It’s the first Saturday of the new decade, but it’s always Friday for Dr. Friday! Welcome the new year with new tax issues and questions. And, to help you out, of course, we’ve got Dr. Friday of the Dr. Friday Tax and Financial Firm. For this episode, Dr. Friday talked to a number of callers and answered all their tax questions and woes, including the following:
- It’s a New Tax Season!
- Congress’s Extension for 2017 and 2018 Lapses
- Roth IRA Payroll Deduction
- New Tax Form for Seniors 65 and Up
- Updated Tax Forms
- Disability and Joint Return
- How to Keep Accurate Records for Car Mileage
- Getting Your Social Security for Seniors
- Limited Earnings
- Entrepreneurship and Tax
- Company Match and 401K
- Maximum Roth Contribution
- Thinking About Doing Charity?
- Receiving SCP Post Jail Time
- Are Social Security Benefits Taxable?
- What to Do When You’re in a Possible Tax Fraud Incident
- Excess Roth IRA Contribution
- Claiming Tax Without Legal Guardianship
No, no, no! She’s not a medical doctor, but she can sure cure your tech 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’s 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! It is the first Saturday of 2020 hope everyone had an awesome New Year’s, wonderful Christmas or other holidays and it’s time to start thinking about taxes. Tax forms will start be arriving next couple of weeks, you start getting them. Just a note of interest, most people do not have to have those tax forms to you until the last day of January and brokers like your Ameritrade and then have until February 15th and theoretically, they have to have them in the mail by February 15, which means they have 21 days to actually don’t ask why the mail is moving so slow, but 21 days to get it into your hands. So, you know, don’t be surprised if you don’t have everything by the first or second week of January. Employers do have till January 31 to get you a copy of your W-2.
Dr. Friday 1:24
Now I do know that there are some people that can take their final paycheck stub and prepare taxes. We’ve never been big on that in our office, but most of the time we don’t have to do that. The tax season officially opens as far as being able to get e-files accepted by the IRS on January 21. So again, you still have a couple more weeks before that’s going to happen. You can start getting your tax documents, right now’s a great time to kind of sit down on a quiet weekend. Get a pen and paper out or get yourself a manila envelope and put on there: Did you work multiple jobs? Are you looking for more than one W-2? Did you take any money out of the retirement account? Did you go gambling and get any W-2Gs? These are the things that you want to kind of list so you know when everything’s in there. Sure, it’s easy. If I worked one job, I didn’t take any money out of retirement. I didn’t borrow any money. I didn’t refinance. I didn’t do anything but just work one job. All I have is one W-2. Well, that envelope probably would not be necessary. But if you’re a husband and wife and you’ve got multiple jobs, you’ve got childcare, you’ve got college interests, all these different things happening. You are going to want to make sure that you don’t forget something because trust me, Uncle Sam will be more than glad to tell you when you miss it, and then charge you a penalty for failure to claim all of your income. So it’s a very, very important thing. If you’ve got questions, you guys the show is open phone lines are open 615-737-9986, 615-737-9986.
Dr. Friday 2:52
I’ve got some great news. Congress, they have agreed to extend some of the extenders have that were lapse in 2017 and 2018. So here can lead to you amending your 2018. They have just among these breaks was the mortgage insurance right off has been extended now until 2020. The deduction for college tuition, some of the people weren’t qualified or wasn’t being able to take that if you did, and you were qualified up the $2 billion exclusion for forgiven debt on a home that was kicked back in the 7.5 thresholds for your Medicare was slashed up towards, 10 now it’s back down to 7.5. Some excise tax and beer and spirit taxes. So if you had normally taken some of these deductions, keep in mind you might need to revisit your 2018 tax return because they have now just now backdated it for 2017 and 2018 and moving forward. So these would be good things to do. I think they expired in 2017. And they did not renew them until now for 2018. All right. Let’s go to the Hey, Bruce.
Hi. I have a payroll deduction for a Roth IRA. I know on the tax form it says if you have out of pocket IRA that’s deductible. Does this qualify as being deductible?
Dr. Friday 4:18
No. The beauty of a Roth IRA is that it’s not tax-deferred, it grows tax-free. So you put in after-tax dollars and it grows tax-free, so when you take the money out when you get old enough and hit retirement, you will not have to do requirement on distributions and any money you take out will not be taxed, but it is not going to come against your tax return.
Okay. That’s what I need to know.
Dr. Friday 4:42
Now. Let me just in case really quick Bruce, I don’t know if this will upload or not much money you make but there is still a tech saver credit. If you’re under 50,000 for a married couple and under like 30 and I get I don’t know if that applies in you, but anyone that is listening and you do contribute to a Roth it would hit the savers credit but it will not reduce your taxes for the reason Bruce called which was a differing income. Okay? Thanks, buddy.
Great. All right, bye-bye.
