Welcome to the Dr. Friday Radio Show! In this episode, Dr. Friday takes on the latest tax updates, answers callers questions, and talks over the following topics:
- Dr. Friday’s Tax Tips For the New Year
- The IRS Will Go Through E-Files Starting Jan. 24, 2022
- IRS Letters on Child Tax Credit and Stimulus Check
- The Difference Between E-File and Paper File
- Capital Gains Tax for Married Couples
- Start Preparing for Tax Season
- The Employee Retention Tax Credit
- The Advanced Child Credit
- Cryptocurrency and Taxes
- Getting Back on Track With the IRS
and much more!
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or financial woes. She’s the How-To Girl. It’s the Dr. Friday show. If you have a question for Dr. Friday, call her now. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:28
Good day. I’m Dr. Friday and the doctor is in the house on this nice cold Saturday. If you have questions and you want to join the show, maybe you’re working on your taxes, they will not be actually open. The IRS opens on 1/24. So that’s when the actual e files will start going through. But up until then they are taking and putting them in a holding cycle. So you will be able to do some of the work that you need to do and get it out there because the most important thing is getting it filed.
Dr. Friday 0:55
Remember, in the 2021 tax year we’ll also have the stimulus or the recovery rebate for $1,400 for each person on the tax return. So that will be how if you never did receive that money, it’s essential that you file a return even if you don’t think you need to or you know, normally you don’t have to move about a time. This way, you can make sure you’re going to get that last stimulus that you may have missed. So again, that will be on the 2021 tax return. I’m going to say it’s essential that you guys make sure you receive the letters, the IRS is sending out one for the child tax credit. The other is for the stimulus or go online and pull your transcripts.
Dr. Friday 1:40
Last year a lot of people said they never received any of the stimulus money they filed tax returns. And the IRS basically came back and said, “No, we’re not approving your things because we show you did receive it.” So it’s gonna be interesting to see how that works out.
Dr. Friday 1:54
Alright, let’s go the Lisa. Looks like she’s in Nashville, hopefully staying warm. Hey, Lisa.
Hi, how are you, Dr. Friday?
Dr. Friday 2:02
I am good.
I’ve got a question about doing inventory and the cost of goods sold. If I am going to start my business this year, my inventory was should be zero to start with. But what if I had a lot of supplies that I had bought for personal use at some point, but then want to transition to incorporate into the business? As far as it’s making jewelry? So if I wanted to roll that in and have it as inventory, is there a way to do that?
Dr. Friday 2:40
The offsetting entry is going to be your investment because you paid for that out of your own pockets. And nothing to do with the business. So it’s like when you open the bank account with $100 or whatever, you know, the same kind of situation that’s money that came out of your pocket. So either owner drawl members contribution, shareholders contribution depending on what type of entity it is, but the offsetting entry would be And remember, it’s your costs, not what it’s worth, but your costs that would go in as the inventory. And then the offset would be your investment or share. Are you a sole proprietorship?
That’s another thing I’ve got to set up, I got to get an EIN, so I would set up as a sole proprietorship I’m assuming and then they’ll say.
Dr. Friday 3:25
Right. Still set it up. I mean, if you’re going to keep it simple a sole proprietorship at first might be a good plan. That way, you don’t have to worry about franchise excise and all the other little things that come along with anyone that has an entity at least keep it simple. So you know you’re going to succeed, you always change it that time lease and make it you know, an LLC or something that might give you a little bit more protection. Of course, I’m not an attorney, I’m talking about taxes. But that being said, I would still go to irs.gov and get an EIN number, I would not operate necessarily under my social security number.
Dr. Friday 3:55
I don’t want to 1099 Somebody with, you know, with that information if I didn’t have to. So I would put that out there. But yeah, so just basically, you would whatever your original costs on what you have in inventory in the house, and you want to move it on your books, then you would take those receipts, add them up and then add that in the offsetting entry would-be owner’s contribution or owner’s investment. And that would then later in life, you’ll get paid back for that once the business starts making money because it’ll show that they owe you money for that investment.
Okay. All right. Thank you so much.
Dr. Friday 4:32
No problem. Thank you, sweetheart. All right. And so if you’ve got questions, a great question, actually, because it looks like she’s getting her book set up. But if we have other questions, you can join the show at 615-737-9986.
Dr. Friday 4:51
Obviously, it’s that time again, guys where taxes are coming in. You’re going to want to make sure that you’re getting all your tax forms. Do remember that you’re employer physically has until January 31, to put it in the mail to you, many of us are using now electronic services that will actually get it to the people a little faster. But you can’t really do anything until after that date. And in all honesty, many employers, if you’ve moved, if you’ve relocated, if you’ve changed your email, whatever form of communication you might have had, that’s usually when we find that the information was sent out.
