Welcome to the Dr. Friday Radio Show! In this episode, Dr. Friday talks about all the new 2021 tax changes, and also the following topics:
- New Laws and Tax Changes
- Is Timing Really Important When Filing Taxes?
- Small Business Money Is Available
- The Second PPP Loan
- What Happens If I Didn’t Get My 2020 Stimulus Check?
- Unemployment Is A Taxable Income
- Do You Need Help Preparing Your 2020 Taxes?
- Why You Need Help With Tax Representation
- We Are Certified QuickBooks Advisors
and so much more!
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 0:31
I’m Dr. Friday and I’m here live in the studio. So if you have questions, you can join us by phone at 615-737-9986. Have we have quite a bit to cover in just 45 minutes. Well, I guess they say it’s an hour, but we only have about 40 minutes or 45 minutes to cover. Probably one of the biggest things that are happening is Monday morning drawl two on PPP loans. Things that we might need to know, small business money is available. There’s money for areas in which maybe had been hit a little bit harder than others. But there are some twists. Some are great, some are going to be a lot easier to get a number to loan PPP versus people that may not have qualified for it or applied for it because a lot of self-employed individuals did not know that they could do it. The loans are opening basically, for places that were hit hard in certain economic areas, women, a business owned businesses, and a certain type of industries are opening Monday morning. So this is going to be very fast especially considering it is also tax time. So we’re gonna talk about some of the tax changes some of the new laws, and we’re gonna go ahead. I normally keep my guy busy today in the studio, but we’re gonna go ahead and hit Andrew if you have a second. Hey, Andrew, what can we do for you?
Okay, maybe a two-part question. Already given relative to relative an amount of money a check written for more than $10,000? Who pays taxes, that kind of a thing? And second, the second question is another relative is going to give a relative $25,000. Just gifting. Can you do that in increments of nine, nine, and seven over a period of a couple of months? And what will be the problems, drawbacks, and legalities of doing any of those?
Dr. Friday 2:39
Okay, so the first one we’ll just take it kind of comes into both. So the first one they had received $10,000, the person that gave the gift would be the person that would have to pay tax if there’s any tax. Normally, when people are gifting, they’re taking money from their own personal accounts on which they’ve already paid tax on. So they’re really just moving money from one bank account to another bank account. As long as it’s less than $15,000, there really is no place to report or to tax. Now, if the individual that gave the money took the money out of a 401k or sold stock, obviously, when they get ready to prepare their tax return, they would have tax forms that would tell them that they have taxes possibly due on those funds.
Okay, that was taken out of a personal checking account, and it was $18,000.
Dr. Friday 3:28
So 18 and 25. So is this individual married by chance that’s receiving the money, or are they single?
Receiving the money in the $18,000 is married.
Dr. Friday 3:42
Okay, so the person that gave the money to the person that has the 18,000 theoretically could give it to the husband and the wife, so they would be under the $30,000 gift.
Okay, so nothing there?
Dr. Friday 3:54
Nothing. They’re the one that is going to be receiving the 25. Is that individual married or single?
Dr. Friday 4:02
Is the person giving the money to the other relative married?
Is that person giving the 22?
Dr. Friday 4:11
The person giving the money to the individual? Are they single or married?
The person giving the 25 is married.
Dr. Friday 4:16
Okay, so each one of them could give him $15,000 or her. I don’t know the individual. So the husband and the wife could each write a check since it’s $25,000, they could split that in half at 25 each and give them to that individual and they still would not have to worry about the gift tax return.
Okay. So in both cases, if the money is exchanged in that manner, it’s just done and done.
Dr. Friday 4:41
Exactly, yes. That it’s only when it hits over 30,000. That gets a bit tricky because then we would have a gift tax return. Not necessarily taxes due, but a gift tax return possibly due.
Okay, so the second the 25,000 should be issued by the husband and my wife.
Dr. Friday 4:58
Correct. It’d be great if it was 25 broke up in any increments so that each of them gave him 25 each or 15 and 10. It’s not really that particular as long as it’s under $15,000. That’s the max.
All right. Thank you for your call. I appreciate a good program.
Dr. Friday 5:12
Thank you, sir. Appreciate it, Andrew. All right, Andrew, thank you very much. So let’s go ahead and take on Lawrence when we have going, Lawrence, what to do? Yeah, what’s the question?
