Dr. Friday Radio Show – January 16, 2021

The Dr. Friday Radio Show
The Dr. Friday Radio Show
Dr. Friday Radio Show - January 16, 2021

Welcome to the Dr. Friday Radio Show! Dr. Friday talks about all about taxes, new updates, and also the following topics:

  • You Need To File Your 2020 Taxes to Recieve the 2021 Stimulus Check
  • New Laws and Tax Changes
  • Is Timing Really Important When Filing Taxes?
  • Unemployment Is A Taxable Income
  • What To Do If You Haven’t received Your 2020 Stimulus Check
  • Small Business Money Is Available
  • Do You Need Help Preparing Your 2020 Taxes?
  • The Next Filing Date Is on February 12, 2021
  • Why You Need Help With Tax Representation
  • We Are Certified QuickBooks Advisors

and so much more!


Announcer 0:01
No, no, no, she’s not a medical doctor, but she can sure 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 at 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.

Dr. Friday 0:30
Good day, I’m Dr. Friday and we are in the house. That means the phone lines are open if you want to reach us, call 615-737-9986. We are taking your calls and talking about my absolute favorite subject, taxes. Now there are a few things we were not going to touch much on what Biden said, I will tell you that. I had a lot of people emailing me, but you know, what he said isn’t law. So we’re gonna stick to what we know. So let’s talk a little bit about forms you might be receiving in the mail, and what forms you need to be watching out for or maybe not receiving what you thought would be coming in the mail. So we’ll start with the stimulus, probably because a lot of people are saying I didn’t get my stimulus money yet, what can I do? So we’re going to talk about a couple of things you’re going to do. One thing you’re going to do is probably not something that you’re used to doing if you’ve not been a filer, because this is going to be a completely different game than the first stimulus. If you have not received either of the stimulus checks. Sometimes, so my clients that are coming in now, it’s because they did not file 2018 and or 2019, that they’re working on some different situations there, and so you do need to have 2019 filed at least guys. And in most cases, you’re going to have to file your 2020 if you want to see that stimulus check. So making those payments and getting that done properly.

Dr. Friday 1:54
Why we go ahead and hit John real quick, and then we can let you keep the phone’s going because you’re a busy man in there. Okay, we’ll come back. My boy in the office, there is awesome. He is multitasking all the time trying to take phone calls as I’m talking to them. Alright, so stimulus really quick, let’s talk with the stimulus, you’re going to have to file a tax return, if you have not received your stimulus money, even if you’re social security only. If you haven’t received it January 15 was the last day they were sending it out. So it’s very important that you pay attention to what the next steps are going to be because it’s not going to be like the first one where you can go in and do a non-filer or anything like that. You’re going to need to file a tax return. All right, let’s go ahead and get John in Murfreesboro.

Caller 2:42
All right, Dr. Friday, thanks for taking my call today. I appreciate it. I operate a Subchapter S here in Tennessee, where I provide training. I have the opportunity a competitor approached me and said they’d like me to do work for them, which I agreed to, and they would pay me a flat fee on an ad need basis. Now they’re gonna provide 1099. My question is, is can I treat this just as a regular sale through my Subchapter S? Or am I going to be subject to having to also pay the Social Security tax withholding the 15.3%?

Dr. Friday 3:26
Well, I mean, if that’s what your business is, and you just picked up other jobs, I would run it through my Sub S. And then obviously, you’re already on the payroll there. So it would be how you’re handling the next step. But the answer to your question would be, I would run 1099 through make sure they 1099 your corporation, not you as an individual.

Caller 3:45
Correct. Yeah, that was my follow up question. Yeah, that I have to make sure it’s through my corporation, and my my sin number as opposed to my Social Security.

Dr. Friday 3:55
Right. Theoretically, by law, if it’s Corporation, we don’t 1099 them. It’s not that you can’t, but it’s just one of those rules that all corporations are not 1099. So they may not give you one if they know your corporation, doesn’t mean you’re not responsible for reporting all your income. Just means that that paper trail may not come to you, once you tell them they’re operating as a corporation.

Caller 4:18
Okay, all right.

Dr. Friday 4:20
Yes, make sure it comes in the corporation if it’s a choice.

Caller 4:23
Right. Thank you so much.

Dr. Friday 4:25
No problem. Thanks for calling. I appreciate it. All right. Let’s hit Miss Rita. Rita, what’s happening.

Caller 4:33
I Dr. Friday, how are you?

Dr. Friday 4:35
I am very good.

Caller 4:38
Great. I have a question about an insurance policy. I’m getting old. It was a term life and now it is rolled it into a full life, I think it’s called?

Dr. Friday 5:02
Yeah, it’s like a full life.

