Welcome to another episode of the Dr. Friday Radio Show! In this episode, tax expert Dr. Friday answers callers’ tax questions and covers the following topics:
- What You Need To Know About the American Families and Jobs Act
- What Is the Small Jobs Act HR 3937?
- Retirement and Selling Your Home
- How To Buy Your Parents Home at a Fair Rate
- What To Do If You Inherit Property
- What Is the 1099 Reporting Threshold for 2023?
- The Tax Deadline Is October 18 for Individuals
-
What Is the Required Minimum Distribution Table for 2023?
- The Importance of Having a Disability Trust
- What Is the Standard Deduction for Middle-Class Families?
- How To Do Tax Preparation and Financial Planning The Right Way
And much more!
Transcript
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. 737-WWTN. That’s 737-9986. So here’s your host, financial counselor and tax consultant, Dr. Friday.
Dr. Friday 0:05
Good day. I’m Dr. Friday, and the doctor is in the house on this somewhat crazy weekend, one minute, it’s nice and warm and sunny in Spring Hill. Next thing you know, we’ve got thunderstorms and rain coming down. So be careful if you’re outside, it’s a bit of a crazy day for for enjoying the outside weather. But if you’re inside and you’re thinking, wow, what’s going on in the world of taxes. I know, I always seem to be thinking about that most of the time, because I’m working on individual tax returns or business ones.
Dr. Friday 0:57
And one of the things that came down during this last week was that House Republicans released a draft of three separate bills they’re trying to pass, it’s all called the American Families and Jobs Act. And it basically one is for helping to cut out certain things, the HR 3936, which is for working families, helping to negotiate better and to include some sort of job tax credits. And then you have the Small Jobs Act HR 3937, and then Build an America Act of 3938, trying to get businesses that bring their their assembly and things back to the United States to give them credits that will help increase those situations.
Dr. Friday 1:43
At this moment. The standard deduction, which is what we’re looking at, they’re trying to increase it and make it a guaranteed deduction bonus. For middle class families one of the big things it’s $2,000, for single 4000 for married couples, that would only begin and 24 and 25. But reduce the bonus amount taxpayers will modify justed income of to over 200,000, they love to use that one 200,000, they don’t realize how many people, it sounds great. But when you sell a piece of real estate or you get ready to retire and you’re transitioning, sometimes those numbers can get completely skewed and you don’t have what you need.
Dr. Friday 2:23
And then you end up paying tax on things that normally you might not think about having to deal with. But because of those situations, you have a lot more to deal with on that on that plane. So making sure that you know how much things are going to cost before you go in to cash out a pension or retirement plan of some sort, because you’re retiring. Also, you know, 401k is taking money out of them. There is usually unless you’re over the age 59 and a half, you get the 10% penalty plus 20% or 30% tax depending on the tax bracket you’re in. So it’s really, really important to encourage you too, just make sure you’re crunching those numbers. So if you’ve got a question, maybe today you’re thinking, “Hey, you know what? I do have something I’m thinking about doing. I’m thinking about, you know, refinancing the house, maybe I’ll just get a line of credit, because right now interest rates are up. So maybe I’ll get a line of credit, redo something on the house? Or I’ll get a line of credit, pay off all my credit cards, is that going to help me tax wise? If I sell something? How am I going to pay in taxes?”
Dr. Friday 3:26
These are the kinds of questions you need to follow up on before you do them. Because then we can say, hey, you know what, instead of selling that real estate that you are not your primary, but another piece of real estate, you are going to use maybe doing a 1031 maybe doing something else is a wetter better way of doing something versus just the immediately sale than having no option but to pay federal taxes most likely on them in there are some loops or catches, if obviously, it’s inherited, inherited piece of property. But here’s a good one.
Dr. Friday 3:58
And I’ve had this happen a lot in the last number of months, when we we talk a lot on the radio, obviously about inherited properties. And one of the biggest things are is a lot of times parents wanting to make sure that nothing happens to their own primary home. They put their children’s names on the title. Now, once you’ve done that, you have messed up what we call the step up in basis. So even though you might not have the ability to fully sell that home because you’re only one of a member, if your name is on that house, and it was just put on theoretically the parents at that time gifted you their share of that house at least that share that you have whatever, at their own price. So that can be a problem because a lot of times the parents maybe purchased the home when 10, 15, 20 years ago when the house was 30, 40 $50,000 now selling for three four $500,000 when someone passes away, we love the idea of inheriting step up and basis. And then we have the ability to sell at the current rate and not pay taxes.