Yeah, I was wanting to know as far as CPAs, or whatever. Is timing, really important as far as when it comes to filing your taxes?
Dr. Friday 5:40
Well, there’s always been I mean, I’ve been doing it for 25 years, almost. There’s always been, and I find it to be somewhat of a myth, at least, I can’t say I have any documentation. Some people, it’s consistency, that seems to be the trick. You know, they use a computer, and so if somebody has a big sale, or if they have a big year in their business, or if you file an extension, usually every year and then a year, you start filing on the due dates. Sometimes that’s a change in habit, therefore could wave some sort of flag, I can’t guarantee that’s absolutely true. It’s just kind of more myths within the business that I would actually say more than any kind of documentation that proves statistically most individuals are looking at a 3% chance of an audit. Most sole proprietors are looking at about a 1.5% and corporations about a 1% 1-3 anyways depending efforts at SRC Corporation of being audited. So your odds are pretty much not in favor of being audited, to be quite honest.
Oh, well, good. But my thing is since they are planning on increasing the taxes significantly, and they have like up in Nashville or I think it was a 38% tax increase?
Dr. Friday 6:54
Yeah, I think it’s 32. But don’t hold me to that. But either way, it was a ridiculous amount of increase for property taxes in a county.
Yeah. So obviously, they have, like literally little or no regard for people, and how hard they work for their money. I mean, because that’s blatant.
Dr. Friday 7:13
Yeah, I think anyone in Davidson County at this moment would totally agree with you. I have quite a few clients in that not one of them is sitting up and saying, “Oh, yeah, that was a great idea.” So yes, I think we would all agree that that was not something that they even asked, they snuck in. I believe they’re still and I could be wrong. But there was still some court cases and things trying to combat that kind of unusual increase. But that being said, there’s nothing we can do about it. They when I guess.
Yeah, the other thing is, it seems like they’re asking for more and more and more and more money to go into Nashville. Yet, they’re wanting to take more and more and more. So I’m, I’m really confused about that, too.
Dr. Friday 7:58
Well, the sad thing is, in some cases, I mean, especially under the current tax laws, on the federal side, there are limitations on how much you can take for property tax and sales tax. In Tennessee, we’re actually blessed, we don’t have a state income tax compared to places like California, New Jersey, you know, I mean, where I have other clients.
Illinois, Washington, DC, New York, California, Washington State, I wouldn’t say so much Washington State, but the other ones that I named are applicable and, and they’re imploding on themselves.
Dr. Friday 8:29
Yeah, well, that’s because the management of money doesn’t mean you need more sometimes it may just mean that you need to manage it better.
Less is more is what I was taught.
Dr. Friday 8:39
Yes, I totally agree. Thank you very much for your call. Bye, bye. Okay, so let’s go back to the fact that we have an again, this the show today, we have a couple of things, let’s cover what we have done, probably in January. Let’s start with that. Now, again, most of this show is probably going to be edge more towards business owners than individuals. Individuals are waiting for a lot of this. But as a business owner, we have our 1099, our W2’s, our 940’s, our 941’s ones in our state unemployment reports, multiple states if you have more than one, all due by the last day of the month. So it’s a very busy month for us. Now we’re going to add a second installment of PPP, there is a limitation we have to have our applications in for businesses that will qualify. And that’s really the biggest qualification is a 25% difference between your 2019 and your 2020. Now they’re allowing us to calculate that in multiple ways. So just keep in mind if you’re doing PPP, and maybe you only had one month difference and another one you can use the whole year and see if you’re down by 25% and you can use one quarter to another quarter and see if you’re down 25%. Any of those time periods that you were down 25% allows you to qualify for the second draw PPP.
Dr. Friday 10:04
That would mean documentation guys. Especially my small business owners, the sole proprietors, that kind of maybe winging it a little bit on the side of doing your taxes and things, this is a perfect time that you need to make sure you have good financials, that you can justify bank statements reconciled quarterly reports, so you can actually show. Now some cases, I mean, let’s be honest, some businesses actually thrived. And this isn’t going to be you that I’m talking to. But there are a lot in the entertainment in the restaurant businesses, and the ones that actually cater to those businesses that we have a situation. So that being said, we need to make sure that we are covering this because again, January, we have W 2’s that have to be issued and submitted to Social Security Administration. So not just giving them to your employees, but submitting them to the Secretary of Social Security Administration on time, or there’s some fairly severe penalties they’re coming up with and matching.