Caller 5:04
I have dividends on it. And I have been leaving interest in the policy. But I’ve also been getting 1099 on the interest, and I’ve been paying income tax on that. Now as that interest adds to the dividend, I need to keep up with the basis of the interest that I’ve paid taxes on. Am I correct in that?

Dr. Friday 5:42
100% correct. Yes. Because when they do assuming that, Well, two things, if you leave it in there till you pass away, and the next person inherits, it’s going to be tax-free money, because you pay tax the whole time you use after-tax dollars. But if for some reason, you decide you’re going to take it out or do something with it, then you need to know the basis that’s in it so that you don’t pay tax on it twice, because you’ve been paying on the growth all the way along.

Caller 6:08
Yes. Okay. That was my question.

Dr. Friday 6:12
That was an awesome question. Thank you, Rita.

Caller 6:14
Thank you. Bye.

Dr. Friday 6:18
Bye. All right, that was a good question. A lot of times, that kind of thing happens. And it’s difficult because sometimes you’ve had these policies for a number of years. So your best bet is to just try to keep all those papers together, like all the 1099’s that you get in one box, one folder so that within the year, you have the information the way you want it. So that is what we have going there.

Dr. Friday 6:41
If you want to reach the show you can by calling 615-737-9986. We are taking your calls. So again, just for anyone that’s listening, that’s telling me you haven’t received your stimulus check, the only way you’re going to receive it, all of them that are going to go out have gone out. January 15, was the final deadline, that the new bill that they had acted as the day they had, and then all of them had to be out. They either came out and check electronically or in a credit card format. If you did not receive it, you will have to file a 2020 tax return to get that so that you can then take the credit on your tax return when it comes time to claim it. Even if you have no other income, it’s still going to be something that you need to go ahead and claim so that you have that information. They’re not going to be opening up nonfilers. As far as I know, there’s no conversation with that. There’s not going to be anything that’s moving on or forward. So it’s just really important that that’s where it has.

Dr. Friday 7:46
Also, there’s been a big change that was just announced last week on the 15th. The IRS came out and said the official day for filing is going to be February 12, 2021. Okay, that’s a little further out than we thought, we thought it was going to be January 29. That means that even if you prepare your tax returns, they’re not going to be able to be processed refunds will not start coming out until after February 12th, 2021. There is IRS free file you can check out there are no charges, it does depend on your income and situation. But it does make a difference. And here’s a huge one Internal Revenue Service today reminds business owners and other payers that the revised 1099 miscellaneous and the new form 1099 NEC, non-employee compensation. So for a lot of you, goodness gracious for most of my life, we’ve always received 1099 miscellaneous, it just had a form there. But there was another form that’s been out there forever, but they brought it back. And it’s called a 1099 NEC. So if you have subcontractors, people working on the side and you use 1099, then that is the form you’re going to use this year, you’re going to use the form 1099 NEC and that’s going to be the best bet you have on that one. All right before the break. Let’s go ahead and hit Dave. Hey, Dave.

Caller 9:14
Hey. I’m 58 years old, and I have a 401k that’s got around $50,000 on it. And is there I was kind of wanting to pay my house off. Is there any way that I can get that without being penalized real bad at my age?

Dr. Friday 9:34
Well, at this point, you’re going to want to wait till you’re 59 and a half first because anything before that is going to be a penalty for taking it out. Last year because of a COVID there was some waivers on that. But right now in 2021 that is not on the table. So I don’t know when your birthday is but you’re going to want to wait until your year and a half past that. So now you’re 58 so 59 and a half then you’ll only pay ordinary income tax. I would suggest sitting down with a tax person or someone that can crunch some numbers because you’re still paying ordinary income tax, it still may be better to take out $20,000, over the next two years after you’re after the 20, after the 59 and a half, or some other number, that way, you don’t get kicked into a whole nother tax bracket. We don’t be paying 28% tax just to pay off your house, it’s nice to pay it off. But you don’t want to lose a bunch of money.

Caller 10:26
Even after you’re 59 and a half?

Dr. Friday 10:29
After 59 and a half, you don’t have any penalties, then you can take it out, but you’ll just have to pay ordinary income tax.

Caller 10:36
Okay, even in a Roth?

Dr. Friday 10:39
If its a Roth, then it is five years, or 59 and a half, whichever has been longer. So depending on when you started the money in a Roth IRA, it depends. You can always take the principal out, but the growth needs to be in there for five years, or 59 and a half, whichever is the longest period. So if you have this back from the ’90s, then you can take it out now.

Caller 11:01
Oh okay, well, it’s in Roth.

Dr. Friday 11:03
So with Roth pay any tax, you just want to make sure you’re still either 59 and a half or five years, whichever is longer. So at this point is probably going to be 59 and a half.

Caller 11:15
Oh, it’s been in there five years. It’s been in there.