Dr. Friday 5:29
But you’re saying, “Oh, I didn’t get I didn’t get it.” And it’s because you relocated and you did not contact that employer. So if you did move, you might want to go ahead and just get on the phone and ask them if they can email you one. Or if they could update your address. Now, they physically can charge you a fee, because they’ve already paid for it once to go out. So it’s always good to try to keep your past employers informed.
Dr. Friday 5:53
And I know a lot of times people are like, “I don’t even want to talk to them,” whatever, it’s still your job, because that w two is essential to preparing a tax return. I know there are some people that will use the final paycheck stubs, I am not keen on that. And also final paycheck stubs do not have federal ID numbers. So if you unless you have something that shows that there’s a federal ID number because you have to have a federal ID number, a legal name on the business and then address plus your you know, all the information for box one through 12 or whatever, on the W2or 1099.
Dr. Friday 6:27
So it’s essential that you contact those individuals and make sure that you have that going. So you’re going to get 1099. You’re going to get W2’s. You have a stock portfolio. Some people you’ll have rentals and some individuals. Remember you have mortgage statements, property taxes, insurance. Start putting all of those in nice envelopes. So that way you can organize and put them all together. So when you get ready to go do something, you have the ability to prepare those taxes. If you do it yourself, keep it all in one place. Kind of has a master checkoff list so that way, when you get ready, you don’t want to have to stop in the middle and say, “Oh, darn it, I never received this form.” And then you have to start trying to figure out how to do it. Try to start a little earlier, you might find it a little better.
Dr. Friday 7:09
Okay, so let’s hit, Charlie. Hey, Charlie, what’s happening, love?
How are you doing?
Dr. Friday 7:15
I am doing awesome. How about you?
I’m doing well.
Dr. Friday 7:24
What can I do for you? Might want to turn the radio off? Because there’s a slight delay.
Last year, I and my wife bought her family farm up in Iowa. So secondary home, so to speak, but it is a farm, it’s 40 acres. For tax filing purposes. We have about eight acres that are on government programs. So I received a 1099 key to that. And there are also 70 acres, we have at least a farmer across the street, who just writes a check a couple of times a year. Now, should I claim those and keep them simple? And because I’ve been reading and there are all kinds of stuff is my farm of business and what I can deduct and what I can’t the duck and really got me.
Dr. Friday 8:23
I mean, they’re radically I mean, if you’re if you’ve got contracts, the contracts not to grow. I mean, I know there are some of those, or is it for well.
CRP is just leaving it the way it is.
Dr. Friday 8:38
So that way, they don’t worry about that. Yes. So at this time, you’re really not growing anything. But you do have the ability, the government’s just saying don’t do it right now. Right?
Dr. Friday 8:49
Okay, so I usually consider those farms. And so you know, you would do a Schedule F you would pick up the gentlemen that either pay you to rent, or if he’s cutting hay and sharing the profits, or I don’t know how he’s paying you, along with any government, and then you would have property taxes on this farm that is a tax deduction, you would have possibly mortgage interest don’t know, you know, I mean, all you know, you’d have all those deductions that you want to take against that income.
Does do I get to deduct the entire mortgage interest and the entire property tax?
Dr. Friday 9:29
Your state I mean, most of it being rented out to someone else. So, therefore, it is generating income and the other eight or whatever acres that the government has basically said, you know, we want you to leave a dormant right now is particularly, you know, I mean, it’s still farmland and is able to be done otherwise. Now, I don’t know if you have a farmhouse that you’re renting out or, or whatever, but the land itself is all farmland. So is there a house on the property?
Very, there’s five acres that have been here Doesn’t matter, farmhouse, barn, and outbuildings. But we just do a few a couple of times a year. So it stays empty. You know, other than that.
Dr. Friday 10:09
Right. And the in the barn and all that is where you would store any farm equipment or anything that you use or would be using on the property, correct?
If I did have one, he has his own tractors and stuff across the street.
Dr. Friday 10:24
Right? So I mean, you know, you could certainly take it, but I would say at least a large chunk of it, yes. Because the only purpose for this property right now is actually being rented out for the purpose of this farmer, if nothing else, you know, so maybe we wouldn’t take 100%. But we certainly would take a chunk.
Well, you know, like the home office or whatever percent of the house. So, right. What percent 70 Acres is a 40?
Dr. Friday 10:52
Well, theoretically, it would be quite that simple. Because the land is probably not valued as much as the overall house. You know, I’m saying, if you were to sell the five acres in the house, you might get a lot more money than the other 30, or whatever number of acres you have. And that’s a guess I nowadays, I can be completely wrong, I’ve got people selling property, just land dirt for a lot more than they used to. So but that would be something you’d have to basic calculation in your head is in the right place, come up with a fair assessment, as long as there’s consistency, the government usually will go along with it mean that you didn’t just try to say, okay, you know, what, 100% here that you could actually do something along those lines. But I would probably, do you have a mortgage on the property?