Dr. Friday 11:07
I will tell you guys, Social Security Administration, if you’re a small business owner, and you’re still actually buying the software and printing them up, well, I will tell you go to and I don’t get paid for this, but go to efile4biz.com and do your W 2’s through there, they’ll handle all of the filing and sending them by either email or mail to your employees, for a fairly minimal price. Same thing with 1099. Both of those are great, they do both of those services. It’s nice when someone takes care of all the filing of Schedule A and the W 3 or 1096. Because that’s where people sometimes get in trouble, they’ll print out, they’ll get the forms from places like Office Depot or whatever, they’ll type in all the information, and then they’ll hand them out to the individuals, but they never file it with the government. And that’s when the penalties start. I mean, we’ve got some people that have had 30, 40, $50,000 in penalties for failure to file w twos, it can be quite severe of what the value is. So, again, let’s make sure W 2’s and 1099. Who else should we be 1099? Not just subcontractors, but how about the people we pay rent to as business owners? If you’re not a corporation, if the person you’re paying rent to is not a corporation that does not mean LLC Corporation, INC are CO that you need to be sending them 1099? How about if you have rental properties, and you’ve had handyman or repair people doing repairs or things on the property? Tree trimming, I know myself we had the big storm last year. So I’ve got to someone, I have to send 1099 to four buy rental on trees. You know, any kind of major repairs, if they’re not a corporation, you need to be 1099-ing them, because rentals are business, we have to 1099 the people that we do business with. If you don’t there are penalties. Theoretically, the IRS could disallow that payment. Because if you didn’t 1099 them, you’re not following the rules. Therefore even though you can prove you paid that person, you may not be able to deduct that expense, the way that you would like to. Because let’s be honest, we don’t want to have to pay taxes on someone else’s money.
Dr. Friday 13:17
Then last but not least, so then we have all the quarterly reports. 941’s, 940’s state unemployment, all of those are also do very important to get all of those filed by the last day of the month. So that way, you’ve made all your payments, and you’re moving into February. Of course we you know, you’re starting to get your personal property reports. So we need to get those all set and ready to go. Those are based on balance sheets as of the end of the year. If you have all these and you have no idea what I’m talking about, you’re like, “Well, we do payroll, but I’m hoping QuickBooks does all this for us.” Let’s hope you’re in QuickBooks. But you know, any service unless you have a full-service payroll like ADP or paychecks, they’ll be doing all that for you. But if you don’t have full service, you’re the responsible person and you need to make sure that everything is filed correctly. If you need help, you can always give our office a call. It’s what we do. And we can help you out. because you’re going to need good financials this year, if you’re going to be hoping to get a second payment from PPP as well as making sure you’ve gotten that loan forgiveness on the first one and both of these are going to be forgivable.
Dr. Friday 14:22
Here’s another cool thing, if you had received the first PPP, when you turn in your quarterly, you’re 25% difference. You don’t have to take into account what they gave you on the first PPP, so you could still qualify for a second PPP on that same money. It is not included in the calculations or forgiveness. So that is good for a lot of small businesses on how they’re going to calculate their payroll and there is some caps, number of employees. They’re really trying to get this money this time to the self-employed sole proprietor independent contractor. A lot of you guys’ schedule C’s did not realize that that money was based on what you pay taxes on. And so it’s very important that you have the ability to file and see if you can qualify for that kind of money. Even if it’s not forgivable, 1% over five years is a very nice loan. If for some reason, it’s not forgivable in your situation. So you definitely don’t want to sit on your hands this time. I know a lot of people that walked in my office just didn’t know, or they hadn’t filed taxes for a couple of years, because life is not perfect. Not everyone is perfect, so they, they ended up with a few situations. Well, hopefully now you’re caught up and a couple of my clients are caught up now. And they’re able to get out there and do what they need to do and how they’re going to do it. So if we’re going to go ahead and take our first break, and if you need help, you can give the show a call right now. 615-737-9986. And we’ll be right back with the Dr. Friday show.