Dr. Friday 5:07
So, again, when a lot of times when I tell people it doesn’t affect their taxes, it does if you are in a lower income bracket and you’re contributing to retirement. We still have a savers credit on the books and that would be something that might apply to you. Big news for seniors 65 and older, they have a new tax form. Because we didn’t get enough tax forms already, let’s add a few more to the table, right? So now we have a 1040 s are beginning 2019 and has the same items and schedules as the 1040 but it is any larger print tax helpful to the chart of accounts are the standard deduction is designed for people over the age of 65, which means it’s already got the step up and basis. And filing isn’t mandatory though. Just keep in mind, that is not a mandatory situation. If you’re filing your own taxes and sometimes you know let’s get serious when we get a little older sometimes as nice to have larger print. And I will say if you’re using the regular tax forms on a computer, obviously, the print can be adjusted.
Dr. Friday 6:07
But they have tried to make it a little user-friendly for people that these are people that have to be 65 and older to file this. So if you’re married to someone that’s younger than you, it has to be both people on the return 65 and older. So there’s not a – there are a few changes, guys, I want to start talking about on the 2019 tax forms. 2018, as you know, we ended up with five schedules 1 2 3 4 5 and made some changes on 1040 supposedly made in the size of a postcard. So a couple of things that they added. They’re adding a new line on the front of the 1040 capital gains and losses. So that’s going to be, they’re also separating pensions and annuities from the IRA distributions that kind of get put together on the same line last year eliminating the checkbox for full-year health coverage. Now that the individual mandate is gone, let me say it again, the individual mandate ended As of 12/31/18. So all of 19 we don’t really have to care if you have health insurance unless you’re self-employed and it’s a tax deduction, or if you have medical expenses and part of that is out of pocket health insurance, then that may be the reasons to do that.
Dr. Friday 7:16
There is they also will attach schedule schedules from six to three. So instead of 123456, we’re going to have only three attached forms. And then, of course, require filers to deduct alimony or report alimony income on schedule one, they have to give the date that the divorce decree was signed. Again, if you’re divorced last year, or anytime in 2019, pretty much you will not be getting an alimony deduction and you will not be picking up. But all the people that divorce prior to that, you will still have the same tax laws – we’ve always had. The person paying the alimony will deduct the person receiving it will have to keep it, pay taxes on it. There’s also an additional question on Schedule 1, which is about virtual currency. So there’s going to be some more questions on that whenever we do offer and compromises which is an enrolled agent. That’s what I do. Right? I deal all the time with the IRS helping people either negotiate, make payment plans, become non-collectible.
Dr. Friday 8:18
And one of the questions that came out in the new offer and compromise paperwork was virtual currency. Do you have any? Do you have, you know, have you invested in it? All that kind of question because they want to make sure people aren’t hiding their assets someplace outside of the normal places. Because, at this point, there’s still some hiding places out there. And if you lie, well, then obviously you’re going to get stuff in trouble sooner or later because just like banks and everything else, there is becoming more and more regulation within the virtual currency world. All right, let’s hit bill before the break. Hey, Bill.
How are you doing?
Dr. Friday 8:54
I am awesome. How about you?
Happy New Year. I’m good. She makes a nice salary, but I’m on disability. Okay. Would it pay for us to file a joint and get it to a $24,000 or something?
Dr. Friday 9:10
Most likely not, because, unless yours is a military disability, but if it’s just a regular social security disability that becomes income. So 85% of that would become taxed. The savings that you would be, I mean, I would try both ways just to see, but my answer initially would be normally better file married filing separately in that situation.
Okay, thank you very much.
Dr. Friday 9:32
Thanks me. All right, I’m taking your calls here. We are talking about taxes. So if you want to reach the studio 615-737-9986. Guys, there are no silly or stupid questions. A lot of times people like oh, I don’t want to call it almost sound dumb. A we don’t write down your names. We don’t really know you can say your name is Joe Smoe – it doesn’t make a difference. Secondly, when you ask a question on our radio show, there are a lot of people that are really just too afraid to call. I was one of those, trust me. If I had done this like nine years ago, I had never called a radio station. I had never done anything. I mean, I listened a lot of times you like in your car and you’re like yelling at it, or you’re answering the questions, but I would have never thought to call. So it takes a lot of nerve for someone to pick up the phone and call a radio station. And when you ask those questions, you’re helping other people that are listening. So feel free to join our show. 615-737-9986.
Dr. Friday 10:22
Ask some questions, get the ball rolling, get the things thinking because when we get ready to do taxes, last thing you want to do is either make a mistake have to amend, do something different. So if you can ask the question, and again, every answer i given isn’t going to apply to every single person, right? I mean, every one of you guys are different and unique and your finances are different. But if I can get you in the right place, have you guys doing something different, then that would be the kind of thing that I want you to do, I want you to have at least to the best of our ability, the answer or where to go for it or if you need to make an appointment, whatever it might be to do that. But they need to have the ability to do that kind of situation so that you can make sure you’re making the right choices and make sure that the information you’re getting is going the right direction. Because let’s be honest, if you google everything, sometimes you may get answers that don’t apply to you. So you need to make sure you understand where you’re going and what you’re doing it.