I do. The way it’s set up on farms is different. And the options, we just pay your payments once a year. So I technically haven’t made any payments in 21. The first thing that’s not due until April of this year.
Dr. Friday 11:58
Is that for taxes or for mortgages?
Dr. Friday 12:02
Okay, um, thanks. I never heard that before. But that doesn’t mean I goodness, I’m always learning something. So don’t hold that there. But that being said, Is it secured against just the debt? Or is it secured against the home? Or the whole package?
Dr. Friday 12:19
Okay. Okay. So, I mean, again, I would probably sit down and try to figure out the value of what is actually being rented out or farmed versus the five acres in the home. Because you’re not, you’re using that as a second home. And theoretically, you know, you would qualify as a second home, but you’re, which would mean that part of that interest could fall into the Schedule A, but not all of it would be on the Schedule F. If that makes sense. You may have to split. Does that help at all?
It does help. You answered my questions. But my second idea was to get somebody to do it the first year, and I can copy what they did is every year thereafter.
Dr. Friday 13:03
Happens all the time. I would say that’s a possibility is to get somebody to complete the tax returns that way, then you have something that, you know, you can copy. And it’s pretty much consistent at that point unless you buy something else for the property or whatever.
How about our trips to and from twice a year they tax deductible?
Dr. Friday 13:26
Well, they’d be part of the farm. I mean, going back and forth to the farm. The question is, if you’re not truly farming, what are the trips for? You know, I’m saying I mean, if you were to be audited, would an auditor say that you were basically going there for pleasure, not for work? And that would be my question. Now, if you have to go there because basically, you collect from that other person that’s renting twice a year or whatever and you go down at the same time, then that would be the answer. But if the gentlemen actually mailing or direct depositing or paying through Zillow or whatever, then the answer would be you know, the trips are not essential for the purpose of generating income.
Okay. Thanks. Bye.
Dr. Friday 14:12
Sorry, buddy. No simpler. Thanks. Bye. Alrighty, see, that’s the problem with some of these questions. So if you have a question, please give us a call here in the studio at 615-737-9986. We’re gonna take our first break. When we come back. We’ll get to more of your phone calls. And any questions you have, we’ll be right back.
Dr. Friday 14:46
All right, we are here back live in the studio. If you want to join us you can 615-737-9986. Checking on things that might be happening with the filing by the IRS, of course, again, Tax Day is actually starting on January the 24th. 1099, W2 two is basically all due on January 31. There are some extensions available out there, which could put some employers and individuals out till into February actually.
Dr. Friday 15:21
So just as a point of interest, the IRS has put out a five-point checklist that can help many people speed their tax returns along. I thought might be interesting to see what they are, of course, the first thing was filing accurate returns is always a good idea. And using E-file and direct deposits to avoid delays. I have to say, I agree with that, I find that anytime you paper file or you wait for a check, it will delay the possibility of having to deal with that for accurate returns, collect all documents before preparing your return. Again, you know, people have a tendency, I need to file my taxes, I need to file my taxes. And that’s great.
Dr. Friday 16:00
But with the last two years, especially with tax law changing in March having to do with unemployment, then the IRS making mistakes, and in some cases, putting too much on individuals that are in non-community property states, they made some mistakes. And then, of course, you know, we have the child tax credit this year along with that. So we need to make sure that we’re not rushing to the finish line just to get there when it might be smarter because there’s nothing worse than a delay in your tax return be because you forgot to file a W2, 1099 You miss reporting or not reporting the stimulus. Take a breath, make sure that you’ve got everything, match it up, and then go for it. A lot of people have worked multiple jobs in the last few years again, because of COVID and everything.
Dr. Friday 16:47
All right, we’ve got Kim in Nashville. We’ve got Kim in Nashville. Hey, Kim, what’s happening, sweetie?
Dr. Friday, I just wanted to ask, I’ve got a 21-year-old son that lives at home with me cannot file as head of household and claim him as a dependent.
Dr. Friday 17:06
Well, you can if he is dependent, which means you have to provide more than 50% of his support, which if he’s okay, then yes, he is a he’s a dependent. He’s not a child credit. But he is dependent, which means that you would qualify for the $500. And if you both did not get the $1,400 depending on your income and everything, then you might qualify for $1,400 Each on the path, the last stimulus you may have received already. But yes, you could do that.
Yeah, I did receive it, but he did not.
Dr. Friday 17:40
Okay. Well, you would be able on that tax return, you’d be able to claim it and then be able to get that money for him if he did not. Whichever way it will come on your tax return.