Dr. Friday 11:18
Yeah but the key to that is whichever is the latest. So 59 and a half is going to be later than the five years you’ve already maximized. So if you started this year, you’d have to keep it longer than the 59 and a half. But since you started earlier, you have to meet the 59 and a half not to hit penalties.

Caller 11:37
Yeah, it’s been in there seven years.

Dr. Friday 11:41
Again, you could start taking out the principal if you wanted to, but not the gross. So if you put in $30,000 of your own money, pre-tax after-tax because we pay in after-tax, you can take that 30,000 out today. Just growth is the way you want to be very careful. Last thing you want to do is have to pay a 10% penalty for taking money out so she since it’s grown tax-free for you.

Caller 12:02
Oh, wow. I didn’t know it worked like that. Okay, thank you very much miss Friday.

Dr. Friday 12:05
No problem. Thanks, buddy. Appreciate the call. Okay, if you’re listening to the show, and you have a question about taxes, or maybe you’re dealing with the IRS, or you have some other issues that may come along those lines I have to do is pick up the phone at 615-737-9986. We’re gonna take a quick break. When we come back, we’ll get some more of your phone calls and talk more about my favorite subject taxes. We’ll be right back.

Dr. Friday 12:40
All right, we are back here live in the studio, this is the Dr. Friday show, and an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. So that’s pretty much what we talk about guys. So if you’ve got questions about something you might need to know about, is it taxable or not? Or maybe you’ve sold some real estate or easements or anything like that. This is the show you might want to call before you do something on your taxes and find out you’re paying taxes on what you shouldn’t. So why don’t we go ahead, the phone number here is 615-737-9986. And we’re going to go ahead and hit Chris in Springhill. That’s my town. Hey, Chris.

Caller 13:19
Hi, how are you doing? Thank you for taking my call.

Dr. Friday 13:22
Sure. Thanks for calling. What can I do for you?

Caller 13:25
So my wife and I, started selling a food type from our house. We’ve been doing fairly well with the business. But we’re mainly started off as a charitable organization kind of thing. We were sending the funds overseas to the Philippines where she’s from. And my main question is, can you use something like that for tax-deductible purposes? Last year, we made about $3,000 or so. We ended up having to buy equipment and all that I don’t know what we can use for tax-deductable purposes since we sent it overseas to help.

Dr. Friday 14:02
First would have to be a 501 C3 and licensed as a nonprofit to be able to do overseas charitable work. It’s a special type of filing. As individuals, us giving to overseas charitable contributions is not tax-deductible for us. So if she’s just sending that over there, even to a charitable organization that works in the Philippines, it’s not tax-deductible unless they are licensed here in the United States as a nonprofit.

Caller 14:30
Can I do that retroactively, like file the 501 C3 and then go back and do that since it’s already past the new year?

Dr. Friday 14:38
Not necessarily. I’ll say you can go back when you fill it out. The other question is when did you start working as a 501 C3, you can put your start date as the date you started to work. But you have to incorporate and then fill out all the application and pay the fees But either way, it would be something if it’s something you plan to continue to do. You’re not just helping her family, which is not a tax deduction, but you’re helping the communities, go for it. Get yourself a C 501, c three, and then you know, start doing it the right way. So that way you can deduct all those time and expenses on something that’s sounds like a very worthwhile charity.

Caller 15:17
Now, also, since we don’t make all 100% contributions to that we’ve had to pay expenses and overhead to kind of expand. Could I deduct some things like if we bought equipment? I know it sounds simple, but we had to buy a new refrigerator because ours became overstocked with the amount of food. I don’t know if that counts as a deductible item that we deduct?

Dr. Friday 15:39
As a nonprofit, again, you know, they have equipment, they pay for contributions, they may I mean, other types of things, t-shirts, uniforms, sometimes all that it takes to create the nonprofit. So yes, the refrigerator as long as it’s solely being used for the nonprofit, like you set that one up for that too. The other one is for your personal, there would be no reason it wouldn’t be listed as an asset, just as if you were running a business that required a refrigerator.

Caller 16:04
Okay, and if I decided not to do the 501 C3 but still contributing, they’ll be out of my own pocket. But could I still do tax-deductible?

Dr. Friday 16:10
No. Yeah, you can’t do anything overseas. I mean, if you could find a 501 C3 that’s licensed in the United States, give them the things, and then they handle the distribution because they’re licensed to do so then your charity would be deductible. Otherwise, it’s not legal for us to send something overseas and claim it as a charity, even if it’s a true charitable organization.

Caller 16:35
Absolutely. Yeah. My first step, I guess, is just to start the 501 C3 itself, and then it’s kind of a big step of move forward. Do you have any advice for how to start doing that?