Dr. Friday 11:10
I can say my listeners are awesome. My phone lines just lit up like crazy. Alright, we’re gonna go to Ken. Hey, Ken.
Hi. Thanks for taking my call. I have a quick question about how to keep accurate records for mileage. And so that’s kind of one of my New Year’s resolutions, to make sure everything gets marked down. But sometimes like I’m on a trip, let’s say I’m going to Franklin from Hendersonville and I make a little detour to pick up some coffee at McDonald’s for something, obviously I’ve had two purposes for the trip. I mean, do I have to like every tiny little detail every little drag in my route, it just seems like it’s impossible to have…
Dr. Friday 11:49
What they’re looking for, truly I mean, something like that where you’re pulling over and having lunch or breakfast on your way down to an appointment or on the way back up. In most cases, I’ve never had a revenue officer question that. What they don’t want is for you to go by the school pick up your child, take them to soccer practice and then get back on route to go to the office right? That would be more personal use. Basically you’re in the route for food or something like that, stopping to get petro,, those things are not a problem. It’s just the division is what’s the purpose and the biggest thing that people have. So Mileage IQ is what I use. I don’t do a ton of miles any longer but when I first started I used to do a ton of them. Bu, Mileage IQ is what I use which I love is because every time I stop and start it basically allows me to put for business or for personal and then who’s it for. So if I’m going to go see my banker for the office or my business account, I can put those miles in his business and put in there what the purpose of the trip was. Otherwise, in my case, most of it’s personal nowadays, but that’s what you need that not just they want beginning miles in the miles purpose of trip and who did you see? That’s the questions they’re going to ask you. So if you can use a calendar system or an electronic system or just good old fashioned manual, you know, here are my starting miles and just right in their face, but if you are a person that has 15 different trips in one day, sometimes keeping it manually can be a lot of work.
Is that an app you can put on your phone?
Dr. Friday 13:18
Yes. Mileage IQ and I’m not an advocate guys, you probably can Google a different other ones. I just happened to start with that one, and I know it works.
The trips that I make, let’s say, I have to go 50 miles. I might do like a 10-mile detour to pick something up at Walmart or something. So in that case, let’s say I do several things that I just put the getting mileage and then add 50 miles to it to exclude the extra miles?
Dr. Friday 13:45
Exactly. So if you kept it like in a calendar, Ken, what all I would do is put you know from your home is your home office, right, and you’re going to my office in Brentwood. So whatever the distance between your office and mine would be the trip. No matter what you’re thinking that would be a legitimate trip. And then it took you 100 miles to get there because you did this, this, this and this and to make a difference, we’re 50 miles apart and that would be the 50 miles one way and then obviously return trip would be the full trip. So you get 100 miles in that scenario.
It makes a lot of sense. Okay. Thank you very much. Appreciate it.
Dr. Friday 14:17
Thanks, mate. I appreciate it. Okay, I’ll ask you guys to hold. I’ve got Jim Elizabeth and Mike, if you can hold through this break, I can spend the time so we’re gonna take a quick break and we’ll be right back with the Dr. Friday Show.
Dr. Friday 14:37
Alrighty, we are back live in studio. And I want to thank Michael, Elizabeth, and Jim for holding through. And it looks like Michael you are on hold the longest. Hey, Mike. What can I do for you, Mike?
I appreciate you taking my call. I’m 61 years old fixing to be 62 in July. Just how far ahead of time do I need to contact to get my social security and get that started? And also, once I do get social security, is there a maximum that I can make after that? How do I? Is there a maximum or a guideline or a certain amount you can make? Or is it just you can’t work at all?
Dr. Friday 15:22
No, there is a maximum. I have to look up what 2019’s maximum is. Last year it was 17,444, I believe. But what you’re going to want to do is… Wait, sorry, I’m typing and talking. You see, oh, well, I do that. Anyways. So yeah, I would do it a couple of months in advance. For my understanding with other clients, I understand that would be the case that you have to do to make that work for you. And then it looks like it’s a little bit over. It’s like $17,500, you’re going to have for earnings in 2019. So if you earn that less, and remember that I think part of that earnings See here, limited learnings 17, blah, blah, blah. Yeah, so you don’t want to earn more than that. You want to stay on the shy side of that if you want to make sure otherwise, two to one payback. So every dollar every $2, you earn over that you’ll have to pay $1 social security benefits back.
Okay, that does not include my pension, correct?
Dr. Friday 16:23
That’s not earning so it should not include your pension.
Ok. And before you can take write-offs in 2019, you have a lot, you gotta have up to 24,000 Is that it? Before you could even start writing in it?
