Hey, you got a retirement significant amount more than you know, I thought. Okay, so a small portion of that came to me because it’s non-taxable. And here’s a guy told me I couldn’t roll it over to the IRA. And they sent that to me. I understand that I got the 1099-R here. All right, the other mail, which was a significant, I did roll over into the era. And now GE has sent me my 1099-Rs for both mail, And course they made a check out to the investment whereas I have gonna do it. I have 60 days to you know, I had 60 days to give to him and do it, but it’s all done. I’m invested, even paid a little money on it. My question is, I do Turbo Tax and half about the past eight or nine years and I do other investments and it works wonderfully because they can pick up your investment for you. But what my question is only 1099 R is showing that I got you know my significant amount…
Dr. Friday 15:44
What’s in box seven of the one that was the rollover?
Box seven must be questioned here. 3, 4, 5… Okay, if you hadn’t asked me that, I’d look right at it, of course, but…
Dr. Friday 16:05
Of course, but that’s always the way it works.
Distribution Code G.
Dr. Friday 16:09
Okay, so if you look it up, G is a rollover code. So basically they’re just saying that it went from direct rollover to distribution to that qualified plan. That’s perfect because when you put it into your Turbo Tax is gonna have a zero tax effect and then the other would have been a probably a code seven or normal distribution and there should probably nothing in box two of the other one because it was a tax-free distribution.
Exactly right! In box seven is code seven so I’ll have to pay taxes on that one, I realized that.
Dr. Friday 16:40
No, because you’ve done with it after, I believe that was put in with after-tax dollars is there anything in box two?
Dr. Friday 16:49
Okay, that’s right. And there should be nothing because you already paid tax on that money. They basically just gave you your money back.
Okay said total in box 2b is the total distribution marked with an X.
Dr. Friday 17:01
Right. My theory from what you said was otherwise they should have been able to – if it’s pre-tax dollars at all should have went into the IRA so you probably pay the pension and therefore they distributed your after-tax dollars to you and the pre-tax went into the rollover.
So Turbo Tax or the total amount is not gonna be taxable either.
Dr. Friday 17:23
Okay. All right now, so the other Turbo Tax you see the Code G and they will automatically not take anything got on me on factors because…
Dr. Friday 17:33
That is correct. Because the code says it means rollover, yes.
Well at box seven what I was missing, and the other guy couldn’t answer it for me for whatever reason, so you put my mind at ease.
Dr. Friday 17:44
All right, thanks, buddy. All right. Let’s see here. We have two left and first, we got Mark and Terry and phone lines are open guys. Mark, you are first. Hey, Mark.
Hey, how you doing?
Dr. Friday 17:57
I am awesome. How are you?
Well, I’m a little perplexed. I’m just hoping you can help me out here. I’ve got an investment I made back in about 2012. And it’s a limited partnership investment. There’s a supposedly a general partner on it. I have not received a K-1 from anybody since the 2000 – calendar year since the calendar year 2017. And I actually received that in 2018, obviously, sometimes.
Dr. Friday 18:27
Was it marked final?
No. it’s not marked final. And I’ve got an ending capital account balance on there. And there’s been very little difference just a couple hundred dollars actually between what I originally invested and what the capital account is. But since that time, I’ve not been able to reach anybody with regard to this limited partnership and they can’t reach the general partner. Nobody answers the phone, they will tend to be the same address. Send a certified letter to them, things of that nature trying to communicate. And so I don’t know what happened to this. I’ve looked on the Internet and stuff like I can’t seem to find any answers.
Dr. Friday 19:13
Was this a publicly-traded LP?
Dr. Friday 19:15
No? So this is privately-held.
Now so yeah, so there was a general partner that is, I can’t remember if they were an LLC or something like that. And then this is an LP that is this particular limited partnership. So the general partner disappeared. And so I’m trying to figure out you know, I can take this as an ordinary loss at least is to get some tax benefit out of it. Obviously, I don’t find anybody to get my money back from the capital on it. There’s never been any distributions of anything except for via the K-1, my share of the earnings or losses as a limited partner. So I’m basically stuck with this capital account balance from two years ago. And no other information, no way to do anything. I’ve got, of course, a tax ID number for the partnership and all that kind of stuff.