Dr. Friday 16:47
Just Google it, there are companies out there that actually do it for a very minimal cost. I have done a couple of them myself, not something just for friends and people that have organizations. But I would definitely start with Google and find out because even LegalZoom has the documentation to fill out.

Caller 17:03
Okay, that sounds great. I really appreciate you taking my phone.

Dr. Friday 17:05
Thanks, Chris. No problem. Thanks. All right, let’s go to Joe who’s been holding on for a bit. Hey, Joe.

Caller 17:11
Hey, good afternoon, thank you for taking my call. Sure. My mother was hurt in a nursing home. She was about 93 years old. She recently passed away. But me and my brothers had filed a lawsuit and with a lawyer and they settled for I believe like $125,000 was the law you took there 40% then gets divide it between me and my three brothers. And there’s also some additional times to pay back to the government. So each one of us will end up with about $18,000 for the harm.

Dr. Friday 18:09
So it was for medical purposes, the settlement was for medical, not loss of wages. At her age. I didn’t sound like she had wages, but I’m just saying it was for a medical purpose. So in essence, that would be a state and there would be no income tax on that because we don’t pay tax for injury. We only pay tax on the loss of wages or earnings.

Caller 18:28
Okay. All right. That’s what we need to know.

Dr. Friday 18:31
No problem.

Caller 18:33
I do appreciate it. Enjoy your show.

Dr. Friday 18:35
Thanks, Joe. Appreciate you too. Thank you. Alrighty, let’s see if we can go ahead and go all the way up to the top and hit Bonnie in Spring Hill. My people in Spring Hill are awesome. Hey, Bonnie.

Caller 18:47
How are you? I owned a condo in Nashville. I just sold it last week, I made a profit of about $38,000 on it after the original cost, and after all the fees and stuff from that from the realtors. My question is my daughter and I on it together. She was living in it. How do I handle it? What’s the best way to handle $38,000 tax-wise?

Dr. Friday 19:10
Well, how long did your daughter live in it?

Caller 19:12
For two years, it was over two years.

Dr. Friday 19:15
Okay. So then, in all honesty, I mean, it would be her primary home. So she would have the exclusion of $250,000 because two out of five kicks in the exclusion. She could then gift you $15,000 or whatever the half of that is. If it’s I mean, I would gift it 15 and then wait another year and gift you the differences few pennies over that. But that would be the easiest way because she would have true exclusion. I mean, with both your names on the title?

Caller 19:45

Dr. Friday 19:48
Okay, so theoretically it wasn’t your primary home though, right?

Caller 19:52
That was not my primary home. I would stay up there when I was working up in Nashville, but it’s not my primary home. My home is in Spring Hill.

Dr. Friday 20:00
So I would have to double-check because theoretically, did you cosign for her to have the condo?

Caller 20:11
I bought it in cash, I borrowed money on my home to purchase a condo. So there was no the condo was owned interest [inaudible]

Dr. Friday 20:06
You actually put the interest in. So there were no payments because you increased your other payments. My initial thing would be is that it would show under your daughter, but the problem is half that house is yours and it wasn’t your primary, you may actually have to pay tax on your half. But if you want to email me, I can pull up the tax law and that we can double-check on that I don’t have a lot of times that that happens to be quite honest. It’s usually a husband or wife or parent that buys the house for the kids. But not someone that just had an investment. It sounds like to me, you might have bought the house for your daughter to live in, and you were her mortgage company. If that’s the case, then it’s her home, in essence, and she would be able to claim the $250,000 exclusion and there’d be zero tax. But if for some reason you consider it as a second home for yourself, well, then you would not be able to qualify for it. So we just need to get the exact details on exactly how it went down.

Dr. Friday 20:30
Is the $250,000 that at a one-time thing or is that cumulative over time?

Dr. Friday 21:25
So it’s basically the first time two out of five, and then after that, I do three out of five, but theoretically, it is something that repeats every two to three years.

Caller 21:35
Okay. All right. So that’s good. I’m gonna sell my house but not right now. So, okay, I will send you an email with that.

Dr. Friday 21:42
I’ll get you some tax law that gets you a perfect answer. Okay?

Caller 21:45
Great. Thank you so much. I appreciate it.

Dr. Friday 21:48
All right. Let’s hit Patrick in Spring Hill. Hey, Patrick.

Caller 21:53
Hey, how are you? My wife and I are 57 years old. We are selling our house in Spring Hill. And we should clear about $250,000 after closing. We each have 401 K’s that we want to close out. I’m leaving my job, she’s retiring from hers, so we want to empty our 401 K’s take our clear $250,000 on our sale of our home and pay cash for our next home in Florida. And then open up some kind of a Roth or something to put the leftover from everything into. Is that okay to do it that way?