Dr. Friday 16:42
That is correct. Yeah, $24,200, I believe. That’s a little bit higher. But yeah, so your limitations on your standard deduction is going to be a little bit over $24,000.
Well, thank you for your time.
Dr. Friday 16:59
Thank you, sir. I appreciate the call. Alright, let’s go right to the lines we have Elizabeth and then Jim. Hey, Elizabeth.
Hi. Thank you, doctor, for taking my calls. We’re novices in a owners of small business construction company that mostly is outside, very weather-dependent and hampered by rain. And it messes up our cash flow a lot. And I have to sometimes take a loan from our 401k – m husband and I’s 401K – to loan the business money until we can collect. The other part of the problem is that when we do commercial jobs if another subcontractor makes a mistake, the owner of the property won’t pay the general contractor until everything is correct. So if we submit a 30 day pay gap and if something is messed up by another subcontractor, we will not be paid for 60 to 90 days. So we have these issues with cash flow and when we take money out of a 401k, of course, we always plan to replenish the entire thing. But some years, we can’t with the business just didn’t get it back in time, you know, for us to give all of it back in 60 days. Is there any way that we can get some kind of – it’s hurtful for the business, of course, but is there anything that we can get as individuals and LLC so that is not so hard on us paying taxes?
Dr. Friday 18:30
Well, I think there’s two things one, you’re getting hit with possibly I don’t know if you guys are 59 and a half or not, but you’re probably getting…
Dr. Friday 18:37
Oh, you are? Okay. So you just take it up, but you’re still getting hit with ordinary income tax. Is it impossible to get yourself an operating line of credit? So you’re not having to use the money from a retirement account where, I mean.
We will try. Yes, and we’ll try this year. We haven’t had, what on paper appear to be, a strong year.
Dr. Friday 18:58
Okay. Of course, when we have strong years mean we owe more taxes to Uncle Sam. And the years that you had the hardship and the loss, at least you haven’t had a ton of well, I mean, theoretically, by borrowing and pay it back, you actually, you know, may have made money on paper, even if it didn’t feel like he made money at all, and then having the taxes. And then are you guys paying quarterly?
No, we’ll have to start doing that I would imagine, because this year was the first year that we looked really strong, but the other side of it is it shouldn’t feel like it.
Dr. Friday 19:32
Yeah. You probably need to sit down and take a look at your cash flow. I mean, you know, if you’re using QuickBooks, you probably need to sit down with your tax person and see if you can’t get yourself. I mean, it’s always easy. We all, in the entrepreneur world, we live on a roller coaster, right? I mean, it’s great. I mean, but the fact is, somehow you’ve got to figure out if the business is going to be successful. We’ve got to build up enough nest egg and this is all easy for me to say. Don’t get me wrong, Elizabeth, I understand. I’ve been in your shoes. I built my business on a credit card. Probably not the best person but it did succeed. So, therefore, I was okay. But the bottom line coming in is that we have to sometimes borrow to keep our business and our doors open. That’s an exception that we all accept. But you need to sit down and figure out what’s the long term plan? How much do we need to have as an operating budget? Do we have enough money? Can we start setting this much aside? And Uncle Sam’s gonna be 25% of your profits, period. At least 25%. So we need to put that into our budget to find out how much we’re going to you know, how are we going to pay that because you don’t want him as a loan officer. He’s the worst. So if you need help, right, and certainly give us a call, it’s not something that’s easy to explain on the phone because we really need to look at the last couple of years’ financial. See what, see where the ups and downs are coming, but we do deal a lot with small business and construction people. So if you need help with that, or if you’ve got a good tax person, just have them sit down and help you make a budget and see how close we can get to really understanding your guys’s cash flow. Okay?
Okay, thank you. And then the other thing is, since we had a really good year, all we bought was a couple of computers. Is there any other tax shelter approach that we should take?
Dr. Friday 21:09
Not in your situation, because anything you do is tax-deferred, which means you have to tie up the money. Which would mean you just messed up any cash flow you might have. And you need that cash flow or you’ll end up borrowing back against it. So, there nothing more you have there, to be honest. I mean, my opinion, at least.
Okay. And then we are being asked to sell our business and since we had a strong year, we’re giving it some thought. Is there any other service you would have for when we consider selling?
Dr. Friday 21:38
Again, taxes consider when the tax and submit you will be on that it’d be long term capital gains, are they going to pay you out? Are you carrying the note, you know, there’s, there’s all kinds of different ways you can do that. But, again, if it’s a high enough profit, you know, you’re looking at a 24% tax on the long term. And make sure you know your numbers, okay? Thanks, girl.
Thank you so much. Bye-bye.
Dr. Friday 22:02
All right, Jim. I appreciate Jim Jim. Hey, it’s Friday.
Yes, Dr. Friday. My question is if your company has a Roth 401k option, and it has a company match, how does the company match go into that after-tax 401K? Or do you just get charged that match on your income or that year? How does that work?