Dr. Friday 20:15
Right. So you have a couple of options. You can because you were a partner of the partnership, a limited partner, you could call the IRS to find out if they’re showing tax returns filed, it’s possible that you just haven’t received a K-1. I know you haven’t moved. I don’t know why they would not have responded to a certified letter, but if they relocated, they may just not have told their limited partners. I will tell you that when we dealt with an audit at one point, because we took the loss for the same kind of situation. And it was only $3,000 a year so I had a minimal effect on this particular person. But the fact was, the IRS said, “Well, you can’t claim it until you have proof of its closing.” So we had to actually put together a whole communication thing and over three years proving that we did not get a note, there was no K-1s issued, we tried to contact and then they allowed us to take it in the third year because there wasn’t any way of us getting documentation on it. And we hadn’t received anything from the company. So my suggestion would be is to put together a very good communication schedule, right? I mean, I’ve tried calling all the phone numbers are disconnected. I’ve certified letters, no responses, I’ve contacted the IRS and you can do this either via phone or certify a letter to the IRS saying you know, hey, I’m the partner of this. Here’s my you know, question whatever, see what you get back in response. Try your best to track down the company and show that you’ve made the best attempt and that the company is no longer in business because you can’t find it.
Is there a particular phone number to use when calling the IRS I suppose because I don’t know what it’s called. You know, it’s because it’s not like a really my tax return I’m calling about.
Dr. Friday 21:59
No, but you’re an investor in a business return, you know? So you would basically just want to call and you could actually see. You know, for a fact that you did not – just out of curiosity – you know, for a fact that you never received any MAs. It couldn’t have been lost, you did not relocate, right?
I haven’t relocated, I’m still on the same address that they have, should have on file and where they sent my last one.
Dr. Friday 22:24
Okay. So if you’re looking for business-specific taxes, you want to call 1800-829-4933. That would be a question concerning businesses versus my usual phone number for individuals. Give it a shot. Since you’re part of the company, they should allow you to get basic information. They may not share a lot with you, but since you are on the tax return, they should you know, you’re one of the partners, they should be able to give it to you about your limited partnership at least.
Okay, sounds good. Thank you so much, appreciate it.
Dr. Friday 22:56
No problem. All right, and let’s go to Terry, Terry, thank you for holding.
Thank you. I have a question for you. Yes. My total income last year, I’m on Social Security I get $12,000 a year from them. And I had a part-time job. I got $31,000 for the year from them. And then we have another time my wife has a Canadian pension. She gets $5,000 and we have a 17-year-old daughter who made maybe $4,000. Do I have to pay taxes on this or how would I approach it?
Dr. Friday 23:32
Okay, so Canadian is that US conversion? I mean, $5,000? Okay, great. The daughter, um, depending on if there’s anything in box two of her W-2 would determine if she’s gonna pay tax or not on that $4,000. She’s still a dependent of yours.
I got it right here. You said box two? No, there’s no federal income tax account.
Dr. Friday 23:56
Then that doesn’t need to be nothing done, that can be set aside. So then we have your Social Security, along with the Canadian pension and your part-time job. You’ve 36 and 6, so you’re at roughly $42,000 with the provisional tax code. So, how old are you?
Dr. Friday 24:19
Okay, is your wife over the age of 65 as well?
Yeah. for the whole year.
Dr. Friday 24:26
So doing some quick math here, so roughly you got 14 and then you’re going to probably… So you need to file, you’re going to pay tax roughly on about $14,000 they’re about and that will put you at the 12% tax maximum on that and you will have a $500 credit for your daughter assuming that she is over the age of 17.
She is 17.
Dr. Friday 24:53
Okay, so she turned 17 last year or this year?
Dr. Friday 24:58
Okay. So you’ll have a $500 credit that will apply for her and then whatever the difference in tax works up on that. So it’s pretty minimal. And I’m assuming on your part-time job you do have something in box two.
I haven’t got it here.
Dr. Friday 25:13
Well, they don’t have to have it to you till the end of the month or actually within the first two weeks of the next month. But they have to have it in the mail by the end of the month. But before I look at your final pay stub or something, but I’m going to assume they were withholding some federal taxes.