Dr. Friday 22:40
No. You can’t really do it that way. So what you’re going to need to do is either do a conversion, you’re only allowed one conversion a year. You can’t take it out and then put it back into a Roth you’re no longer working and you only have limitations to what you can contribute to a Roth, you need to do it as a conversion. So your best bet would be to the 250,000 would be tax-free money because  I’m assuming you lived in the house and Springhill for more than two years?

Caller 23:06

Dr. Friday 23:08
So that is going to be free money, but the money that you take out of the 401k, since you guys are both 58, you’re not 59 and a half yet. You’re going to get hit with a 10% penalty, as well as ordinary income tax. So you might be better to convert as much of it into a Roth put a dice down payment down. Then when you hit 59 and a half pay off the house, because that’s 10% in your pocket automatically, if you were to 59 and a half.

Caller 23:37
Well, the goal was to when we make the purchase of the second house, well it would be our primary house was my second house. But would be not to have a mortgage, we’d have the house paid free and clear and, and no mortgage at all.

Dr. Friday 23:52
I mean, you need to kind of crunch the numbers because a mortgage at 3% or 4%. Right now, which is what they are, closed on a jumbo loan for 3.65 versus paying a 10% penalty, you’re giving the government 6% more than they need. You just want to be smart, I understand your thought. And I don’t mean wrong, I would love to be debt-free. But if you could just wait I mean, you’re almost at 59 and a half. It’s not like you have 10 years to wait. So it might be better to just put some money and then take small draws out of the IRA to pay the mortgage for the year and a half or two years, whatever depending on your age exactly to hit that 1259 and a half, then take the money out. And you could you know convert it so that it’s actually sitting in some sort of basically Roth money market so that way you don’t have to worry about it crashing or burning or whatever else if you’re concerned that you could lose what’s in the 401k at this time.

Caller 24:53
That’s our biggest concern is is how safe is our money in our 401k?

Dr. Friday 24:57
I’m not a financial planner and I know have a lot of clients with their same question, but you could convert it, you could roll it over from a regular IRA to a Roth, and go ahead, you can pay the taxes. That way, when you take it out of the Roth, it’d be tax-free money. And you won’t pay the penalty. If you wait till 59 and a half, right? In all honesty, put it into a money market, it won’t grow anymore, but it won’t lose anything. So you know exactly how much you’ll have whenever you’re ready to do it.

Caller 25:31
Will that be something that we can maybe set an appointment and come in and talk to you and put a plan together.

Dr. Friday 25:38
Absolutely, I can certainly help you on the tax side. And we can always get my financial guy in the other side, just to see if he’s got any suggestions on where to put it safely so that you don’t lose any growth in that. I’m not a financial planner, but I can tell you how much taxes and everything and where you could put it, that would be safe for you to keep that money there and maybe get some small amount of interest while it’s sitting in the Roth while you’re waiting to take it out.

Caller 26:02
Our biggest goal was to have no mortgage and around 100 to 150,000 in savings of some kind.

Dr. Friday 26:10
Yeah, that’s great. I mean, I think all of us have that same basic goal, Patrick, but like said, I wouldn’t do as least amount of taxes as possible. So we’d have to do a little, little game plan just to figure out how much money we can save and how much we’re talking about. Okay?

Caller 26:26
Okay. Thanks.

Dr. Friday 26:28
Thanks. All right, let’s hit. Let’s hit Terry, really quick, and then we can take a break. Hey, Terry.

Caller 26:36
Hello, how are you today?

Dr. Friday 26:38
I am awesome. What can I do for you, sir?

Caller 26:40
I just got a quick question. I have been getting income tax refunds, you know before my disability started two years ago. Today, when I opened my mail, I got a notice from 2005 saying I owed like $356 in back taxes. Then I got another one today also saying that I owed $1400 from two or three years ago, where I won $1000 dollars in bingo. And I’ve been getting refunds and I’ve never got a notification or a notice in the mail about anything. Is there any way I could go in and try to pay all this upfront and they can fly? I’m on a fixed income now or what do I do?

Dr. Friday 27:32
There’s certainly a possibility of getting penalties or interest waived on one of them. If you’ve always been a good taxpayer, and you haven’t actually ever asked for forgiveness, usually can get one of them. The other one, I’m not too sure. You might want to double-check if back in 1716 or 15., gambling, there was a deduction if you itemize. Now, I know you said you didn’t have to file but you might just we’ll make sure the numbers are correct. Did they send you the bill? It doesn’t say we’ve changed your tax return and here’s why?

Caller 27:59
What happened was I thought about taxes when I was working before my heart attack, and I got a refund, and therefore I won out of dollars at Bingo. They turned it into the IRS late. And I’m just now getting notified on it.