Dr. Friday 22:29
That’s a great question. Most companies, in fact, I can’t think of one company that does a Roth match. A lot of times they’ll do a match to the contribution, but it will actually go into the standard 401k and it won’t match into the Roth side.
So you actually end up with two 401K? Okay.
Dr. Friday 22:50
Yeah, that’s the only way I know how that works. I’m not gonna – I’m far from probably being an expert in that conversation. But how else, because otherwise the company couldn’t write off the match, and why would they do it? That, you know, because it’s after-tax. So that would make sense. And then they get in troubles with not reporting income. So yeah, I can only think of them doing that other, that it would have to be that the employee gets charged the tax on that money as if it was gifted to them. And again, most employees aren’t going to like that theory.
Yeah. Okay. I wondered about that. It just seems kind of strange. Thank you.
Dr. Friday 23:21
Thanks, appreciate it. Bye. All right. We got Nancy before the break. Hey, Nancy. Nancy, are you there?
Yes, yes, I’m here. I’m sorry. I’m wanting to ask your question on that name of what you and the other gentleman we’re talking about. What is the maximum you can contribute to a Roth in a year?
Dr. Friday 23:43
I believe it’s $7,000 for 2019…Oh, sorry, $6,000 in 2019 and 2020. And then there’s the additional… It’s $7000 if you’re over the age of 55, $6000 if you’re under the age of 55, or 50. Excuse me, 50.
So, right now?
Dr. Friday 24:10
Yeah, right now, if you’re 50 years old, you can put $7,000. And if you’re under you can put $6000.
Okay, what about going forward? Or is that is that the standard going forward so far?
Dr. Friday 24:22
For 2019 and 2020. Those numbers are good or good.
Okay. All right. Thanks so much. Thanks.
Dr. Friday 24:31
And I do want to check if I remember which gentleman was it. I believe it was a few calls back. One gentleman was asking me about his social security. How much money can you earn in 2020? That was exactly $18,240 it’s always hard when someone’s on the phone for me to pull up those numbers. So again, $18,240 and then after that, you’d have to pay back $1 for every $2 you earn above social security and the standard deduction for a married couple right now is $24,400. We’re gonna take a quick break if you want to join the show now would be the time to get the phone call 615-737-9986 We’ll be right back.
Dr. Friday 25:21
We are back here live in studio. I am Dr. Friday, an enrolled agent licensed by the Internal Revenue Service to do taxes and representation which is pretty much all I do. So if you have tax issues, maybe you haven’t filed taxes in a number of years maybe you just don’t know where to start. Maybe you get a ton of love letters from the IRS and you’re like oh gosh, throw them in the drawer because I can’t do anything with them anyways. But you might be able to – maybe it’d be better if you got yourself put on to a non-collectible. Maybe your account has been turned over to a collection agent and you’re not too sure why is this collection they see calling me about IRS debt? What is that all about? And you just a little bit confused? Well you need to give my office a call because that’s what we do. We help people get an understanding of what their options are. Each one of you is different. So it’s not like I could sit here and say, Oh, yeah, let’s all go file offering compromises which I have seen more than one person. Tell me stories where they picked up the phone call the national number is, and basically they said, Oh, yeah, we can help you.
Dr. Friday 26:18
This is what’s going to cost you start paying like $500 Oh, can you give us $1,000 down and $5,000 a month for the next six months? And we’re going to find out what’s going on with your IRS. How can they do that? If they don’t know what you need? First and foremost, are they just delaying stalling? No, that’s a plan and maybe that’s the direction you want to go with it. But in most cases, we want resolution. We want to be able to go forward to be able to buy a house and know the IRS isn’t going to take it. We don’t want to have to be paying single and zero when you’re a father or mother of four or five because the IRS has mandated your employer to make you single and zero. What can we do to make sure that you’re getting what you need and moving forward, the most important part is in compliance and then the second part is moving forward? Paying your taxes the way you’re supposed to. The past is the past people, we cannot change it. But we can make changes towards the future.
Dr. Friday 27:07
How do we do that? And what do we need to do to make it work? And that’s what we do every single day in my office. So if you’ve got questions like that you can call my office, or if you’ve got something on your mind right now, and it’s a question that maybe you’ve been dealing with the IRS and you’re like, I don’t know what to do. How am I supposed to get out of this? Give us a call here. 615-737-9986, 615-737-9986. Taking your calls, talking about my favorite subject and it is the season finally. You know, a lot of times during the season, we’re good, but then we hit other holidays and then we kind of forget about taxes. Well, guess what, it is time for us to start talking about my subject and making sure that you guys have the best advice or know where to go for it. So one of the things we’re gonna be looking at, I know with many of you, we have $12,204 for a single person $24,400 for a married couple if all of you are under the age of 65. If you’re older, there’s an additional $1,300 per married for a married couple and $1,500 if you’re single person.