Okay, that helps so much.
Dr. Friday 17:55
No problem. Thank you, sweetheart.
Dr. Friday 18:00
So again, I just want to make sure before you guys fill out those tax returns, the IRS has sent out two letters, and they basically are coming out this next week here. They said they have them out in late December. I’ve got people that are just receiving them now. But they said they sent them out. So you have the advanced Child Tax Credit. That’s on a 6419. The letter number 64, buts advanced child tax credit. And then you had the third economic impact letter, which is a 6475. And even though you think are we it’s been put out there as the stimulus on the IRS letter, it’s going to be called Recovery Rebate Credit, RRC.
Dr. Friday 18:40
So when you fill out your tax return, you’re going to want to make sure that you’re going to fill it one way or the other. But this time, guys, you might want to just make sure because I know a ton of you guys listening to this day right now, many of you are sitting there going, “I never received all of my stimulus money. I never got it. I filed a tax return. They refused it.” And the IRS is turning around.
Dr. Friday 19:02
I know personally, we have two cases where we have we’ve grabbed all the banks, we have shown in there that there was no money that was directly deposited because it would have gone directly in and in this particular two cases unfortunate enough to have where any deposit that was over 600 or 1200, or whatever the dollar amount we were looking for is we have an actual copy of the deposit slip in most cases it was payroll. So it’s a very straightforward situation. The money never made it to their bank. That’s what we’re being told we’re going to need to do. I have to give a big kudos out to the tax Advocates Office. They have done amazing for my clients because I know they’ve got to be overwhelmed.
Dr. Friday 19:48
But the tax advocate if you are a person that has an IRS issue that you’ve got all the documentation you have submitted it and submitted it and you keep getting collection letters or deeds and you’re not getting any kind of resolution. I know, you know, obviously, we do that every day. But you know, if you want, you can also go to the tax advocate office, I’m sure they’ll appreciate me sending hundreds of people. But you know, by doing that, it may be a way of getting a resolution for you. When it comes to dealing.
Dr. Friday 20:21
Now, sometimes you have gotten it, it’s just not the answer you want. But in many, many cases, in many of my cases standing out there, I mean, I use the tax advocate office several times, because you can send out and you can certify, and you can send out the documentation. But next thing, you know, two or three weeks later, or two or three months later, you’re getting another collection bill, meanwhile, they’ve never been a response on the information you submitted, they need to have and I don’t know how it works.
Dr. Friday 20:48
You know, I mean a bit at this 20 plus years. But you know, we have a tendency to send it to every address, we can find, saying this is our response to this letter and copy and certify it out there. And it still has a tendency not to actually get found or processed. And I know they’re going to tell us that half the problem is they don’t have enough employees. That being said, don’t know if I totally agree. I think if they could just automate things a little bit, it would be so complicated.
Dr. Friday 21:15
But the last couple of years have been harder than the IRS. Okay, we were working through the list of five things. So first thing making sure your returns are accurate, he filed the direct deposit second, again, accuracy, collecting all your documents, and also making sure that you’ve talked about your stimulus and your advanced Child Tax Credit, again, the advanced child credit, you would have had a form 6419 And the third economic impact letter, you would have the 6475. Both of those letters are really, really important. Avoid lengthy phone calls by using online sources. This is their third thing.
Dr. Friday 21:50
So if you’ve got a question, they do have a q&a, all I have to do is go to irs.gov click on the tax, or in the search engine, you could put “q&a” and it would bring up the different ones. Wait on 2020 tax to be processed special tips for helping a file and 20. In order to validate and successfully submit an electronic form tax return for the IRS, taxpayers need their adjusted gross from their prior tax return. And if the IRS has not processed your 2020 return to be processed. Here’s a special tip to ensure the taxpayers are accepted by the IRS processing make sure you enter $0 For the last year’s AGI on your 2021 tax return.
Dr. Friday 22:34
That’s right, the IRS is saying when you get ready to E-file your 2021 even though 2020 was not processed yet, it’s still being processed. When they ask you what was your prior year AGI enters zero on the tax return for those who use a non-filer to and 2021 to register for events childhood or third pack. This should they should enter $1 as the prior your AGI. Again, you know, in 2020 2021 a lot of people just wanted to get that money. So they would enter those tools. And the next thing that would happen was a tax return was filed. They didn’t even realize it but there was. And so now that’s what’s holding up 2020 taxes for many people is because they’re showing more than one return. They’re showing the one that you went online and the other.