Dr. Friday 28:16
Yeah. So that one, you may or may not have to pay the tax on it. But the tax on the $1,000 won’t be 1400. We don’t have that back a tax code. So we’d have to take a look or have someone look at it and see exactly how much you would owe in those two years and then see if they can write a letter and pay the principal and see if you can make a deal with the interest and penalties would be my suggestion. Call me if you want I can help you.

Caller 28:42
Alright, thank you so much, ma’am.

Dr. Friday 28:44
No problem, Terry. Thanks. Bye, bye. Okay, we’re gonna take our second break here. And if you want to join the show, you can at 615-737-9986. We are taking your calls, we’ll talk a little bit about getting your identity protection pins where you can get in and out of that program. Because you can’t file your taxes if you don’t have your identity protection pin if you have already started like if you’ve been told identity theft, whatever. So we’ll talk more about that when we get back from the Dr. Friday show.

Dr. Friday 29:24
We are back here live in the studio on this wonderful Saturday. And we have about another 20 minutes or so left the show. So if you want to join us you can at 615-737-9986 and when we go to hit Mike on the line. Mike is on the line.

Caller 29:51
My question is on your 401k plan, when I start drawling when I retire, are the taxes different? Does that put you in a lower tax bracket when you stop making money?

Dr. Friday 30:07
Well, it does for some and not for others. Because basically, a lot of times when people hit retirement, they start their social security benefits as well. They stop earning W 2’s, but the provisional tax code takes half of your social security and then adds it to whatever you take out of your 401k. So simply put, if you’re taking out of your 401k $12,000- $15,000 a year, you’ll probably end up with almost no taxes due. But if you’re taking out of your IRA, 20, 25, 30, then you’ll have some of your Social Security, and you will end up paying the 12% tax bracket. Initially, it’ll be the 10 and then the 12. So it is usually lower than when you work and try to take it out. Because when you’re working, you’ve already got a W 2 for 40, 50, 60, or whatever you might earn on that job. So definitely cheaper usually, when you’re not working, and you’re just taking care of the survival.

Caller 31:03
Well, my plan is to draw $1,000 a month from a 401k when I for 10 years, and start on social security and I’ll work next year, however much I can work before they start charging you. You can make so much money when you start.

Dr. Friday 31:25
Are you not at your full retirement yet, for Social Security?

Caller 31:30
I’m going to retire at 65 and four months, my full retirement is 66 and four months.

Dr. Friday 31:36
So you have one year in advance. So you need to make sure that if you work a job, Mike, you don’t want to make more than it’s about I’m giving you an estimate, but it’s about $18,400. So as long as you don’t bring that home.

Caller 31:49
Until I make that much and then I’m quitting.

Dr. Friday 31:53
Only one year to make it. But it’s a good plan, especially with the way the world is right this second to just try to keep things moving. But that would be the best way to try to keep your taxes as low as possible. while you’re transitioning into retirement.

Caller 32:08
Well, I’ve got a full retirement and, it’s just not worth me because I’d rather be out living with my grandchildren than working till I die.

Dr. Friday 32:19
I think a lot of people need to think that way. Sometimes. You know, everyone’s story is a little different. But you need to enjoy life and you can’t take the money with you.

Caller 32:34
Medicare’s is the big thing, that’s what holds everybody, I guess. Yeah, just want to make sure I was doing the right thing.

Dr. Friday 32:47
Sounds like a good plan to me if you need help crunching the exact numbers. But as long as you’re gonna keep your income under that 18,400 it should keep you from not having to pay back the Social Security, you may actually owe a little bit more than normal because you’re getting Social Security, a small portion of that could become taxable. So you want to make sure you crunch the numbers to make sure you know how much taxes to set aside. So within the year, you’re not sitting there going “Oh man, I owe $2,000. That sucks.” Sorry.

Caller 33:17
I don’t know what 401 K thinks but they tried to spread it out over 30 years, and I’m like, I’m not gonna live till I’m 90. Well, I mean I hope I do.

Dr. Friday 33:27
And that’s what financial planners nowadays, a lot of them do that. Right? They try to spread it out as far as possible, because people are living longer than when my parents were alive. So, but gotta live. So take it easy. I appreciate the phone call.

Caller 33:41
Thank you very much.

Dr. Friday 33:42
Thank you. All right, let’s hit Roger. Hey, Roger.

Caller 33:49
Hey, how are you today?

Dr. Friday 33:51
I am good.

Caller 33:53
Okay, my question is, if you live in one state that does have a state income tax, say Kentucky. But I work. I’m 67. I’m still working full time and I work in another state that does not have a state income tax. Last year they really wore us out on the income tax. We had to pay in around $3200. But I’d read or if you work in a state that doesn’t have an in-state income tax, and you live in a state that does then your income comes from that state that does not you don’t have to pay in. Is that true? No.