Dr. Friday 5:11
But it’s really important in how you do this, because so often, a parent wants to make sure the children’s names are on everything, so they don’t lose them. But it’s one thing to be a POA, a power of attorney on something that doesn’t give you the right to buy or sell it or to put you physically on the title. So I would definitely suggest talking to an estate attorney, talking to your financial planner. And yes, talk to your tax person to see is this the right way to do it, to try to preserve as much of your money because if you’re inheriting at 40,000, or you’re inheriting that 400,000, there’s obviously going to be a huge difference in taxes.
Dr. Friday 5:53
So that is a really important question, understanding and maybe having some of these conversations or if you’re, you know, heading towards the the older years, whatever thinking about retirement, we now know when our day is going to come on to the guy upstairs, he’s the only one that really is going to know when we’re going to leave this place. But being organized and making sure you don’t just do something because you’re afraid of some reason, then that seems to always be the answer I’m given is that, you know, I was just afraid that if I ended up in a nursing home, or I ended up with dementia, that my children went to get the house or would be a problem.
Dr. Friday 6:31
Well, you know, by putting their name on the title, you’re not stealing the house from Medicare, which is always the one biggest firm that we’re biggest thing we’re afraid of when we hit that age is if we end up having no other money and then having to use our home as the money to pay for our home care or our for our, you know, extended care homes or convalescent home, whatever you want to call them, then that is going to be one of those situations where you do need to talk there are Medicare trust, that you can preserve during your lifetime, at least some money so that way, it can be used to take care of you. Or, you know, just making sure maybe reverse mortgage or something that actually takes the money out. And then that way, Medicare, you’re not on Medicare until you’ve actually exhausted all the value of your home, if you are a child and you’re sitting there going wait a second, you know, the best thing I could do is buy my parents home at a fair rate. And then that way Medicare can’t come back and take the home from them.
Dr. Friday 7:38
Well, you have to be very, very careful in doing that. I’m not saying you can’t do it, because it is done. It is a doable situation. But you do have to make sure you have my opinion, you have good real estate person that’s giving perfect values and a good appraisal on an actual appraisal that was taken. So that was legitimize the value that you did. Because if you under mark that house by anything, and then the Medicare people come back and they evaluate, okay, wait, they had a home and you know, mom went into Medicare or whatever, and she came back and now we’re looking at this house, is it really money that Medicare should have because that house was sold for less than fair market value, basically trying to keep it in your own family name, that is a problem.
Dr. Friday 8:27
Okay, so you do want to be very careful on how you handle if you’re going to buy your parents home, which again, I have number of clients that have purchased their, their parents home, the parents can still live in it. And then that way, if something were to happen, the house is shielded from any kind of Medicare, and it goes from there. So you just want to make sure that when you do something like that, you’re not opening up the door for Medicare to come back in and do an assessment. And either you have to pay them more money than you paid for the House to offset it or you’d have to be able to truly prove that the value paid was a justified value, maybe Zillow because that’s what a lot of the government agencies use. Maybe Zillow was saying this house was worth $350,000.
Dr. Friday 9:15
But you know it need a new roof. The air conditioner wasn’t working. Zillow doesn’t know any of that they’re just matching square footage for square footage in the neighborhood you’re basically are in. So if the house has been rundown that you have to upgrade it, change it and do things, then again, that’s not really a problem, you would need to have a good appraisal though documenting these to get that information. So again, don’t just think that when you know the easy problem is oh, I’ll just take care of buying my parents home, I’ll get it paid off or whatever and then they can live in it without having to worry about Medicare something it may not be worth that conversation. So you do not have to be again, attorney, financial planner.
Dr. Friday 9:57
Make sure you talk to both of those to make sure that What you’re doing is a good choice and not just kind of reacting to things that happen. I will say I’m not a huge advocate for reverse mortgages, they are out there. The reason I mean, the concept behind the reverse mortgage, I think is awesome. The problem is, from everything I’ve heard talking to people that have reversed, and especially children that have been left real estate that have had reverse mortgages on them, is the interest rate and the fees, they just seem to charge and amazing amount of and I get it, they’re taking a risk that someone’s going to pass away at some point on a reverse mortgage, they’re giving money out, but they’re still holding it in a house. But the house may not be maintained the way it would normally be maintained.
Dr. Friday 10:41
But that being said, it, it just seems to me that if you’re going to do one, just really look into the whole dollar amount, what’s its worth, maybe it’d be better to go sell your house, take all the money, and then just pay rent someplace, he didn’t have to worry about it, versus trying to maintain a house and doing the reverse mortgage. But again, that is an assessment from outside, every individual is different, every situation is different.