Well, not exactly. I was a consultant, really. I don’t think they do.
Dr. Friday 25:31
Oh was it a 1099?
Dr. Friday 25:34
Oh, that’s right. No, I mean, the biggest thing is, do you have any write-offs or deductions against that?
Well, some car loans, stuff like that.
Dr. Friday 25:44
Things you’ll have to write, so give or take
I work at home.
Dr. Friday 25:46
So the biggest thing is on the $31,000, whatever you can reduce it down to the difference is going to also have self-employment tax on that, because you didn’t, I was thinking you were a W-2. I should have asked that question, sorry. But you’re going to have self-employment tax on that plus ordinary income tax on the, like $14,000 of it. But you’ll have self-employment on all of whatever the profit of your business is. So it can add up a little bit.
Did they change that, because in 1099 you can make as much as you want and keep it.
Dr. Friday 26:27
Nope. They’re not gonna take your Social Security, but they’re gonna tax your earnings on that $31,000 for Social Security, because you didn’t pay any in you always pay in Social Security. So hopefully that helps. If you need help with your taxes. You can give us a call.
Dr. Friday 26:46
Thank you, sir. Bye. All right, guys. Um, let me hit Joe really quickly. Joe, this is Friday. Yes?
Hello Dr. Friday. Thank you for taking my call. I have a quick question about 1099. We own a business at White House, Tennessee. We sell commercial vehicles, and when we sell products to companies, some of them are sending us 1099 which would show as ordinary income. Right? Like, $21,000 income on the 1099.
Dr. Friday 27:22
Then you’d write-off the purchase of the vehicle, whatever the cost of that vehicle to you was, and the difference would be your profit. You’ve already got it on your books if you’re tracking them on a monthly basis.
Right, it’s already on our books, but should we send these 1099s to the IRS?
Dr. Friday 27:34
You don’t actually have to send them to the IRS. But if you’re doing your own Schedule C, if you’re… Are you an LLC, Schedule C?
Dr. Friday 27:42
Okay, if you’re an LLC, just set them aside. Hold on to them. Make sure they don’t add up to more than your sales.
Oh, yeah, no, no, no problem.
Dr. Friday 27:49
Then that, there’s nothing for you to do. Yeah.
Thank you very much.
Dr. Friday 27:52
No worries. Thanks. All right, Rhonda!
Hey, there. I need your help. We bought a house 14 years ago paid $169,000 for it. 14 years later sold it for $330,000. And you’re gonna get really hit with taxes. How can we do it?
Dr. Friday 28:13
Rhonda, Is this your primary home?
Dr. Friday 28:15
Dr. Friday 28:16
Okay, so this is a rental?
This is our it’s not a rental. It’s our sixth home.
Dr. Friday 28:23
It’s just the home. It’s a home you usually have but nothing happening. Okay.
Yeah, it’s kind of a workplace. Yeah.
Dr. Friday 28:31
I’m not even sure about why we go there, but here we go. And you’ve already sold it, right? I mean, this is already closed. Okay.
Yes, it was sold last March.
Dr. Friday 28:39
Um, well, I mean, all I can tell you at this point is you got long term capital gains. Your alternative would have been obvious, knowing you at that time would have been possibly a 1031 exchange if you went to buy more real estate. Otherwise, it’s, you know, it’s $161,000 give or take, there might have been some closing costs back in the day you purchased it, plus the closing costs that you have now. But you’re still looking at $150,000 or whatever in profit. But what’s your ordinary income besides this? Ballpark.
It’s pretty good. Maybe a million.
Dr. Friday 29:15
Okay. So you’re looking at 25% tax?
Dr. Friday 29:21
Yeah, that hurts. So in the future Rhonda, if you guys decide to sell real estate, you might want to consider 1031 exchanges, unless it’s just the fact that you really just want to downsize and get out of the real estate market.
Well, that’s what we’re trying to do now is get rid of all of them until we don’t have to worry about this again. Yeah, but there’s no advantage to really making money on this.