Dr. Friday 16:11
All righty, we are back here in the studio, if you have questions, or you’re sitting there listening, and you’re like, “Oh, my gosh, it is the end of 2020 and time to start preparing for taxes,” you need to give our show a call if you’ve got a question, call 615-737-9986. During the break, an email came in and one person wanted to know, do they have to file taxes on 2020 If they only had unemployment benefits? And the answer is possible. I mean, it depends on how much you received. So if you’re single and you receive, you know, $10,000, and that’s all you received for the whole year, then you’re not going to file but if you had withholdings come out, then it’s a possibility that you need to still file. So it’s just a matter of coming back and seeing what you actually need to have and what you don’t. The stimulus check that people receive starting on the fourth of January of 2021, is based on the 19 filings but reconciled on our 2020s. So the good news guys, the absolute good news is if you are one of those individuals who never received your 2020, you never received the stimulus. And now in 2021, you still haven’t received the stimulus. Guess what, when you file your 2020 tax return in the next few months, there is a place right there on the tax return that allows you to get your stimulus money on your check. So it is going to be a wonderful way for you to be able to get the money put back in your pocket and do the things you need to do and make it work for you versus not.
Dr. Friday 18:09
So if you haven’t received your stimulus also go to irs.gov and check the status of your stimulus. It is on there. Many people I will say had some issues with the whole stimulus last time and government relief and if it went into their bank account or not. So you need to find out if it actually did go into your bank or not. If it did great if it did not, then they will be issuing checks. Everybody should have received the direct deposit by the 15th of January, that was what they had set as their deadline to be able to do it. Keep in mind, it’s $600 per person. If your child is 17 or 18, or 19, or whatever, and they are usually claimed as your dependent, then you’re not getting any money on those individuals. So the question comes to do you actually file them as your dependent? Or do you file your 2020 and let them? I will say as a dependent, it’s $500 as a non-dependent, it’s $600. And if they’re in college, it’s very likely that you’ll have a much higher credit for claiming them than getting the stimulus money. So that’ll be something we need to do as far as we have the answer. All right, let’s go ahead and hit Jim and see if he can get on the show. Hey, Jim.
Dr. Friday 18:19
I had a question. I mailed my tax return with a check-in February 2019 tax return in February 2020. They cashed the check about three or four days later. Okay, within that same envelope. On November 15, I got a letter from the IRS this year saying I hadn’t But tax returns for 2019. And that they were holding all the money that I’d paid and quarterly push that check. And if I didn’t file my tax return soon, they would forfeit the money.
Dr. Friday 20:14
Right so have three years. Did you by any chance certify that?
No, I did not. But I got it in the same envelope. Because they cashed the check.
Dr. Friday 20:27
I have had an argument so many times, with the government themselves.
I immediately send them another copy of the deck, smart man now, over six weeks, and they still my count says they have no tax return for 2019.
Dr. Friday 20:45
Yes, okay that’s typical. So what happened was, of course, the first thing was you actually got a head start. So you wouldn’t think yours would have been left in the mailroom. That’s how your check came out. But somehow, the cheque came up, because my understanding when it goes through the mailroom, they pull all the checks, and then they send the returns down the line for someone to actually manually input paper check paper, tax returns, right? So in your case, it’s on someone’s desk, it’s now gotten lost. And hopefully, it works out where they don’t hit you with a late fee. Since you paid for everything before the time period. It should not be. But you did exactly what we do. But I would have sent the second one. I don’t know if he did or did not. But I would have sent it registered or certified mail. So you would actually have some proof of what date they received it. Because if you believe their own information, it will take them seven to 15 weeks to process a paper tax return. So from the date you sent it in November, you know, it’s only been well, depending on when you sent it, he said the 15th. So it’d hitting almost two months come on the 15th of January. So you’ll still have possibly a few more weeks to see if it’s there. But you should be able to if you have an online account where you can look at it should show received pretty soon, I would think. But you did what we do with the exception of maybe not certified, but you responded perfectly. Resend them a copy of the return because that point, arguing the point that it’s sitting on someone’s desk wasn’t going to get you anywhere.
All right. Thank you.
Dr. Friday 22:33
Thank you, I appreciate it. And it’s so frustrating. I know. Okay, let’s go on to Milton. Is this my Milton?
Hi, Dr. Friday, happy New Year. Hey, I have a question for you that came up this week talking with some friends. And I said I can get an answer to that on Friday when I talk to Dr. Friday on Saturday. Let me ask you this question. When people call in to let’s say Crimestoppers like we had the bomber downtown that did that in-state knew him and they called in and they really had information where they got the money? Do they count that as income on their income tax when they get ready to file because of that call in? And what about people that do call in regularly? If they have information about a crime committed? And Crime Stoppers pay them? Do they have to count that for I don’t think it’s anywhere from like 1 to $5,000 but even if they get that do they have to count that as income when they get ready to file?