Dr. Friday 23:22
So again, if your 2020 tax return was not accepted yet, you haven’t received your refund or anything but you want to go ahead and get in there and get your 2021 tax return filed. If you did not file it through the impact, the economic impact payment, you will put zero, if you did file and register through the advanced child tax credit, or for the third impact, you will put $1 Everyone else should enter the proper numbers. This is only for individuals that actually have not processed their 2020 returns, but need to start processing their 2021 I thought that was really interesting because many times people will say to me, you know, how do I do an E file.
Dr. Friday 24:05
If I don’t have my prior year information? Well, boom, the IRS just told you for the year 2021. That’s exactly what you’re going to do. I can’t tell you it’s going to work for other years because this has been a really unique time period with all these events, child credits, economic impact checks, and all of that but right now that’s what you’re gonna do. All right, we’re gonna take our second break and you can join us here live on the radio at 615-737-9986 and we’re going to be right back with the Dr. Friday show.
Dr. Friday 24:45
We are back here live in the studio with the third part of our show and if you want to join the show you can 615-737-9986. And let’s go to Cecilia. Yes. Ah, look at that. I wasn’t too sure if I was gonna say your name, right. That’s why my parents named me Friday. I think they figured I wasn’t good with names. Anyway, Sweetheart, what can I do for you?
Well, in 2022 I sold my primary residency, I lived there for 16 years, I paid 143,000 for it, I just sold it for 375. Do I have to pay capital gain? And if I do, do I deduct the amount that the realtors I had to pay for the realtors and title company and all that?
Dr. Friday 25:37
Okay, so the good news is no, you sold it, I think the perfect I mean, you could have sold it up for 393 and still paid zero tax and you would have been able to deduct real estate fees. So be you know, so you are at zero tax, assuming you’re single, if you’re married, you’re way under, but if you’re single, you’re still perfect. So you will not have any capital gains tax, you will need to report it on your 2022 tax return just showing as a primary home sale, so you get the exclusion turned on. But other than that, it’s going to be just paperwork, no tax dollars.
Okay, so when I do file the taxes for next year, I guess I have to purchase another home.
Dr. Friday 26:18
No, no, no, you don’t. That’s the old tax law. So the new tax law or the one that’s been around a little while, but most people remember that one. This one is you have a $250,000 exclusion as a single person or 500,000. As a married, you do not have to reinvest your income. So whatever you do with that money, you want to go party now I’m just joking. Um, anything he wants, sweetheart, you don’t have to worry about the government and there’s no mandate to reinvest.
Thank you. I appreciate you so much. Dr. Friday. Thank you.
Dr. Friday 26:49
Thanks for calling. Appreciate it. Welcome. Let’s go to Scott in Nolan’s Ville. Hey, Scott,
How are you doing?
Dr. Friday 26:58
I am doing pretty darn good. How about you?
I’m doing good. Got a frog in my throat, though. But other than that, I’m okay. Good. A question about removing gold from an IRA. I removed it in January. And it was valued at you know, we’ll just say the round number, say 50,000. And then to pay the tax on it, because it’s actual gold or silver. I took out 10,000 from another IRA and paid it straight to the government. And I was curious on how do I, what value do I put on the gold? Do I do it the day that I took it out? Or is does the IRS want me to take it out at the end of the year’s value? Or how does that work? Yeah, it’s
Dr. Friday 27:48
Yeah, it’s at the time that you actually did the distribution would be the value. Okay. And as far as you know, that’s what you’re going to put in there. So, you know, the funny thing is, is that when we make money in and out of IRAs, even though you’re holding gold in there, or silver, and precious metals, um, you know, it’s gonna be ordinary income, right? Straight out. Yes. Just say 50,000. So you got $50,000 ordinary income, you went ahead and now you’ve got another now was the other one a Roth? Or was it just a regular IRA.
It was just a regular IRA.
Dr. Friday 28:23
Let’s say you have 60 grand that came out and you pay 10 to the government. Right? Or something along those? I mean, whatever. about it. Yeah. Yeah. So that should be fine. I mean, all in all, depending on your other income, and all those good things that go along with it, but theoretically, it’s a little bit less than 20%. Paid in. So you know, it would work. I mean, as far as the basic math, but yeah, that would be and they should send you because it’s an IRA, it should come out as a 1099 RT.
Dr. Friday 28:57
Right, they have until the end of the month, but yes, you should, you shouldn’t have to worry about putting the conversion, it should be already done for you through the IRA.
Okay. All right. Sounds great. Also, the man who called in earlier about his going to see his farm. I do that quite often. And you know, if they ever question Why are you going there for pleasure? Well, I have a choice. I can go to Yellowstone, Grand Tetons or I can go to the panhandle of Texas. What do you think I really want to do for pleasure?