Dr. Friday 34:29
No, sorry, I’d love to tell you that was true. But no, if you live in the state of Kentucky, you have to pay Kentucky states because they’re saying you’re living here and you’re entitled to our things. If you lived in Tennessee and worked in Kentucky, then you would have a nonresidency and you may not pay as much in tax. But if you live in the state that you’re even though you’re not working in it, you’re still going to pay the state income tax.

Caller 34:54
Okay. All right. Thank you for answering my question. Thank you.

Dr. Friday 34:57
Thanks, buddy. Okay, let’s see what Jeff has to say. Hey, Jeff, what’s happening?

Caller 35:05
Oh, I’m just trying to stay warm actually.

Dr. Friday 35:11
It’s a good one, right? Yeah, it’s a little nippy outside. I totally agree.

Caller 35:17
Did you get any snow last night?

Dr. Friday 35:19
We got a bit of flurry, and this morning when I was walking my puppies. There was it was almost like little ice balls coming down. But it went very quickly. So by the time it got light outside, it was pretty much down to, you know, just cold.

Caller 35:35
We were covered when it was light. So it was nice and bright outside. But it’s all gone now.

Dr. Friday 35:41
Yeah, I made a snowman the other day when we had all that snow but wasn’t enough for this weekend. What can I do for you, sir?

Caller 35:51
Okay, I just recently retired on December 18. I am 66, I’ll get my first Social Security check next month. Basically, I worked full time all year. I had health insurance that covered my wife and me both and I put in the maximum that I could for my HSA. In my HSA, I have about 7000. My wife actually started working in September, and with her benefits, she was able to, to get an HSA and she had single insurance, she was able to get an HSA and start putting money in hers. Now, we’ve got hers, and mine, is that going to be subject to the couple’s maximum, or is going to be an individual maximum for both of us?

Dr. Friday 37:11
Right, which is basically the same thing. So when she was on yours, and both of you had one it was a family coverage, right? I mean, it would have been the higher 7,200 in 2020. And then if your guys are over 55, which you are would be 8,200 for family coverage. But now that she has, you would drop yours down. And you can maximize. So for 2020, you’d want to maximize those numbers as much as possible. In 2021, she would have individual coverage because I think you’re going to go on to Medicare, you probably aren’t going to be on her policy, or are you?

Caller 37:43
I mean, I’ll have Medicare Part A and then we’ll have Part B because I’m on her insurance now.

Dr. Friday 37:51
Okay, so if you’re on her insurance, then it’s a family coverage again. So she would then in 2021, she could put in $8200 into the Health Savings Account.

Caller 38:01
Okay, so the max for both of us?

Dr. Friday 38:05
Is 8.200 for 2021.

Caller 38:14
Let’s see.

Dr. Friday 38:25
They didn’t change it. So it looks like 2021 and 2020 are pretty much the same dollar amount.

Caller 38:30
Okay, okay. And it wouldn’t matter that she had her own insurance from September to December?

Dr. Friday 38:44
The bottom line is if the total health savings account can’t exceed the total contribution allowed for family coverage for the two of you. So no, you know, it may depend the chief started contributing and putting $200 a month into hers so you’d have to back out what she put into hers. But you’d add up what’s in hers and what you contributed to yours and make sure you maximize the total for family coverage.

Caller 39:07
Okay, now, what can we do with them I’m sure we got more than 8,200. So what can we do with the overage?

Dr. Friday 39:16
When do you think you put the overage in? Was any of it contributed in 2021?

Caller 39:24
Oh, no, not yet.

Dr. Friday 39:27
Okay. So, theoretically, when it comes down to that, then you would have to pay tax on it. Because you’ve over contributed there’s a penalty to that.

Caller 39:39
Yeah, yeah. So basically, just take it out, put it back.

Dr. Friday 39:47
Right, well, I’ve learned you take it out and just put it back in theoretically for 2021. But you’ll have to show on your statement and they’re gonna send you you know, the 1099 Q or whatever that shows how much money you had in it, how much you contributed to it. And when you use your tax software, it’s going to automatically calculate any penalty that if you put in $9,000, for example, it’s going to tax you on the difference.

Caller 40:14
Okay, I guess there’s no way to avoid that penalty?

Dr. Friday 40:17
No. Can’t go backward now, because, well, it’s after the end of the year. So there’s no way of changing it. Because up until April 15, we can contribute to 2020. HSA. But your case you did it through the year of 2020. You didn’t do anything in 2021. Because if it happened in 2021, we could have said “No, no, no, that was for 2021. Not for 2020.” But again, everything that was put in in the year 2020 is going to count towards your contribution.

Caller 40:48
So up to April 15, you can contribute to 2020, you can’t back it out without a penalty?