Dr. Friday 11:07
So if you want to join the show, you can, we’ll take a quick break here in about a minute or so. But if you want you can 615-737-9986. We’re talking today about taxes, tax job changes, but also what we need to be doing to prepare for the 23 taxes, as well as helping if you have seen your parents or if you are a person, you know, 65 and older and some of the things you might need to look at, including RMDs that you will have and maybe the qualified charitable deduction, what that means to you.
Dr. Friday 11:30
And again, if you’re a child helping a parent out, it’s very important that you actually have some of this information because if they’re not seeing their financial planner often, and or the a financial planner they have maybe isn’t really keen on doing a lot of tax planning more about just growing the money. These are things that’s going to help people that are 65, or at least 70 and older as far as the qualified charitable deductions. But if you’re 65 and older, there are certain rules, Medicare, Social Security that’s going to come into play. So we’ll talk more about that. If you want to join the show you can 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 11:53
All right, we’re back here live with the Dr. Friday show. Sorry, couldn’t hear one come in. And if you’d like to join the show, you can at 615-737-9986 we are talking about some of the changes that the House of Representatives have put out there and that they’re working on one of them is one a lot of you might be excited about. They are on this one of the bills is to change the information reporting, including the 1099 Ks, which we all know are issued by third party networks such as Pay Pal square Venmo, eBay, the bill would reverse the $600 reporting threshold scheduled to take effect starting January 2020. Starting in 2023, to 99 case, right.
Dr. Friday 13:19
So we all know in 2022, they were supposed to send out 1099 Ks to everyone that made $600 or less or, or less $600 or more excuse me, even if it was just selling your cell phone stuff or sharing dinner with your friends, it seems like so they are trying to get this bill passed that would start as of January of 2023. The the 1099 K would bring back the old rules, which was over 200 transactions or $20,000. So they’re trying to get that reversed. I got some time here but not a lot. And if it does, they’re going to revert it back to January 1, 2023. So for some of you that have small transactions that have been worried about using Venmo, or PayPal is not passed yet. So there’s right now it’s still on the table that at the end of this year 1099 Ks have to be issued to anyone that has over $600 of reported income going through PayPal square Venmo or eBay and that’s just some of them.
Dr. Friday 14:22
There’s other cash apps that are out there. But it’s important to know that they are working on trying to get that basically reversed or removed. So that we go back to the 200 transactions or over $20,000 They’re also trying to see about taking that $600 figure now in place for 1099 miscellaneous in 1099. Any see so a lot of times for our subcontractors like our lawn, people that do our rentals, things like that where maybe I only pay them eight or $900 I still have to 1099 them because it’s over 600. On that same bill, they’re trying to place a $5,000 need that would actually help with a lot of small transactions. Because right now there are millions of 1099, any season 1099 miscellaneous that are being performed, you know, sent out every time. And they’re saying that it’s kind of overwhelming.
Dr. Friday 15:19
Keep in mind the IRS. And always, always try to make sure and I know a lot of you guys that listen, understand this, but the IRS does not write tax law, all they do is implement it right. So when we deal with the Internal Revenue Service, we’re really just dealing with the collection agency. So they make sure that we stay in compliance, which means filing tax returns filing 1099 MIS and 1099 NEC’s, all of the forms, W 2s etc, that’s their job is to make sure that we’re complying with the rules that the House and Senate and in the Presidents have passed down through time. So and since we’re changing these rules on a yearly basis, you can only imagine how hard it is to try to keep up with these tax changes that are out there.
Dr. Friday 16:08
But that is their job, their job. So when you get upset and say, “I hate the IRS!” I mean, you know, it’s kinda like hating, you know, the person that collects the money, they didn’t write the rules. If you don’t like what the IRS is having to collect for, then you need to talk to your congressman and your senators, because they’re the ones that are passing these rules that then change what we have to do for taxes. So they always talk about how they want to simplify the tax code. But in the last five years, they’ve used the word simplify, they’ve done postcards, everything else. And let’s be honest, they’ve added more pages to the tax code than we had before. They said that before Trump came in and, and was trying to reduce the amount of papers that we had the file ended up being extra pages, now we have form one, two, and three, actually had them all the way up to five or six, and then they reduced them bound to one, two, and three, but we also brought back page two of the 1040. So as you know, everything’s always changing.