Dr. Friday 29:28
Well, I mean, I mean, my opinion would be is make it something work, right. I mean, there’s always maintenance and things that have to be done on most of our farms. So it wouldn’t be that difficult, but I didn’t you know, me he has to make that decision. If he’s going there and just sitting in the house. Well, that’s probably not going to be a good excuse for
your honor. But he does need to keep an eye on the property and make sure that the tenant is doing things properly.
Dr. Friday 29:53
You’re absolutely okay. I like it.
Thank you very much. I listened to your show every day. Oh, me. Every Saturday every Saturday.
Dr. Friday 30:02
No problem. Thank you. Bye. Bye. Okay, why don’t we go ahead and hit looks like Pete Pete from Nashville’s next? Hey, Pete.
Dr. Friday 30:14
Hey, how are you doing Dr. Friday?
Dr. Friday 30:14
I’m doing pretty good. What do you get going?
Oh, thank you for the Christmas gift card on one on the show.
Dr. Friday 30:23
Thank you for listening. We love Dr. Electric and I love having our Christmas shows.
Okay, I got a question about the IMD, I get that guy on with answering. I think they send us the age limit on it to 70 half to 72. Is that correct?
Dr. Friday 30:40
Right. They changed it from 70 to a yes. 70 and a half to 72. Yes, sir.
Okay, does that mean the year that you turn 72? So that means if you turn 72 and 2022 and you have to take it out 22?
Dr. Friday 30:57
Correct. You would have to take it out by the last day of the year? Yes.
Okay, now, there is 1099. C, if I had taken 5000 out, what would the 1099 look like? Would like an inbox one? Will it have growth come out? 5000. And then the taxable amount? 5000?
Dr. Friday 31:14
Yes, sir. Yes. And I would suggest is if you have any charitable, I would actually use that money and have them write a check directly to the charity because then you would have no tax on what was paid to charity.
Okay, now, that’s ordinary income. But where does he go on your tax form? Because that’s where they have our aid distribution. But exactly. Other income?
Dr. Friday 31:36
Yeah, it would, it would actually go up there on the front page, 1040 where it says IRAs, and once pensions maybe it could be you know, you have annuities, pensions, and IRAs. Anyways, up there in that top section, the first seven or eight numbers on the tax return. And that’s where you would actually have it and normally, box one would go on to the section that’s in like the body of the tax return, and box two goes over in the tax side where everything gets added to become taxable or not.
Okay, let’s say if I had in my full one, for one case, I had 100,000. And I wanted to cash it all out. And they took 20,000 out, is that considered 20,000 income?
Dr. Friday 32:20
Yeah, it still is 100% income, it’s just that under the 20,000 that they withheld, that would go on page two of the 1040, where it shows withholdings from taxes.
So how would the 1099 look?
Dr. Friday 32:33
one, box two would be 100 grand each? And then box four would have the 20,000? I believe it’s box four.
Okay. And if you had a pension, if you had a pension and you took the lump sum, how would that figure in your Social Security tax?
Dr. Friday 32:54
Not good? Yeah, so if you have a pension, it’s gonna turn around most likely, depending on me, I have some people that have very, very small pensions. But in most cases, if you’re getting more than $20,000, in either pension or IRA distributions, you’re going to start having your Social Security taxed, up to 85% of what you receive from Social Security can be taxed.
Well, I mean, like you take a lump sum, you won’t you won’t get it every you know, you won’t have anything recorded.
Dr. Friday 33:24
Well, you write you do all the time. But if you take its lumps on the other side of that conversation, social security will be taxed up to 85%. So you make kick all that in, but also your Medicare could go up because they mean test Medicare. So maybe right now you’re paying, I don’t know 170,000 or $170. If you add another 100 grand in there, you might end up paying $350 per month for another year until the next year you file and shows lower income. So be careful in doing those large distributions when you’re on Medicare, in my opinion.
Okay. Oh, one more question. Okay, sure. If you have if I cashed in all my full 100,000 I cash flow in you don’t have to pay any more taxes on that money.
Dr. Friday 34:10
Right. You would have me unless you put it someplace where it’s growing again and then there might be some interest or dividends but that’s true. You would cash it all out at one time. My suggestion would be as possibly do it over two or three years so that way you don’t pay more and Medicare or have as much tax until security I mean, it really would be up to you but you are correct in what you’re thinking if you cash it all out. There’s only a one-time tax on it. Yes.
You can put that money on your mattress and never pay any more taxes on it.
Dr. Friday 34:38
Please don’t do that be what there’s a fire lets a fireproof box. At least crazy man. But yes, your answer is correct. Okay. Thanks, boss. Alright, let’s see what you get. Bernard. Bernard in Clarksville. Hey, Bernard. What can I do for you, sweetie? Thanks for calling.
I just got an easy question. I mean, my wife, we just only have one living off of Social Security right now. And the only other income I have, which is non-taxable is 100%. Disability and the VA. My question is, do I still have to file taxes?