Dr. Friday 23:32
My understanding according to a thing because that was something came up and it’s funny cuz it came up in one of my conversations. I hope I’m not talking to the same people. No, all rewards paid by Crimestoppers are tax-free. No need to report them as income to the IRS. That is something that is actually put out by Crimestoppers on their website.
Okay. Well, what about if you know about the situation with the bomber, there was also a private citizen, I think who had put up either $125,000 or $150,000, and he was gonna add, you know, pay that person off if they knew or had information since that’s coming from a private individual. What about that?
Dr. Friday 24:14
I’m going to work with the idea that it would be considered a gift and that person would actually have to take it from their lifetime gift rewarded would not be taxable to the individual that receives it because it’s not earnings. It wasn’t like you won a prize from some sort of lottery. Those are both taxable, but in this case, for turning in information, my understanding from what I’m actually seeing right here is that it is not a taxable situation, that person that gave them money would have to deal with the taxes on it. Not a tax deduction to them either.
Okay, hey, and I want to tell you on that first caller that called in about the $25,000 dollar in the 15,000 that he was gonna give very valuable that I’m really learning something I didn’t know that and that was very educational.
Dr. Friday 25:08
Well, you’re a sweetheart, Milton, talk to you soon.
Okay, thanks so much and stay warm.
Dr. Friday 25:13
You too. Bye. Okay, bye-bye. Gotta love it when my clients actually listening. I got love Milton. Okay, Marty. Marty in the boro. Hey, Marty.
Good afternoon, Dr. Friday. I received, what you call an IRD love letter, as the first love letter I’ve received in over 45 years of filing taxes. Here are the details, back in December of 2019 teen decided to convert a tax-deferred IRA into a Roth IRA. The amount of that income was about half of what my total income for the year was. So I filed my income taxes paying for that tax fee in April of 2020. This week, I received a love letter, basically penalizing me for failure to pay estimated taxes. They atomize it every two and a half months, all the way back to 4/15/2019. Now, keep in mind, the decision was made to convert this until December of 2019. But they’re hitting me with penalties starting in April of 2019. So this doesn’t ring right.
Dr. Friday 26:36
Don’t like it, you don’t think it’s fair? [laghter] Okay, in your case, there is a form and you probably didn’t think to include it for a penalty waiver. Because keep in mind, they look at the total number, this person made $100,000 they owed us more than $5,000 in taxes. So, therefore, they need to make quarterly estimates based on tax law. That’s all they’re looking at. They don’t look at it as a one-time situation. It was you know when you did the conversion, how close was it to the final draw, or anything else. So you need to respond to them with a wave of relief. You can do that either in a letter format. I mean, it doesn’t have to be a specific letter per se, but you need to put in writing exactly what the situation was. So that they can actually have an individual look into it, right? Say, hey wait for a second, I took this money out on whatever date it was, and it was converted, and at that time, I paid taxes when I filed my taxes. Now, I will tell you, when anyone listening, if you do a conversion, in theory, you need to pay the taxes that would be due within 90 days or the next estimated coupon. So, in theory, they could say then, you know, you reconvert it, when did you convert it, Marty? In December?
Dr. Friday 27:49
The last week of December 20, 2019.
Dr. Friday 28:04
So you basically paid it almost in the 90 days that you actually had it? I mean, you know, in all honesty, depending on if I mean, you may wait till April 15. But in, you know, 2020, we actually had till July 15, right? So I’m not too sure if you waited till July or if you filed it on the April deadline. April? Okay. But I would send them a letter explaining it. I mean, it again, they’re just looking at gross numbers and how much you had do. And immediately the computer sends out this sweet little letter saying, “Oh, we think you made a mistake, here’s what you need to do pay us.”
Okay, so just be a free form letter. There’s not really an official form number?
Dr. Friday 28:43
There really isn’t. I mean, you can even call if you have the patience and the time, and you’re able to get through because I’m sure a lot of people are listening, and they’ve been trying to call. But my suggestion would be to you can either call them and explain it to the individual, they would have the ability to abate those penalties and or respond to that letter to the address. I think there’s a fax number possibly that says if you don’t agree with this, there may be a fax letter on it, the fax number on the letter, I could be wrong. I’m not looking at the letter which one it is. Then I would certify any response because it’s going to take them 60 to 90 days, sometimes longer than that to actually give you an answer on it. But there’s no reason you should prepay it because sometimes they’ll say we’ll pay some of the penalty and then they’ll give it back to you if it gets waived, but really yours should be able to be waived.