Dr. Friday 17:07
So the biggest thing you want to do if you have a question about taxes, and it’s something I can help you with, you can pick up the phone right now at 615-737-9986. Remember, we have taxes do come in September for businesses. And then October 18, is the tax deadline for individuals. Hopefully, that is for only individuals that filed extensions, if you did not file an extension, then you are late, and you need to get those taxes filed. Now, don’t keep waiting. And if for some reason you haven’t filed taxes, I mean, I have probably five or six cases right now, we just finished up doing the last 5, 6, 7, 8 years on individuals getting those all out there. And in three of those five cases that I did in the last week, the three of the five, they had refunds on yours that we’re not going to get refunds for remember, IRS can collect for 10 years, we can only collect from the IRS for the last three years.
Dr. Friday 18:12
So if you haven’t filed taxes in six or seven years, then guess what, you have a refund in 2019 18, 17, then you’re not going to get them and in 2020, which is our stimulus year 21 and 20, I’m sorry, 2020 and 2021. Both those years, if you haven’t filed for the last six or seven, you may not have received the stimulus money now assuming your income and everything matches, you might be leaving money, even if even if you owe money, it might be smart, because that money can go towards what you owe the government, if you don’t file and claim it, and you certainly won’t get a refund of it, then you’re going to lose it. It’s that simple. And I just want to say I know there’s some of you out there that never received the stimulus that should have.
Dr. Friday 19:02
At this point, the IRS is basically I mean, what we can do. And what we’re trying again, a lot of this is trial and error in our office at least is amending the tax returns showing that we never received the stimulus pulling the transcript showing, attaching that saying that the stimulus wasn’t there. And then hopefully, you’ll be able to get those refunds the most of those checks that had either bounced or went back or people received a check and shredded on or whatever may have happened. Those Those should be able to be reissued now, because they should have already closed out that period of time. But again, it will be a process.
Dr. Friday 19:41
So if you haven’t, my suggestion is is to call the IRS first and foremost. I know you’re sitting there saying Friday, we can’t call the IRS no one answers. It is getting a little better. I don’t know why probably because it’s not tax season. So maybe there’s not quite as many people just calling with questions, but it it it least from my office we have gotten through in the last week or two several times when we’ve actually tried to get through. So it is important that you, you know, if you are leaving money on the table, just remember 2021-2022. Pretty much the years you can collect refunds on any earlier years, you can’t. So if you’re one of those procrastinators, who just says, Well, you know, the IRS hasn’t contacted me. So I’m pretty good. I don’t need to worry about it. I mean, I’ll wait till they get back with me. But if you’re leaving money on the table, they’re not going to turn around and say, “Hey, you know what, you left all this money on the table. So we’re going to just call you call it even, let’s call it even you left this on the table.”
Dr. Friday 20:38
And we that’s not how it works, guys. It doesn’t work any more like that than if you say, Well, I can pay what I owe you. But I don’t want to pay the interest in penalties. Well, they’re sitting there saying, Well, if you can afford to pay US interest in penalties, and that doesn’t mean you have the money in the bank, but that you can afford to make payments to them, they’re going to make you make those payments. I love the ads that always tell everybody you know, if you owe the IRS more than $10,000, we can settle this case for you kind of thing. Yes, we do it all the time. I’m an enrolled agent licensed by the Internal Revenue Service to do representation. So what I do, but I’m not going to sit there and fit to you, I’m not going to say “Hey, you know what? We can make you 10 cents on the dollar.” It doesn’t work that way.
Dr. Friday 21:22
Guys, there’s a certain system we have to go through, first, get you into compliance. Second, find out how much money you owe. Third, how much can you afford to pay? Then we can start having that conversation? Is there a deal to be made? Or are you sitting on a house with $100,000 equity and you owe the government $50,000? Then why would they make a deal with you? You made the mortgage payment, but you didn’t pay them? Therefore the house is there’s the equity in now? Can you get the equity out of the house? That’s a whole different conversation. And that’s the one that’s always the hardest with the government because a lot of people, especially if you’re like self employed, many of us have a difficult time sometimes borrowing money.
Dr. Friday 22:04
But it’s knowing how to approach the system, what is the rules that will help you get through that and get on to the other side? I can tell you it client after client after client I can give you that we have worked through the system we have made it through we have gotten them settles settlements. And then we have gotten on to the next and staying compliant for the next five years. Do we what we need to do. That’s doable, guys. It may not always be exactly what you want to hear and certainly isn’t always what people want to pay because nobody wants to pay 100% adds I owed 50. Now I owe 100. No one likes that. But what we can do is tell you the truth and help you get out of debt with the IRS.