Dr. Friday 40:54
doubt. Yeah, once it goes in, it’s like an IRA. Once it goes in, it comes out as taxable income.

Caller 40:59
Okay. Well, that isnt fair!

Dr. Friday 41:01
I know! They change some tax laws, but right now, that’s all we got.

Caller 41:07
Oh, yeah. Okay, thank you.

Dr. Friday 41:10
Thanks, buddy. Okay, really quick. Let’s see if we. Hey, boss, do I need to take a break? Okay, you know what, let’s go ahead and take a quick break. Keith and Deb, why don’t you hold through because I’m already five minutes past the break. Then I will come back and answer your questions. You can reach us here at 615-737-9986. We’ll be right back.

Dr. Friday 41:36
All righty. We are back live here in the studio. And we’re gonna get right to those phone lines. Since we only have about six minutes left in the show. Let’s take Keith soon as we can. Hey, Keith, thanks for holding, what can I do for you?

Caller 41:50
Oh, hello. So I’m self-employed, I’ve been getting health insurance through the government marketplace. Then I reconcile at the beginning of the following year. And usually, I owe something back. Is that money that I pay back tax-deductible as either a tax or as self-employment? Health insurance?

Dr. Friday 42:16
Health Insurance. Yes. So what you pay for the whole year plus whatever your payback would be what your health insurance fee was for a self-employed person. I would say unless you’ve got pre-existing and I am far from being an insurance salesperson. But you’ve heard us probably talking about the health savings accounts, almost all entrepreneurs, it’s the best way to go. Because most of the time, to be quite honest, you guys are all horrible about going to doctors unless you have to. And you can set aside money, up to $3,700 a year into a savings account, theoretically, for medical and you have a high deductible. Like mine’s only, I don’t know, 140, and I’m in my 50s month for insurance. And you don’t have that whole 1095 A the government paying your thing. So again, I think it would make a difference if you have pre-existing. So I don’t know the whole niche. But you might want to check it out just Google Health Savings Accounts and see if it’s something that might fit into your life. But I think it’d be easier than trying to reconcile the 1095 A’s every year and having to pay back the money that they gave you in the first place. And that just makes your tax bill higher every year.

Caller 43:20
Okay, that sounds great. Actually, I’m not going with them anymore. And this year, I have got a plan that is actually eligible for a health savings account, but I didn’t know anything about it. So I’ll do some more checking into that.

Dr. Friday 43:32
Yeah, check into it. It’s a great plan, and we get to spend our money tax-free and we get to take it off our taxes. It’s a wonderful plan. At least look into it and see if it fits your lifestyle. Okay?

Caller 43:42
I sure will, thanks for the help.

Dr. Friday 43:43
Thank you. All right, let’s get Deb.

Caller 43:48
Hey, I love your show. I love WTN. Anyway, I retired last year 64 in February. Then 65 in June, boy, and I want to get a part-time job. I get Social Security, $1,200 with all the taxes and everything was taken out. I’m wondering because I heard something earlier on the show about?

Dr. Friday 44:17
So until you hit your full retirement age, you are limited to a certain amount of earnings, obviously. I am assuming your Social Security retirement age is 66 and something? But your Social Security. It’s like 18,000 and I don’t know the exact dollar amount from it. But it’s like $18,400 you can earn before they’ll start having you pay back some of your Social Security benefits because you’re on what they refer to as early Social Security.

Caller 44:49
Okay, because it’s a part-time job and it doesn’t pay as much as my old job does.

Dr. Friday 44:55
It’s good to stay busy. No problem, girl. Thanks for listening.

Caller 44:58
Take care. Bye-bye.

Dr. Friday 44:59
Bye-bye. All right guys, we did it another one another Saturday off the thing. So tax season is here. As I said, they’re not really going to open up filing till February 12. It keeps getting later and later, my gosh, it used to be like the first and second week of January. Now we’re in the second week of February, before we’re going to be able to really e-file and get them going, which gives them almost until the first of March to actually put money in people’s bank accounts, at least 10 days out. So that being said, you can go to my website, drfriday.com, and click on the calendar and make an appointment. And if you don’t see any openings, you can call our office at 615-367-0819.

Dr. Friday 45:54
Remember, it is time you can still do a few things, you can contribute some money to an IRA, you can contribute money to a health savings account, you can contribute money to a SEp all of those can be contributed backward into the prior year. If you took out money early this year from your IRA, because you had to survive, make sure that we have some documentation showing that you were affected by COVID. This would be if you had to quarantine if the business was closed for a period of time, things like that so that we can eliminate penalties on those situations. Then you can also make sure that you are tracking all of your income. Don’t forget again, unemployment is a taxable situation. So don’t file your taxes without checking the CPA.