Okay, well, thanks, Dr. Friday. Appreciate you give us listeners on this fighting the IRS when we don’t feel being treated fairly. Thank you.
Dr. Friday 29:43
Hey, no problem. Thanks. Bye. Alrighty, so let’s go ahead and take our next break. When we come back. We’ll get some more of your calls at 615-737-9986. We’ll be right back.
Dr. Friday 30:05
Here we are back live in studio. And I hit my mic on first. All right, and we’ve got Brian on the lines. Let’s go ahead and start. phone lines are lighting up, which is what I love. Hey, Brian. Let’s see.
Yes, ma’am. How are you this afternoon?
Dr. Friday 30:27
I am doing awesome. How about yourself?
I’m doing really well, thank you. And I appreciate you taking my call here. Here’s what I’ve got. In 2019, my wife and her brother were given a home and they sold the home. And they didn’t pay, they weren’t expected to pay on our income tax return. We didn’t pay any kind of capital gains tax on there. They weren’t looking for a penalty on it or anything, anything like that. And I talked to my tax preparer a couple of days ago, because we are going to be selling our primary residence in Gallatin, when we lived in for 22 years, the home that I and my wife owned before was not a primary residence. But it’s only been a year apart. I didn’t know if we’re going to be selling this home if we can expect to have a capital gains penalty that’s owed on it.
Dr. Friday 31:23
Well, assuming that the other home that they sold, I’m not too sure why you wouldn’t have had a gain on it. But maybe it was the way they handled it the maybe they didn’t make money on it. But the primary home, if they didn’t take that exclusion, you would have a $500,000 exclusion. So bottom line, if you purchase the home for 200, and you sell it for 700, you’d have zero capital gains on the home for the number of years you’ve lived in it. The bigger question would be is how they treated that last home sale. But I mean, again, you said it wasn’t the primary. So that sounded like an investment that they had or someone gifted the home to them. Normally with gifting there would have been some capital gains involved there. But that’s not the question.
Huh, yeah. Okay, well, I guess it goes a long way to be able to clear up any confusion might have had, in my mind. I mean, there wasn’t there was a gain on the house.
Dr. Friday 32:24
Right. That’s what it sounds like to me that there was a gain, so why wouldn’t there be a 50%? If it was a 5050 split between the two partners or siblings or whatever? You may have a low enough income, where if it was held for over a year and a hit capital gains rates, then there could have been a 0% capital gains rate tax on you. But you know, again, I’m not too sure on that one. But at this moment, that one’s not the one that we have the conversation on. So your primary it sounds like unless you have a very large difference between what you paid for it and what you are going to sell it for. You have that $500,000 that’s free money, and you don’t have to reinvest in another piece of property within two years or anything.
Terrific. Okay, appreciate it. Man, that clears up. Thank you. Have an awesome afternoon.
Dr. Friday 33:14
Hey, you too, and thanks for listening. I really appreciate it. Okie Dokie. Let’s see here. We have it looks like Joe’s been on the line next. If Joe’s available to us. Thank you for multitasking in the studio there. All right, Joe, what’s happening?
Oh, what’s the deal on average in income, is anything like that still going on?
Dr. Friday 33:34
Farmers have it. Other than that, there’s not a lot of averaging in the tax law. There are some things under retirements and things that can be done sometimes, but most individuals or businesses, averaging income kind of went out of style, a number of years ago. Are you in farming?
I think I’m in some deep shoes here because of a Roth conversion. I converted mine about the time, I don’t remember the exact date but it about the time that they discovered that we had the virus and so the stock market went down. So I said this would be a great time to convert our IRA to a Roth because everything down I know it’s coming back up and it did. But I converted $90,000 so now I’ve increased my income by $90,000. So I will have about a total of maybe, you know 150 $60,000 in income to pay taxes on including the IRA conversion which $9,000 on this.
Dr. Friday 34:48
Well, I mean, the bottom line is you did it the right time, you would have ended up paying more taxes in the big picture, right? I’m trying to find the cup is half full kind of story for you because there’s no way of averaging it. For the purpose that I can think of at the moment. Conversions are what they are, and therefore you’re going to end up paying tax on $150,000.