Dr. Friday 22:48
And if you want to do that, you can always call my office on Monday morning. But meanwhile, if you’ve got questions, maybe you haven’t filed taxes in a number of years, and you’re wondering a little bit about what can be done, or if you’ve got a friend or someone else that can help you, you know, understand how the taxes work, and you’re just like, okay, you know what, if I sell my house, do I have to pay taxes? Yes or No? Do I? If I inherit a piece of land, I don’t sell it for five years? What am I looking at on possible percentage of tax on that? These are the kinds of things you need to understand if you have debt to the IRS, and you want to sell your home and upgrade your home or something? Is that a smart idea? Is there a lien against the house? What’s your options? That’s the kind of things we can help you understand what those options are and where you need to move to try to get the IRS settled, as well as just moving on, you know, no one wants to have all that hanging over their head.
Dr. Friday 23:43
Alright, if you want to join the show you can at 615-737-9986 is the number here in the studio taking your calls talking about my favorite subject, which is taxes or money issues, decisions that have to be made. When you’re working with your taxes. Are you going to be reporting this? How much is it going to be this is what this show is about trying to give you a heads up so you understand more about taxes so you can make the right decisions. We’ll take another break and we get back we’ll get to some of your emails and possible phone calls again, 615-737-9986. We’ll be right back.
Dr. Friday 24:27
All righty, we are back here live in studio and we were ready to talk a little bit about if you are aged 65 and older a few things that you might need to understand. And actually, you know, if you’re helping your parents, the biggest thing is, of course is making sure that they have taken the required minimum distributions right now. If you haven’t started it yet, you have to be 73. Keep in mind, there were people that were taking it at age 70. Now they’re 80 or whatever. And they’ve been taking it for a while. But the raw rule is right Now, you have to take it in the year in which you turn 73. Now there is a, I believe a generation or a skip rule where it says something about, you can basically take two payments in the following year. But basically, we want to start taking our r&d requirement of distributions from standard IRAs, or 401 Ks, at the age of 73. Work this with your financial planner, that’s their job.
Dr. Friday 25:25
Second part of that, more importantly, is to tell you the tax advantage to if you are 70 years old or older, and you have money in an IRA or a 401 K, not a Roth, that’s not going to help you. But if you have it in a regular IRA, standard IRA or a 401 K, and even if you’re not mandated yet, to take out RMDs are required minimum distributions, you can start paying your qualified charitable deductions from that account directly to your organization, and you will pay zero tax.
Dr. Friday 26:01
So what’s usually the funny or the easiest way to explain this normally, when I’m talking to people, and I love it, is that normally people go to church and, or they, they write a check, or they bring in cash, and they put it in the tithing bucket for every Sunday. And over that tax year, they can put in five, six, I mean, I’ve a lot of giving 810 $1,000, whatever it might be, they take it from their regular wallet, their checkbook, their cash, whatever, and they put it at the church through the tithing. Well, if you do a qualified charitable deduction, and keep in mind, most people are not itemizing right now, especially when you’re age seven year older, many people don’t have big mortgages, they don’t have enough to meet the mandate to do it. If you’re single possible.
Dr. Friday 26:46
If you’ve got a mortgage and you give seven $8,000 a year to charity, you probably are possibly itemizing, but most people percentage wise in the United States are not itemizing like they used to, which means if you’re giving four or five or $600, or 2000, or $3,000, or even $5,000, to a charity, from your wallet, and your age 70, and older guy keeps saying that 70 and older and this is coming from and you do have an IRA or a 401 K, you can pay that money instead of coming from your wallet, you have your custodian, write the check the check out to the new let’s say it’s whatever Red Cross and and then you basically they would get the you would mail the check or drop it in the tithe and fit your church, you would give them the money.
Dr. Friday 27:38
But now you would pay zero tax where before you are hoping to itemize it possibly. And again, I realize that a lot of you guys don’t I mean, most people don’t give to these charities for the idea almost save tax dollars. You don’t it’s just the way you are you want to give to help to to make things better for other individuals. But why not do both? Why not be able to give tax free to these organizations as well as you not paying taxes on it. It just seems like to me that is a win win.
Dr. Friday 28:09
So again, this is something you need to talk to your financial and I have had a couple financial planners actually call me because they didn’t realize if you were not yet taking RMDs required minimum distributions because of the age, but you are 70 or 71. Right? You’re too young to actually be mandated right now. But you can still do a qualified charitable deduction from those accounts. That is very important, because why not pay those few $1,000 out through there versus taking the draw, put it in your bank and then paying taxes and then giving it to the charity?