Dr. Friday 29:40
There’s no advantage in making money because you’re, yeah, you’re losing a big chunk. It’s better to hold on to the real estate than it would be to sell it unless the real estate is just costing you more than it costs to maintain, you know, that you’re gonna get. You’re losing 25%, which I know a lot of people say. Yeah, that’s a lot of money to lose, you know, I mean, an investment that we’ve held for 14 years. But at this current market, you know, to be quite honest, they’ve got a bigger window than we’ve had in the past. It’s still not that great. Sorry, I’m not going to help you a whole bunch on that one girl.
Dr. Friday 30:11
I know! Thank you, girl.
That’s why I’ve been searching everywhere. It’s like someone comes up with something.
Dr. Friday 30:16
I know. I’m sorry, that one’s out the window.
Dr. Friday 30:19
Thanks, girl. Bye. Thank you. All right. We’re gonna take a quick break. You can join the show. 615-737-9986 We’ll be right back with the Dr. Friday Show.
Dr. Friday 30:39
Alrighty, we are back live in the studio. I’m Dr. Friday, an enrolled agent licensed with the Internal Revenue Service to talk about- well, to do actually – one thing, taxes. But today we’re talking about it. So let’s go right back to the phones. If you want to join the show, it’s easy to do. 615-737-9986 best to ask the question before you do it. Otherwise, it can cost you a lot of money. All right, here we go. Hey, Wes. Wes, you there?
I’m here, thank you, Dr. Friday. Well, my question is regarding self-employment tax. So I have basically two streams of income. I am married but my wife does not work and she doesn’t obviously collect the income that comes to us, we do married filing jointly. But I do all my W-2 income I maxed out the Social Security earnings and the FICA taxes because I make more than the 132 number. But then I also have a business that’s Schedule C, 11099 with the expenses and deductions and all that shows a profit as well. So since I’m maxing out Social Security, the full seven and a half on my W-2 income, will I also have to pay self-employment tax on the other?
Dr. Friday 31:57
So you’re gonna pay the Medicare portion 1.4, right? Because the 6.2 you’re not going to actually have to worry you maximize because I think it’s 130 something like you said. And so, on the Schedule C, you’re still gonna get hit with the 1.45 Medicare tax but not the bigger portion.
Not not the full 15% or whatever.
Dr. Friday 32:17
Not the full, no. As long as it’s only in your name, all right?
Oh, that’s great news. Thank you.
Dr. Friday 32:22
No worries. Thanks. Alrighty, we are live here in the studio if you would like to join the show, all you have to do is pick up the phone at 615-737-9986, 615-737-9986. And we’re going to go right to the phone lines we got Benny. Hey, Benny.
Hey, Doc, thank you for taking my call.
Dr. Friday 32:44
Sure. Thank you for calling.
Oh, yes. I’ve got a question about per diem. I work out of town a lot. And you know, usually, before, you know we get we were average $30 a day per diem and you could claim the difference in your taxes, in whatever city you’re in. Are you still able to do that?
Dr. Friday 33:03
If you are a self-employed individual like a truck driver on his own lane? Yes. If you are an employee, no.
I am an employee. No.
Dr. Friday 33:12
Yeah. And that hurts a lot of my employees because, I do have, I mean, the problem was there were a lot of people that use that form thinking that they were entitled to it. So I think they’re working possibly, Benny, in some way of helping people that are truly multi-location, traveling, doing but I think what they’re also trying to do is get employers to pay it so because employers can still deduct it, but it has to be in a reimbursement plan, right? So you would turn in your things they would turn around and all that would show up on your W-2. But so far, at least in my world of my clients and people that haven’t happened, they are not increasing benefits to the people yet to pick it up. So, unfortunately, 2555 which is what you used to use for that has been discontinued. There is not even on hold, they’ve eliminated from the tax code.
Yeah, when we’re doing government work, we do get the difference, but otherwise, we don’t. All right. Thank you for your time.
Dr. Friday 34:07
No worries. Thanks. Appreciate it. All right. If you want to join the show, you can at 615-737-9986 615-737-9986. We are talking about taxes, people. Now there is if you are an individual that does receive per diem, just remember that you can go to the GSA, where they actually have the true per diem charts. There is a rate by city, some cases by town of what you should be receiving, but it’s important that you actually you, you know, report it, but again, employees, I hate to say it, it doesn’t exist. It’s just one of those things that’s coming out of the tax code. It has hurt a lot of my individuals when it comes to doing something about that, but you know, when it comes down to it, I guess you would say, you know, they’re working on hopefully finding a way around that for all of us in this current world. All right, we’ll go back to the phone lines. It looks like we’ve got Aaron on the line. Let’s go with Aaron. Hey, Aaron.