Dr. Friday 35:25
I don’t have to. Okay. Thank you.
Dr. Friday 35:30
You got it. Thanks.
Okay. Okay. Bye. Bye.
Dr. Friday 35:33
Bye. Hey, Robert in Hendersonville, Robert, what can I do for you? Oops, I lost Robert. Let’s hit Todd and Spring Hill, my town Spring Hill. Hey, Todd.
Hey, Dr. Friday, thank you for taking the call. My question is this. My daughter just had a baby. But my first grandson was born on December 30. In our taxes, or her taxes, does she claim the child for the whole year, or is it?
Dr. Friday 36:02
The whole thing. Yeah. So if you were born on December 31, the parents have the perfect tax, baby. No. Um, yes. Your daughter did well. Get that baby out. So December? Yes. So the biggest thing will be is it sometimes takes a little while to get the social security numbers and you will need that on the tax return. But as far as your answers that child will report for the whole year of 2021.
When I was looking at the taxes for her because he’s counted as a whole year, does that mean he also gets the stimulus as if he was alive for the whole year?
Dr. Friday 36:39
I definition from my understanding the answer is yes.
Okay. That’s why I thought to may ask you one last question? On the stimulus checks that were sent out? Do we need to file those forms that you had mentioned earlier? With our taxes that 60 419 and 6475?
Dr. Friday 36:59
You don’t I mean, I’m assuming you’re filing electronically. But even if your paper file, you do not need to attach them to the government. As long as you’re using the information that was supplied on them, you’ll be fine.
Excellent. Gosh, thank you for your advice today. Really appreciate it.
Dr. Friday 37:14
Thanks for listening. Bye, you. Okay, let’s take our last break here. And if you’ve got a couple of questions, you can certainly still join us live here. When we get back at 615-737-9986 or more, we’re going to be right back with the Dr. Friday show.
Dr. Friday 37:43
Alrighty, we are back with the final part of our show for this whole Saturday. So if you’ve got a question, now would be the time to jump on, we got about six minutes left 615-737-9986 taking your calls, talking about taxes. And what we shouldn’t be doing is keep in mind that the advice I’m giving you guys is all generic to a point everybody’s taxes will be slightly different as an enrolled agent licensed by the Internal Revenue Service.
Dr. Friday 38:15
What I do are taxes and representation. I always do a tax return with the idea of can we support the entries can we document what we need to be documenting. You don’t want to be going to bed at night worrying that oh my gosh, the IRS is gonna pull this tax return. There was a big newsletter that came up from the IRS just I think was yesterday where they said they’re hiring 200 are looking for 200 attorneys that will help represent and try to start dealing with tax fraud and, and those kinds of things.
Dr. Friday 38:45
So they’re looking for 200 experienced attorneys to focus on the abusive tax deals. So, you know, we all know that was some money from I never really passed, but there’s been some money and all the bills that will help the IRS start hiring again. So just important to know, you don’t want to file your taxes with the idea that you hope you cross your fingers that you can get away with something, you know, I mean, rather pay it now and not have to worry about it then have to worry about getting audited getting caught and then paying, you know, 100% more because penalties interest and all the other things that come along with dealing with tax issues. So that’s my theory and also all my entrepreneurs.
Dr. Friday 39:26
Keep in mind the IRS does I mean, I had someone that came up and said you know, making estimated tax payments is just something you can do. It’s not something you have to do. I want to clarify that because I’m not too sure where they got that off the internet. But it is not something you just can do. There are penalties if you do not pay quarterly taxes. Some of my clients go in knowing that they’re going to get hit with a point five penalty per month for not paying quarterly. That’s fine.
Dr. Friday 39:55
Some people say they can make more money on their money than doing it but that is a choice. You’re making the Ira specifically says you have to make for equal tax payments based on the prior year’s taxes, paying up to 110% or 100% of the taxes to avoid all penalties. That’s the tax law people. So make sure that you aren’t just winging it out there a little bit because there are more and more people that are getting into the world of entrepreneurship, which I think is awesome. I’m an entrepreneur. I love dealing with people that are entrepreneurs.
Dr. Friday 40:27
But just like some of the individuals like Lisa, that was start starting up her own jewelry business and things you want to start it outright sounds like she’s setting up her books, she’s trying to figure out what’s the best way to handle it. Because accounting is a part of the business. So if you don’t know how, or what you’re doing, and you’re just kind of estimating how things are going to happen, that is probably not the best plan. So you want to make sure that you are filing and making sure all of your taxes are done and dealing with because at this point, if you haven’t paid all four of your quarterlies penalties and, and interest and all that is already accumulating for the year of 2021.