Dr. Friday 28:46
That doesn’t seem like that’s a smart as efficient way of doing things. So these are the kinds of things you really want to have that conversation with your financial planner on this one, okay, I’m gonna give you the concept. It’s called a qualified charitable deduction. And if you’re working or helping with your parents, you want to also be able to take that information and give that to their financial if they do their own financial and talk to their custodian over the 401 k or IRA to help them make the decision to make sure this is a good idea. I don’t see from the tax standpoint, why this would be a bad idea. But you know what, sometimes financial planners and tax people are not always looking at the exact same picture.
Dr. Friday 29:28
My job is to save you tax dollars, there’s as the longevity along with everything else, to hopefully make sure that you are going to be able to continue to live off of what you have saved. So again, that will be one of those situations. Don’t forget your RMDs because the penalties right now are like 50% of whatever so if you had to take a $20,000 RMD and you don’t take it on time you can pay $10,000 in tax penalty for not taking it it’s a ridiculous credit. It ridiculous penalty for individuals. So making sure you have that information is vitally, vitally important.
Dr. Friday 30:09
So here’s another thing executors who want a state tax closing letters must request them online. So I know when I work with individuals that have estates, and we have to close them. Many times people are like us to be able to get on, as soon as you basically a state closed, they would send us out these letters. So this was like 15 years ago. But now it’s $76 fee, I’m sorry, a $67 fee, and its form 706, you want to request this, the reason you want to do this is if you’re an executor, or executrix of an estate, and you want the IRS to make sure everything is closed, and it’s finished. And you can do the final distributions, you want to do that so that you get the letter, then you can close out the banks and do the final distributions. Otherwise, something could come back.
Dr. Friday 31:00
And then you’ve already distributed the money. And I can’t tell you how many times this kind of thing has happened. And people have come in and, you know, either tried to write off the expense, because they’re like, Well, I didn’t I distributed money. And I didn’t know we were going to owe taxes, for example, on the estate. And, and you do so you know, again, let me clarify, if you’re the executor, Trix of an estate, first do not distribute money until you know if that money has been fully taxed, and all of the creditors and other things have been dealt with. Because once you give the money back or given to the beneficiaries, getting that money back is practically impossible.
Dr. Friday 31:41
I’ve seen one or two situations where, you know, it was just a good family situation, and everyone understood, but most of the time, the executive tricks ends up taking it out their portion, because they can’t get the money back from the other family members. So don’t get bullied by the people that are calling. And they’re like, oh, where’s my share, I need my money, I’m gonna lose my house had that happen once, you know, obviously, you know, you weren’t going to lose your house, or what would you done if this person hadn’t passed away.
Dr. Friday 32:09
So just, you know, make sure when you’re doing these, and it’s difficult at times, but especially get this letter, the closing letter is very, very important for you know, for you, because it tells the government and everyone else that you’ve kind of did your job, right, and that you’re closing these things up, and you’re making sure that they’re all in the right place. So just make sure you follow up with that and, and take care of it. Because as an executor of an estate, you are responsible for the distribution of that information. So making sure that you have that.
Dr. Friday 32:45
If you want to join the show, you can 615-737-9986. We’ll take your calls here in the studio, talking about a lot of my favorite subjects, what we can and what we don’t, and what we’re going to be dealing with, also part of the family, American Family Tax hacked, that they’re putting on the table. Many of you guys might live in Alabama or some of the other states, they’re trying to eliminate that $10,000 that we have in what we call the salt tax. People that live example is my brother who lives in California, his property taxes alone exceed the $10,000 Besides the state income tax, so he he’s losing, you know, $20,000, a year that he used to be able to write off, but now he can’t.
Dr. Friday 33:40
So they are looking at finding a way of possibly reverting that back out so that there isn’t that kind of limitation. It’s great living in Tennessee, because of the fact that we have only sales tax and our property taxes aren’t nearly those as New Jersey, California and some other states. So we don’t have you know that that $10,000 is I mean, we used to do the odd and even years remember where we always talked about where every other year, I paid my property taxes twice, and then I would pay my charity twice. And I’d be able to itemize because I was exceeding. Well, the problem with that is I would lose money now on doing that because my property taxes would not be able to exceed the $10,000, which is obviously one of the things we were counting on when we did that. So we’re not doing as much of that kind of planning at this time.