Dr. Friday 35:15
What can I do for you?
Well, let this last week you ran an ad on the radio about adopting and a tax credit for adoption.
Dr. Friday 35:25
Does that apply for a stepdad who was going to adopt your stepchildren?
Dr. Friday 35:32
Dr. Friday 35:34
Good question, though. Um, you would have to be truly adopting children is my understanding. I can’t say I’ve ever ran into that. And I would be more than willing to look up the tax code not right the second but to see if there is any loophole in there. But to my knowledge, it is for truly adopting children, you know, like out of the system, right? I mean, that’s the point of it. Not to say that you’re not changing this kid’s life. I don’t think it’s gonna apply in that case, sir. I don’t think so. But you want to email me, I’d be more than glad to pull up the tax law and just take a quick look for you.
Okay, yeah, I’ll do that when I get home and email you. Thank you!
Dr. Friday 36:12
Thanks, mate. All right, bye. All right! The phone lines are lighting up. And my poor guy behind the board is sweating it right now, but he’s doing an awesome job. All right, we’re gonna keep going. We have, Gary. Hey Gary?
Dr. Friday 36:25
What can I do for you?
Dr. Friday 36:27
Okay, I’ve got a question about a lawsuit settlement. Its half of the settlement will be a reimbursement of lawyer fees that took the case for me. And the other half will be we’re stating it as being reimbursement for private school tuition. Now, I’m pretty sure the lawyer fee is not – I don’t have to pay taxes on that. But what about the other part of it that is worth considering its reimbursements from paying tuition to private school.
Dr. Friday 37:15
I’m going to take a wild guess that that would have to be taxable because the only type of loss so that I know that isn’t is medical when they’re paying, you know. Because you’ve lost a limb, unable to do something, whatever, where you’ve had loss of wages, things like that. My understanding and I don’t, you know, you should get a 1099 if it is going to mean to you as taxable, but you’re right about the attorney, the attorney fees should be able to come off because they’re going to pay tax on that. So theoretically, it’s a wash, but you’re the settlement for something like that, I’m going to guess is going to be taxable, you know, but I would probably get a second opinion on that or just like I told area, we probably want to actually look at the settlement and just double check Make sure you pay with after-tax cut with after-tax dollars. Would you be able to pay yourself back with those same after-tax dollars that would be in my head? That’s what I’m thinking, Gary, but I’d rather give you the worst answer and come back with a better than the other way around.
Well, no, this is private, like middle school for a small child.
Dr. Friday 38:19
Right. But I mean, if you actually paid for school out of your own pocket and they’re paying you back, you would not have been able to deduct that schooling off of your tax return. Okay, so I’m thinking you should be able to reimburse yourself back the same way. Okay, but we need to double-check that.
But it is taxable?
Dr. Friday 38:38
I’m going with the idea it’s taxable, yes. But get a second opinion, okay?
Okay. Well, I will and I’d like to set up an appointment. So what do I do?
Dr. Friday 38:48
Yeah, you can just go to drfriday.com, drfriday.com and you can just click on appointments and set yourself up a schedule. Pick a date,
Dr. Friday 38:56
Thanks, sir. Great. All right. We got three calls, hopefully we make it through before the end of the show. Let’s see here. We’ve got, Roger is next. Hey, Roger!
Hey, this is Roger. I got a question. I picked the early distribution on a pension. And after they took out taxes, it was about $60,000. And we used about 35 of that to pay back taxes on IRS accounts for different years. How’s that going to affect filing for this year?
Dr. Friday 39:28
So the biggest, well, it’s going to be an add-in. So whatever the total was, including the amount with the taxes, so let’s say it was $80,000. They took $20,000 for taxes, you put $60,000 in your pocket just for simple math. They’re going to show $80,000 on your tax return, the $20,000 will show up underestimated payments, and hopefully cover the tax and then you’ll either get a refund or not. It’s going to be added to your ordinary income. So your W-2s that form and you should get a 1099-R, Roger, for that.