Dr. Friday 41:04
The final payment was supposed to be done on January 18. Now, if you made more money in 2021, than you did in 20, you might actually be very overpaid enough where it’s not a problem. But I’m just saying make sure you understand how the tax law works. So you don’t get yourself in a situation where you can sit back and say, “Wait for a second, why did the government pay charge me a penalty, I paid it all when I filed my taxes?” Oh, I’ve heard that many times. And when you filed your taxes on April 15, you were already three months late.
Dr. Friday 41:36
For the final estimate forget the fact that you should have been making it almost a year ago because April 15, is when we make our first estimate unless there’s a delay or a change. That’s the kind of thing you want to basically have going so make sure you understand how the tax law works. So that way you put more money in your pocket. All right, we got John on let’s see if we can get him through. Hey, John, what’s a happening sweetheart?
Hey, how are you doing? I got a question. I’m going to start as a small tie-dye business like an empty thing. What do I need to know?
Dr. Friday 42:13
Bottom line, you need to set up it just like even though it’s a small one, you still want to treat it as a basis. So if you’re going to be doing a tie-dye, there’s going to be t-shirt purchases, you might be buying them in bulk, there’s going to be and I’m guessing but stains at all the things you need to do your business, whatever that might be. And you’re going to if you do it in Etsy, there are fees and things you’re going to be paying if the if you sell through Etsy, so you’re going to have all of that my suggestion, if you’re not a computer person, be a paper person, all you have to do is you know, set up a basic spreadsheet or documentation that basically says, “Okay, I spent this much money on coloring” or whatever it’s called dye this much on T-shirts, you know, and all these different things that you have going so that you can actually turn around.
Dr. Friday 42:56
And then if someone buys them you can write off because some of those T-shirts, you might be buying may become either example, maybe waste, because not every t-shirt turns out exactly the way you wanted it even though you know you did it. So you know you need to be tracking all of that. So that way you can turn around and you might not make money. But if you’re making the attempt to make money, at least for the first three years, you pretty much can do you know, as long as you’re tracking those expenses, you may have losses that will actually help you in the big picture of things.
Dr. Friday 43:27
But if you don’t track it and treat it like a business, the government is going to come in and say that’s a hobby. He’s only doing four T-shirts a year and that’s he’s not trying but wait, I have an Etsy ad. I’m putting them out there. I’m creating new T-shirts all the time. I’m attempting I’ve got a business, you know, format and all this, they can’t actually argue the point then because you are attempting to be a successful business.
Wow, do I need a business license?
Dr. Friday 43:54
You wouldn’t need a business license if you but only if you start selling over $3,000 So first you got to make a little money before a business license is even required on a startup.
Okay, and that includes little pop-ups and events or farmers’ markets.
Dr. Friday 44:10
Exactly. I mean at first, I mean if you’re not making more than 3000 a year in this business then it’s not going to be in the state of Tennessee it’s not a problem. Now you may actually have to get a sales tax license at some point as well because you will be starting to collect associate some of these events they actually do have you you know they come by and collect the sales tax on some of them you know, how much was your sales is your form felt, you know, pay this.
Dr. Friday 44:35
So that would be you know the situation but you starting out just do a good job and getting your inventory and your costs together. And then as you start branching out to different events in different centers, we may actually have to get county city licensed actually in the county or city you’re doing the event in some cases if it’s a big enough event.
Wow. Okay. Yeah, I appreciate your help. I appreciate it. Enjoy your show.
Dr. Friday 44:59
Thanks, John. Appreciate the phone call. Alright, guys, this is almost the end of the Dr. Friday show. So let’s get the info out there. So if you want, you can first you can go to the website drfriday.com. If you’ve got questions and need to understand, you know what you need to do next, you can always find out who I am. And you can also email me through the website. But if you want to email me directly, you also can do that. Its firstname.lastname@example.org is my email.
Dr. Friday 45:36
The easiest number on Monday morning to get a hold of me is 615-367-0819. The best thing I can tell you right now if you’re thinking about starting a business, is January’s always a good time to start a business because a lot of times people start fresh the year they’re fresh, they’re ready. Just be organized about it, start a separate bank account, ideally, you know, so you put your own personal funds in and then you pay all of the costs through that, that bank account so that way you have everything if you use a debit card or credit card.
Dr. Friday 46:11
Check it all in that direction. And then making sure you’re getting all your tax forms. Very important. Don’t file your taxes unless you know you’ve gotten all your forms. Don’t make educated guesses or assume the IRS isn’t going to know who it is because you know what? They aren’t going to know. It’s all tracked through we report all this information directly to the IRS. I hope you guys have a wonderful Saturday. It’s a bit nippy out there. But I hope you guys have a great time. Call you later.