Dr. Friday 34:34
Sometimes people their main if the if they were doing that because their main deduction was charity, then we still have the ability to have them write the charity checks twice. But again, if they’re over the age of 70, we’re not having to worry about itemizing charity any longer because they’re able to take the qualified charitable deduction. So again, those are the kinds of information you want to follow up on you want to make sure I had someone just texted and said is tree damage going to be something that they can write off? Well, right now we’re not under a federal disaster in Tennessee, at least not here in the Mount Juliet, Nashville area, which is where that came from.
Dr. Friday 35:13
So if you had a tree come down, there would not be an insurance claim as far as I know, unless you have homeowner’s covers that kind of situation. But just to let you know, no, I don’t believe I don’t think the storms are gonna be bad enough for any kind of federal disaster. But hey, what do I know? Here a little rumbling outside, but I haven’t seen anything that has taken down trees here in Spring Hill. So all right, we’re gonna take our last break. So if you have have a question, and you’re sitting there going, oh my gosh, it’s so rainy outside and Nikki and I, I don’t want to have to call but if you have a question, you can certainly join us. This will be the last part of the show. To do that you want to call 615-737-9986. We’re gonna take your calls and more the email bag when we get back from this break. This is the Dr. Friday show.
Dr. Friday 36:10
All righty. We are back here live in studio and looks like I have few people that might have a couple questions. Let’s start with Tracy in Nashville. Okay, one question. Hey, Tracy.
Caller 36:22
Hello. Hi there. Thank you for taking my call. I am one of 10 acres to my cousin’s estate, he died intestate. And so it’s been a mess. But we were just recently contacted by CPA. And she wanted our names and social security numbers, because she was going to send out a k one. But she didn’t bother to explain what the k one was. And this is not a trust, nothing like that. But can you just briefly explain what a K-1 is?
Dr. Friday 36:57
Absolutely. So even though you don’t have trust, what you have is an estate since they were in us that it’s went through, and they’ve got a federal ID number because they have to handle everything. And everything is going to run through this estate. And so theoretically, depending on what was left in this, this person’s life, meaning if there was a retirement account, if there were stock portfolios, those have taxable dollars, and those could wash over to you, the beneficiaries, one of 10. But so what what the K-1 is going to do is it’s going to distribute the taxable portion of the estate. In some cases, the estate would pay its own taxes, and then do the distribution after they’re deciding to do a pass through estate taxes are usually higher.
Dr. Friday 37:45
But my question would be in possibly they can or cannot answer yet Tracy for you. But would be because they would have till September, depending on when they did their extension, or, or whatever, they have six months Anyways, after the due date. So you may have to amend your 2022. They may be in a split year. So this may actually fall in your 2023. There’s some flexibility with an estate, but the most important question would be as to call them back and ask them, can they give you an idea of what kind of taxable income just a ballpark, they probably don’t have all the details. So you know, if you’re getting if you get a check today, for $50,000, that 10,000, based on your income bracket needs to go to Uncle Sam, you don’t go and spend whatever that money is thinking that it’s tax free. So that would be our biggest question. Have you received any distributions yet?
Caller 38:42
No. We have not.
Dr. Friday 38:45
So I’m going to make an assumption that they’re trying to get that information for you. So that way you guys would know, “Hey, you know, here’s what we’re distributing.” And, you know, part of this is going to be if there was a house and there was a step up in basis, most likely no taxes do. But if there was an IRA, a 401, K, a stock portfolio, anything like that, then there would have been tax dollars that would have to be paid when they distributed or cash those accounts.
Caller 39:16
Okay, so it’s, so it’s for any account that actually makes interest.
Dr. Friday 39:22
Right? Well, I mean, like, retirement account was deferred, right? So if she if this person, he or she died with a 401 K, an IRA or a SEP unless it was a Roth, all of those when they cashed them out, would have taxes needed to be paid. So the estate may do an estimate, just as if you went in and cashed out your own 401k. Today, you would have to pay taxes when someone passes away. We have to pay taxes on that money. And they’re going to have to cash it out to distribute it to all 10 beneficiaries.
Caller 39:54
Yes.
Announcer 39:56
So that’s the kind of stuff now there may be many things that they sell the household good’s their money, and that was in the bank already, those kinds of things that’s going to come to you most likely cash free, but all of its going to transfer through the estate, which means whoever is handling the taxes is going to do those distributions, what portion is taxable? What portion is not. So, the k one is just going to give you mostly the taxable income. So, until you get a distribution, there’s not much you can do Tracy, but at some point, some of the money you’re getting, I can already tell you, if they’re asking for that information, some of the money you’re going to get will be taxable. How much? I don’t know.
Dr. Friday 40:40
Okay. All righty. Let’s go to Willie in Nashville. Hey, Willie, what can I do for you?