Dr. Friday 28:09
So that being said, if you have if you don’t have mortgage interest, property taxes, sales tax and charitable contributions that exceed for a single person that $12,200 or for that married couple $24,400, then you may want to, you know, just start figuring out is there a way of doing this differently. I call it even odds. One of the things you can do is every other year, pay your property taxes every other year, maximize your charitable contributions, and you can’t really do much with your mortgage. Interest is interest. So you’re going to deal with that on it. It’s in sales tax, maybe at the same time, maybe you buy something if you’re going to buy a car or a boat, something like that you could have that additional sales tax kick in at the same time. That way, one year, you’ll take the standard deduction next year, you may itemize, we can do that. And there are ways that doing it. And if you’re going to think about doing your charity, think about making sure that that charitable contribution is a true legitimate 501C-3 or a version of that, because the IRS can turn around and say, nope, we don’t think that that was one and we’re not going to let you take that deduction, you do have to have proof of payment, you have to have either a check or cash, whatever you use, you have to have documentation from the organization saying that you’ve paid them.
Dr. Friday 29:26
And then you have to have the check showing that cleared the bank. If it was a check, I would always suggest if it’s at all possible, always use a check. It’s the easiest way for us if the IRS comes back because I will tell you, many of my listeners here and many of my clients are extremely good givers. They are very appreciative of what they have and sharing that information. And if that’s the case, then you need to make sure that you have proof of those payments because the IRS can come back and ask you if they or what they should, you know, prove that you actually had to pay it. So make sure it’s a true first, 501C-3 and go to irs.gov website tech check on tax exempt organizations. That name should be in there. And then next, if it is in there, then making sure that you have proof that you paid it. So if you’ve given them a car, you need documentation showing that and you need to show that you own the car, just showing that you turned in a car, but maybe it was your grandma’s car. How will they know, unless it was gifted to you and then therefore you turned it in as a charitable contribution – it’s not yours to do. So you need to make sure you understand how that works. If you want to join the show. 615-737-9986. We’re going to go right to the lines. We got Frank. Hey, Frank!
Hi, how are you?
Dr. Friday 30:37
I am awesome. What’s happening?
Well got a bunch of things going on. I was in prison for the last 13 years. Okay. And then I got out in July and I’ve been working since July and, before that, I was an independent contractor. I believe my quarterly estimated and I was in Kansas City at the time. So I was in Kansas and Missouri, you know, half and half and then the federal. And I got a letter about a month or two ago that there’s an SEP that I had started that I thought was just went away. But it’s still in existence. And I’ve updated that. So now it’s, you know, it’s in my name again, you know, whatever if I don’t know what to do as far as…
Dr. Friday 31:30
Well, I mean, are you in Tennessee now?
Yeah I live in Nashville now.
Dr. Friday 31:35
Okay. So the good news is we don’t have to worry about state unless you open a business again, then you could end up with some franchise taxes or business taxes, but it’s a lot different than being in a state that has an actual income tax, right? So that’s the good side. So right now, it sounds like you’re working kind of a real job, not self-employed right now. So most of your taxes should be coming out of the W-2. So when you file that this year, Half a year, W-2, did you have anything in prison? I mean, I have clients that actually are in the system and they actually do taxes every year because they get 1099 for working in the kitchen and stuff.
I did my best to save up and I had about $4,000 that I saved up while I was in prison. Okay, that’s been held in an account by someone, you know, a friend of mine. And he’s ready to send it to me.
Dr. Friday 32:23
Okay. Well, that’s good. But I mean, you see how they built up but will there be any taxes that need to be paid on any of that Frank?
That I don’t know.
Dr. Friday 32:31
Okay. Well, we’ll find out soon enough. Some of them. Like I said, it’s sort of silly, because personally, these people are obviously… Anyways, 1099 in someone in jail does not seem like a fair concept. But that being said, they have it so you just need to make sure the W2 you have, potentially if there’s any income that you earn that you need to report, put it on there, file the tax. But I think the money most of it’s just going to be that W-2 from July to December. And then are you planning on starting a new business again? SEP, obviously, it’s going to be yours. That’s a self-employment plan that you started back in the day. And that’s going to stay yours. And at some point, when you’re self-employed again, if that’s even something you want to do, you would actually be able to continue to contribute to that again, at that time. But right now, as an employee of somebody else, you cannot contribute to that particularly. You could do an IRA, but other than that, you can’t contribute to a retirement.
But one of my questions is, over that 13 years that I was incarcerated, it’s been earning interest. Obviously, I didn’t know about it, and what do I do?
Dr. Friday 33:37
Nothing. It all grows tax-free in that account. So unless you take money out of it, then there’s nothing you have to do with it, Frank.
Dr. Friday 33:48
No, that’s a great question. That’s why I appreciate it. So it’s in a retirement account, just leave it there, let it grow. If you do have to take the money out, make sure you take out if you’re under 59 and a half, make sure you take at least 20% for taxes. If not,a little bit more, depending on how much it is, if it is. If you’re over 59 and a half at least 12% or more, depending on the ordinary income tax, but I would leave it in there.