I did, I did get one. Okay.
Dr. Friday 40:01
So, make sure box four will say how much they withheld. Box one and two should match, whatever the gross distribution was.
Okay, is there gonna be any penalty or anything because of the early withdrawal?
Dr. Friday 40:12
How old are you withdraw?
Dr. Friday 40:15
So, theoretically yes. 59 and a half, you have to be before you can take it out without penalty. So there’s 10% penalty plus tax.
Okay, thank you.
Dr. Friday 40:25
No problem. Thanks. Alrighty, we have Dale and then Ann. Hello, Dale.
Hey, how you doing?
Dr. Friday 40:32
I am awesome.
Good, good. Hey, I work out up for, you know, with 1099. So, I haven’t filed taxes in like three years. So you need what kind of uh, what’s his percentage rate I’m looking at for that?
Dr. Friday 40:53
Well, I mean, you’re basically looking at a minimum almost a 50% penalty by the time you get them filed between interest and penalties. Just prepare yourself. There is the possibility of getting a waiver on penalty for one year. Everyone’s entitled to one if you haven’t had one in the last five or six years waiver. But the more important thing, Dale, if you’re a 1099 guy, it’s really moving forward. It’s January, let’s get together, get you on a plan of how you’re going to pay 2020 up correctly and worry about the past by getting in compliance. That one you can deal with on slower baby steps, but we need to move forward because the IRS really wants to see that. You know what, okay, you didn’t file for three years, but he’s now filing every quarter on time making the right decision. Most of my people pay monthly, actually, it’s just easier. Because you got to get used to living off of the net effect. With W-2s people don’t have to worry about it. But with 1099 we get all of our money and then we have to pay it back, right?
Yeah, that’s the hard part.
Dr. Friday 41:50
Yeah, exactly. It is especially with most of us entrepreneurs. We’re actually on a roller coaster right. Some months we make a lot of money. Some months we don’t make any money and we have to keep ourselves afloat. Plus, you told me Friday I want to put money aside from the IRS. I get it. Trust me, I do it every day. I know how hard it is. But you really do have to figure out how it’s gonna work.
Yeah, yes, I agree now. Is it three years forward and five years back or something like that, you know what I’m saying? Do you disagree?
Dr. Friday 42:17
No. I mean, that doesn’t exist now. Nowadays they basically have a 10-year look back. And if you’re a 1099, by that point, they’ve already filed a tax on your behalf, which probably not always a good thing because you would have had expenses that they don’t know about. So you really do want to try to get them filed. And now the current penalty could be up to 100% if you don’t file your taxes on time. So we need to get you on schedule. So or go to somebody and get on schedule.
Okay, so I’ll just call up your office and set up an appointment?
Dr. Friday 42:51
Easiest way. I’ll be in on Monday. All right, buddy. All right. Thanks. All right, and we got Ann! Hello Ann, lucky Ann.
Hi! I filed 2018 taxes, I’m married filing jointly, my husband does not work, but I’m on disability and I work part-time. But having said all that, my question is I filed and he owes student loans. So I filed what I thought was the right form, but I think I filed the wrong form.
Dr. Friday 43:28
So there is, you know, obviously the innocent spouse. So basically what we’re saying is, you know what, he may owe money, but he didn’t work and I want to keep my own refund. But I want to claim as a married couple, you can go back and refile that if they kept the money, then you need to go back and look at your 2018s or contact whoever does your 2019s, you know, or if you’re doing yourself whatever. But you’re going to want to look up on the Internet innocent spouse and you’re gonna pull that form up.
Dr. Friday 43:32
I did look it up at the top I couldn’t, I couldn’t determine if it was an Injured Spouse or Innocent Spouse. And so I got both forms, and I filled out both forms. But then I looked on googled it and it told me injured spouse, so obviously that’s the one I filed. And now I haven’t heard anything from them. And I keep going to the refund page on the website. And it tells me they’re processing my return.