Is that just counted as income?
Dr. Friday 35:16
It’s just considered ordinary income. So you would be kicking yourself up into the 24% tax bracket, that’s assuming that you’re married. If you’re single, you kick yourself up into the 28% tax bracket, pretty much.
I’ve got capital gains loss carryover? Can any of that be used in that situation?
Dr. Friday 35:37
Nope. Capital Gains against Capital Gains. So as you know, when we convert our IRAs, even though it may have been in stocks when we take the money out, it becomes ordinary income. So you cannot offset, you’ll have that $3,000 and zeroing out any gains you might have had, but it’s not going to help you in the major picture of of the 90,000. No, sir.
So I’ve just got to sell some more stocks then?
Dr. Friday 36:06
Well, selling the stock or making a larger loss won’t help you on that.
Well, I’m just trying to get I got to come up with some money.
Dr. Friday 36:18
I got you. So you’re gonna have to do a few stocks here. Right now, the stock market is not doing too bad. So, you know, be careful you don’t get yourself another huge capital gains or something, maybe get enough last offset some of those gains.
Anyway, it’ll be another year, and I’ve got losses to go against.
Dr. Friday 36:36
Oh, good point. Good point. Yes, sir. Oh, well, good luck on that decision. Sorry. I couldn’t give you better help. Thanks, Joe. All right. Let’s go ahead and hit up to Jake. Hello, Jake.
Hello, I got a question. So my wife has just finished school back in May and got a job. Student loans have been deferred until I believe, don’t start paying on them until February. During that time, back in like, I want to say October, she had about $33,000 in interest accumulated over the four years of loans. We went ahead and paid off all the interest because we were looking at it and you can’t make a principal payment to student loans. While there’s interest, you have to pay all the interest off first. I see that’s why people have such issues with the student loan program. So since I paid and then we paid $5,000 to the smallest loan. Now, am I gonna be able to write that off? How much am I going to write off?
Dr. Friday 37:45
Unfortunately, only $2500 of interest is deductible.
Dr. Friday 37:51
So you won’t be able to write that off. You won’t be able to write off if you paid him 30,000.
Okay, so just $2500 I can’t carry that over to next year?
Dr. Friday 38:02
No sir. Because you paid it all and we do taxes basically on a cash basis. So 2500 and in the year in which you paid 30. But I know what you were thinking just trying to get that paid out and get it out of the way. But for tax purposes.
Well it’s accumulated over time, and we owe about 300,000 now so I mean, it’s just trying to stay ahead of it. So don’t keep building on itself. So my thinking was on that.
Dr. Friday 38:29
Yeah, it wasn’t a bad thought. I mean, let’s be honest, student loans aren’t great tax deductions. No matter how we play the game. It’s a lot like a mortgage, in my opinion, you don’t get a $1 for dollar deduction. So the sooner you can pay it off better you’re going to be. Debt is never a great tax deduction.
I 100% agree. Alright, that was my question. Everybody calls them about certain tax things. I just never heard of student loans, I figured I’d ask.
Dr. Friday 38:55
I appreciate thanks for asking too, because it really does help other listeners. So I really appreciate it, Jake. Thanks. Okay. Let’s see if we can get the last two in before the break. We’ve got Gary. Hey, Gary. w\What can I do for you?
I’ve got a couple of questions. I sold a house back in 2019 that was an investment property. And my tax guy said I didn’t have to pay any taxes on it.
Dr. Friday 39:28
That seems to be going around. Another person said the same thing. I’d love to know how they’re doing that.
Well, that’s what I’m kind of worried about. I just heard so much what you were saying. He said I didn’t know any taxes on it. I heard $60,000.
Dr. Friday 39:44
Are you married or single?
Dr. Friday 39:48
And what was your overall income? Do you know? Over-under 100.
It was over 100, but I didn’t claim the $60,000.
Dr. Friday 39:59
Okay, well two things. Investment property, if it’s a flipper, normally it’s done within one year. So you’re hitting ordinary income tax no matter what. If you held it for over a year, then you might have been able to you would have claimed it. But you might have had a zero tax because you’re under the 100,000, therefore, under the 15%, tax bracket, and you have a 0%, capital gains rate for those individuals. But no matter what, in either of these cases that’s come up today, you guys need to be reporting it showing it, and then the IRS. The IRS knows about these things because there’s are closings, I mean, unless you did something where it didn’t go through a closing agent, which normally isn’t the case, that is reported at the time of closing to the IRS. I’ve seen enough audits where they’ve shown where people have bought and sold real estate and never showed it on their tax return. So I would definitely go back and talk to your tax person to make sure you understood. I’m not saying but you know, that’s their job to make sure you’re doing it right and confirm with them that there was no tax, no reporting of this income to the IRS. It doesn’t make sense to Friday.