With the employer I’m working for now they have a 401k that I’m enrolled in. Is there such a thing as rolling the SEP into this one?
Dr. Friday 34:21
No, they’re independent. You won’t be able to merge the two of them until you hit the age of 65. And then theoretically, they’ll all turn into IRAs and you get to that point. But at this point, no, you just have separate retirements
Okay, okay. Well, that makes me feel a little bit better.
Dr. Friday 34:37
No problem. Thanks, Frank. I appreciate the call.
Thank you very much.
Dr. Friday 34:41
Alright, see if we can get to the two. We’ve got Martha and then Jim. Hey, Martha.
Dr. Friday 34:46
I’ve been listening to you for years. You’re wonderful.
Dr. Friday 34:53
Well, the reason I’m calling, I’m on my social security and make $22,000 a year. Do I have to pay income tax on any of that?
Dr. Friday 35:06
So is the $22,000 year Social Security benefit or is that a pension of something else?
No, Social Security.
Dr. Friday 35:13
Okay. No, if you only have Social Security. There is no tax and you do not need to file Martha.
Well, thank you so much. It makes me feel better.
Dr. Friday 35:24
No problem and I appreciate you listening. Thank you very much. All right, let’s hit Jim real quick. Hey, Jim!
Dr. Friday 35:32
What can we do for you, sweetie?
I got a question in 2018. I won $1,000 from my local radio station. Okay, they sent me all the forms and I filled out, send it all in with my taxes. Now six months ago, I got another letter from them or a thing, somebody else’s name with my social security number. Yeah. And I tried to call them in Atlanta. And I told him it was not me. So, what do I do now? Am I responsible for that? Because somebody else use my social security number or…
Dr. Friday 36:23
Absolutely not. You can call the tax fraud hotline, you may have tried to do that. There is several of them, trying to see if I can actually give you that number. Here it is one 1800-829-0433, 1800-829-0433. Or you can text me or call me Monday and I can get it for you. But that’s a number you’re going to call and let them know that your identities been stolen.
Okay, 829-0433. And what was that area code?
Dr. Friday 36:56
Right. Okay, I appreciate that. It’s just that…
Dr. Friday 37:06
No, you did it right. But that happens very rarely, thank God. But more and more I have more and more people telling me that they’ve had this kind of issue. So you need to call them because what they’re going to do is set you up with a pen so that they know anything you turn in is going to be you in a thing tries to be turned in under fraudulent number, they will won’t have the pin, therefore they won’t know it’s it’ll be illegal and therefore they’ll bounce it back at that person.
Right. Like I said, Yeah, I still do all that, you know, I feel good my income taxes everything else. And they’re sending me a notice saying, you know, they sent me tax forms and stuff want me to fill out, right?
Dr. Friday 37:43
Yeah, you need to make sure they know that because otherwise, they’re going to assume it does and they’re gonna basically charge you the tax you have received. So you make sure you call them and tell them that you have identity theft.
Okay, I appreciate that, sir. Okay, bye. Bye. Thank you.
Dr. Friday 37:56
All right, we’re gonna take the last break. So if you’ve been holding your breath, and you been wanting to call 615-737-9986 is the number right here in the studio for the next 10 minutes or so. We’re going to take a quick break. We’ll be right back with the Dr. Friday Show.
Dr. Friday 38:23
Live in studio. We’re going to go right to the phone lines you a few people calling we got John on hold right now. So let’s hit that right first. Hey, John.
Hey, how you doing Dr. Friday. Thanks for taking my call.
Dr. Friday 38:35
Awesome. Thanks for calling. What can I do for you?
Hey, I’ve actually put too much money into my wife and myself on our Roth IRAs. I made the maximum contribution for this year $7,000 each and I didn’t realize I made too much income to be eligible for a Roth. So I need to take that out before is it April 15th? And the fallen extension cannot take it out all the way up to the extended deadline?
Dr. Friday 39:14
Well, in all honesty, if you’ve contributed now, would it work for… When did you put it in first? Did you put in this year or last year? I mean, did you?
Yeah, it’s before 2019. It may have been the last week or 2018. But I was studying I was labeled for 2019. It may have been the first. I’m not sure or last year. But it’s 2019, yeah.
Dr. Friday 39:36
Gotcha. So my concern is if they take the money out, I mean, it’s a Roth, we all know that you can take the money out as long as the growth, the concern is that you’re getting growth on that money. And they could basically consider that not I mean because you weren’t allowed to put the money in the first place. Therefore, your growth is tax-deferred that is not yours. Does that make sense what I’m saying?
Well, it does make sense, but let me run this by. My investing acumen is such that I actually lost money on the deal. And the reason why I want to wait is hopefully that money, that investment will come up enough to where I can pull out the $7,000. I have not made any money, I’ve lost money actually on it.