Dr. Friday 44:28
You’re correct. It’s gonna be your, I’m sorry, it’s it is the injured spouse, because innocent spouse is for taxpayers that are no longer married, sorry. Injured spouse will be for taxpayers that are married. So if you filed the injured spouse, have they given you your refund, or have you gotten a letter that says…
Dr. Friday 44:45
Okay, so you’re going to want to go to irs.gov, click on Where’s My Refund, or call them? It might be too late, but I would say you’re gonna have to call up 1-800-829-1040.
Well, it says, to do that, if I have any questions, but all it says is that they have received my return and it’s been processed and it’s been saying that for a long time, so.
Dr. Friday 45:12
You know what You need to call them and find out if there’s a hold on it. Find out what the problem is. Because it’s, you know, if you filed it you know, back in April or May there’s no reason you should defend your refund. If you find in October or November, it is still on hold. Okay?
Okay, thank you!
Dr. Friday 45:26
Alright girl, thanks. Alrighty, we are live here in studio, we’re going to be getting ready to hit our final break here. So I want to give out all the important information to you. If you want to set up a tax appointment, probably the fastest and easiest way to do that will be going to my website, drfriday.com. drfriday.com. Click on appointments and it will give you the days that I have opened and the times that are available on those days. So hopefully, and I would suggest doing that sooner versus later. We’ve already had to open up a couple more days we’re getting full, so just suggesting. Even if you don’t want to come in until March or April, now’s the time to go ahead and reserve your spot. If you want to talk to me and you can 615-367-0819, 615-367-0819. And then obviously if you want, you can also email me because sometimes you know, these phone lines get really busy. And if you need to all you have to do is email email@example.com. Remember tax changes have happened. I was talking about a little earlier. Mortgage Insurance is on the table up through 2020. So if you were really close to itemizing last year, and now you don’t, you know, and maybe you have some PMI then look at your receipt you can actually edit or amend 2018 is one of them that they did allow to go backward and then you can go forward on the other.
Dr. Friday 46:56
Be prepared if you are an entrepreneur and you have QBI, the forms are still not been approved. So taxes for people that are self-employed are likely not to be able to be filed yet. But you know, just review the information. If you file your own taxes, walkthrough, make sure because there are changes and when there are changes, a lot of times people just go it’s not it wasn’t allowed last year, so I can’t do it this year kind of thing. And that’s not the way we want to look at it. We want to look at and say, Hey, is anything happened that maybe I can itemize this year, I always tease all my clients to make sure that they’re still giving me their contributions and their mortgage insurance and their medical, because every year is a little different. And anyway, I don’t want to get out of practice, because come 2025 you may be itemizing again, and we want to be able to remember how to do that how to save the receipts. Look at your sales tax. I mean, many times people have some pretty big purchases throughout the year, especially if you’ve purchased a new home and he brought all kinds of furniture or maybe you’ve brought a car or something like that. It might kick you over the amount that you have to have to itemize. It might not, it doesn’t hurt to try is the answer to that.
Dr. Friday 48:06
So, again, if you want to reach my office, the phone number is 615-367-0819. You can also check out my new website, it is all-new guys, at least in the last couple of months. So if you haven’t been there since last year, check it out. There’s some information there. You can get replays of the radio show, hear some of the different moments and things – they’re all on there. And again, the website is drfriday.com, drfriday.com. And email is probably the easiest, fastest way to reach me. Because Well, let’s just be honest, when you’re emailing that way, you can actually write down your question and I can try to get you the information for it because on the radio sometimes, you know, you have to be able to give a more generic answer if you have a very specific question. Feel free to follow up with it on email and that way we can try to look up either Pacific tax laws or let you know what it is that we have to do. So I hope you guys are having a wonderful Saturday, we are having a great time over here, start getting your tax forms and again W-2s, 1099s do not have to be put in the mail till the last day of January. And the tax code says they physically have 7 to 14 days to you know for the mail to get to you. So, just be prepared that if you haven’t received your W-2 yet, that it might be one of those deals that it’s not been put in the mail. They don’t have to put them in the mail until that time. If you do not receive a 1099 but you have received income from somebody it is your job to report that income, not just to report money that 1099s actually gave you. So again, if you are a self-employed person, you are responsible for filing all of your own. I hope you guys have a wonderful Saturday. Call you later.