Okay, well, do you know about social security?
Dr. Friday 41:10
I know a little bit,
I claimed Social Security this year. I turned 66 in April, I filed July for Social Security. For I thought full retirement age was in October, she asked if I want to go back to April and get back $6,000.
Dr. Friday 41:30
Did you say yes?
I did, but did I make a mistake?
Dr. Friday 41:37
Yeah. Well, no. I mean, it should have been. Everyone’s dates are a little different. So it could have been 65 and three quarters or whatever. Like mine hits 67. But there’s a big break between 65 and 67, depending on when your birthday came in. And they did it by every quarter. So you may have been actually in the first one. Maybe you didn’t have the right date for your retirement, but they would know they’re going to be right on that one.
Okay, well, I thought, well, maybe she taught me in going back and getting more money. If I waited till October, which was what I planned.
Dr. Friday 42:16
No, I think she probably would have known. I’m assuming she would not have done it for early Social Security. You can confirm that with them to make sure but again, not a little bit outside of my thing, but I would double-check just to make sure they don’t have you sign up for early Social Security. But that doesn’t make sense why she would do that normally.
No, thank you.
Dr. Friday 42:35
No problem. All right, Frank, what do you got real quick? Can we do Frank or do I need to take the break.
Yes I have two questions. I’m an Uber driver and gotta prepare my 2018 tax last year. My 2018 tax taxes, he never added my income to it. So I received a letter from the IRS last month that I need to confirm my income. So what should I do?
Dr. Friday 43:06
You need to file a corrected tax return for 2018 and add in a Schedule C for that Uber, if you need help, you can call my office.
Okay. Then the second question is our deduction for the tax year. If you purchase a new car, or you purchase a car that you use for Uber, is that deductible?
Dr. Friday 43:26
Not the new car only miles would be used because that car is usually used for personal use as well.
No, I got a personal car and I’ve got an Uber car.
Dr. Friday 43:38
Well, you could take the actual Uber if you want. The actual will be the cost of the car, the fuel, all that you’d have to track everything on it, but you can take actual if the car is used 100% for business. I don’t know if it’s gonna be good for you, because normally miles are better for my delivery people then or for Uber drivers than a new car. But that’d be something you want crunch with your tax person.
For example, maintenance and other thing that you use on a car like buying tires and auto services, gasoline, are they deductible?
Dr. Friday 44:11
you can take 100% of that if the car is used 100% for business, yes. You can’t take both miles and actual but you could take actually. Yes, sir.
Okay, I will call your office to set an appointment to come and see you for my Uber 2018 taxes.
Dr. Friday 44:27
Sure, you can go to my website, drfriday.com, and set up an appointment. Okay, thank you. Let’s cut it. All right, let’s take a break.
Dr. Friday 44:42
In the studio. If you have questions, now is not the time to call. You’re gonna have to call the office on Monday morning, and you can reach us at 615-367-0819. Check me out on the web at drfriday.com. Our schedule is on there. If you have questions, or you need help getting your accounting or your taxes done, please give us a call. I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. So just basically means I can help you with your tax issues. We also have a bookkeeping firm associated. So if you need help, we are certified QuickBooks advisors. So we deal with QuickBooks all the time. Again, if you’re looking to do something with PPP, you do have to have good records, you need to be able to show the loss of income between one year and the next. They’re going to require financials and payroll records if it comes into play.
Dr. Friday 45:43
So if you have questions, or you need help with that, another way to reach me would be email, which is firstname.lastname@example.org. Again, if you need help dealing with tax issues, or if you haven’t filed taxes in a number of years or you haven’t received your stimulus well we can reconcile that when we file your 2020 taxes, give me a call 615-367-0819. I hope you guys have a wonderful Saturday. It’s a little nippy outside but you know it’s a good day to start cleaning out all those tax records, get organized and get everything put together. Hopefully you’ll start getting your W 2’s and 1099’s. I hope you have a wonderful Saturday. Call you later.