Dr. Friday 40:20
So the thing is you according to what I’m seeing here, and I’m not a financial planner, but what I’m reading here, and I only deal with the tax penalty, you’re going to be subjected to a 6% tax penalty, and the money basically stays in there. So it may be just the way that you know, we may need a double-check that with whoever your financial person is to make sure that there’s no way of getting you around that but it may be better to leave it in and let it grow by paying the penalty than to have to take the take that excess out. You know, if there’s a way of doing that, you know, tax-free growth and just say, Hey, we’re a paid the penalty now, or do we have to pay the penalty and take the money out? If you can’t find out that that answer exactly, then get back with me. And I’ll have Hank Parrott who’s my financial guy, he’ll know the answer right on top of his head, and we’ll get it squared away. But see what you need to do. I think I understand what you’re saying. Bottom line is the investment sitting there and we don’t have 14 in it at the moment. That’s easy enough to get out. But yeah, we need to figure out which way because bottom line says, oh, it says ineligible contributions trigger a 6% penalty each year until you remove the excess. So we take it out, and we’re getting it with a 6% penalty and then remove it this year. Pay the six then remove it a year later.
Okay, so worst case on $840 penalty and badabum badabim. I’ll get with my planner, see what we can figure out. I appreciate you.
Dr. Friday 41:50
Thanks, John. I appreciate you. All right. We got to get both of them and we’ve got Johnny and then Corey. Hey, Johnny.
Hey, Dr. Thanks for taking my call. I have a quick question. I’ve been self-employed. I’ve been raising my stepdaughters children. One of them when I was 21. I have one for the last four years. He’s 13 now and I’m trying to figure out how to claim him on my taxes because we take care of him. We get those financial support, but there’s nothing – I can’t because I don’t have legal guardianship. We got power of attorney, but…
Dr. Friday 42:23
Okay, so does he live in your house?
Yes. Yes, ma’am.
Dr. Friday 42:27
So he lives with you and you’ve had him for more than six months. You do have, I mean, so from the tech standpoint, all you need to be able to do is justify what address is on his doctor appointments. You know, when he goes the doctor, whatever. What school records address does he have, who are the contacts that’s what the IRS is going to ask you for proof of dependent. So if you have that..
There’s someone who told me we couldn’t because he’s homeschooled, his mom’s in prison. But yeah.
Dr. Friday 42:54
I’m not too sure who told you that but I think you would but especially since you are the full caregiver, are you getting paid anything to take care of him is like, is he in the foster system and you’re taking him in as a foster
Dr. Friday 43:09
Wasn’t sure, I just thought I’d ask. Then theoretically, you should qualify. It would just be a matter of proper documentation and sounds like you should have that to be able to submit it. So they’ve rejected I think I would, I would actually refile that year with documentation to prove it.
Well, I appreciate it. Thank you.
Dr. Friday 43:25
Thanks, Johnny. Alright, let’s get Corey real quick. Hey, Corey.
Hello. Thanks for taking the call. I’m calling with a question about the qualified business income deduction, those 199-A. And I’m a member of a partnership with my sister. I’m wondering what we would need to do to be eligible for because it looks like it’s a sizable deduction.
Dr. Friday 43:46
Oh, yeah, up to 20% of your gross profit or percentage of payroll. Plus, if you have large equipment purchases, things like that. So you’re a partnership LLC. You said partner so it’s okay. So you’re going to have just depends on how much money you make. But if you’re each getting less than $160,000 on each side, you would automatically have a qualification assuming that the business is qualified there’d be no reason you wouldn’t have the qualification unless it’s an architect or a service business. And that’s where the limitations come in. What kind of business do you do?
Basically, we own apartment.
Dr. Friday 44:25
Okay, so like a real estate investment company. Okay. REITs in all of them qualify up to 20% of profit.
Yeah, we’re not REITs, it’s, you know, like I said something within the family.
Dr. Friday 44:36
Okay. But it’s still management of real estate. So you would have your assets, payroll or profits, because you may have pretty good assets. So whoever’s doing your taxes should be able to answer that question, but you would definitely qualify and it passed through onto your personal tax returns.
Dr. Friday 44:53
Okay? If you need more help, call me at the office Corey, and I can give you some documentation on that to provide your tax person okay.
Okay, great. Thank you!
Dr. Friday 45:00
Thanks, sir. All right, we are exiting the show. We are live here so if you want to do it, next Saturday I’ll be here. You can reach me at 615-367-0819. Check out the web You can also set up your texts appointment at drfriday.com the calendar is live again, that is drfriday.com set up your tax appointment. If you’ve got tax questions and sometimes they’re hard to reach me by phone you can always email firstname.lastname@example.org or, again, my website drfriday. com. Click on “question” and you can ask it right to the website. I hope you guys have a wonderful Saturday. As always, call you later.