Caller 40:49
Hey, Dr. Friday. Thank you for all the good stuff you’ve, I don’t know, somehow we have a connection, because you seem to talk about what I’m thinking about.
Dr. Friday 41:04
Good. I’m glad.
Caller 41:06
What I’ve got here is a man of brother and sister inherited my mother’s property when she passed away in September. We had to do some fixes on the property and wanting to wait out. So you know, we could put on the market once it was close to actually being free, you know, from the six month hold period. And in that time, I you know, my situation is I’m on disability. So I’m worried about the money. And what happened is they distributed the money. And we decided to do what I think you had mentioned before, it’s like I have a health trust.
Dr. Friday 41:51
Okay, disability trust, yes.
Caller 41:53
All right, disability trust. So that’s what I’ve got in place. Let’s see, there’s another piece of property and have those expenses on that property. And my mom’s just personal that, you know, it had me I went about $7,000 to my brother. And what happened is, I went ahead and paid that to a bank account that we all three are on, that had the other piece of rental property that she left for us. But I’m scared of hate having that and thinking, um, she felt my interest. So that I don’t definitely afraid of losing my Medicare. I’m gonna fix on Kansas law where, you know?
Dr. Friday 42:39
Yeah, no, I hear you. But it sounds like you’re on the right track. But you are going to want to make sure that whoever’s handling the estate, if it’s your brother’s, or whatever, you know, that everything is running through that disability trust, and then you know, obviously writing your care your expenses for life and taking that to go directly through that trust. But at this point, it sounds like and it’s difficult in this scenario, but it sounds like you’ve done the right steps, but you’re just going to need to make sure that trust is filed on every year, that it’s just another standalone entity. In essence, if there’s activity at least, then and then pay those taxes and move on from there.
Dr. Friday 43:19
But you know, Willie, it sounds like you’ve done the right thing by setting up the disability trust. So that will put you a shield between you and the disability. Again, if there are disabled, I know there are disability attorneys, and you may be asked one of them or something. But I will be honest with you. I mean, you do need to make sure you’re talking to someone that really understands the type of disability that you’re getting through Social Security or through it, maybe through an employer, I don’t know which but you need to make sure that you don’t cross over that line, right. Because last thing after all the hard work and everything you’ve done, you do not want to lose the disability, because the money from the estate isn’t enough to last for the rest of your life.
Dr. Friday 44:01
So I’m assuming, you know, I’m making that assumption. So but anyway, so yeah, just you know, I would say at this moment, you’ve done the right thing from the tech standpoint, but definitely probably consider calling or talking to somebody that has a an attorney for disability or someone that works in that field, just to make sure there’s nothing more you can be doing to make sure you’re not messing up that benefit. Okay?
Caller 44:27
Gotcha. Thank you so much.
Dr. Friday 44:29
Thanks. All right. Let’s see what you can get. Is it Melanie, really quick? Hey, Melanie. I got about a minute and a half. What can I do for you?
Caller 44:39
My mother passed away and left me 40 acres and her home. And I was listening to show and I don’t know if it’s mine to deal with if I please or what?
Dr. Friday 44:53
Well, I mean, if you were the only beneficiary that she left it to, then the answer is yes. And you would have received a step up in basis. So you know, if you want to sell it or move into it or a rent it or you have all kinds of options there.
Caller 45:08
I’m not living in it. I would like to sell it.
Dr. Friday 45:12
Yeah, you could sell it as long as you’re the only beneficiary and the state has closed. I mean, you know, again, not knowing you personally, or at least in that situation, I would just say you want to make sure that the title has been put in your name, you can do anything you want.
Caller 45:27
Thank you very much.
Dr. Friday 45:28
I appreciate it. All right. So we are at the end of the Dr. Friday show. So if you have questions, all you have to do is call us Monday morning at 615-367-0819. Again, 615-367-0819. Or you can email friday@drfriday.com. Again, friday@drfriday.com. And if you’re not too sure who I am, or if you want to just send a message right through our website. It’s drfriday.com. Again, drfriday.com.
Dr. Friday 46:05
I hope that this show has helped and if you’ve got questions about taxes, keep in mind I’m not an attorney, not a financial planner. So any questions or answers I’m giving you is more based on taxes. So I would definitely suggest going and talking to an attorney if you have issues just like the young lady wanting to sell the house if she inherited, it’s closed the estate, go to the attorney and then you can make sure you have that properly settled. I hope you guys are having a wonderful cloudy rainy Saturday and I’m gonna be on next Saturday. Call you later.