Welcome to the Dr. Friday Radio Show! In this episode, you’ll get to listen to Dr. Friday talk about the latest tax updates, answers callers questions, and talks over the following topics:
- How To Audit and Proof Your Business Documentation
- Tax Deadline Extension to Aug. 2 for Victims of Tennessee Disasters
- The Latest Biden Campaign Tax Changes
- Why Have I Not Received My Tax Return?
- Biden’s Top Federal Tax Rates For Long-Term Capital Gains
- Why You May Not Have Received Your Stimulus Check
- Do You Have An IRS Issue That You Need Help With?
- Do You Need Help With Tax Representation?
and 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 0:29
Good day, I’m Dr. Friday and the doctor is in the house. Hopefully, you guys are staying safe there in the area. And if you’ve got questions about taxes, I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation, which basically means, guys, all I do is taxes or dealing with the Internal Revenue Service.
Dr. Friday 0:50
So if you haven’t filed taxes in a number of years, if you’re trying to figure out where to get started. And I know many, many, many of you are listening right now and you’re just trying to figure out, “Hey, I filed my taxes on time, I get everything I’ve done every other year, and yet I still have not received my stimulus or my refund.” If that’s the case, we’ll see if we can give you a little bit more help.
Dr. Friday 1:13
I’m not going to say it’s going to be a ton because I’m going to be quite honest with you guys, the IRS is not giving us any response on what we should be doing. I’ve been giving out phone numbers. Some people have been able to get through, but they’re being told very similarly to what is on the website. So we’re gonna have to see what we can do to help you out.
Dr. Friday 1:33
If you want to join the show, you can call 615-737-9986. We are taking your calls talking about all of my favorite subjects, taxes. If you’re trying to figure out if you may be inherited or should you or should you not sell something. Right now I know there’s a big conflict going on in my world as far as when I say my world with taxes and things because Biden is talking about increasing capital gains taxes. And then we’re also talking about a lot of people getting some pretty good deal on selling things. So if you’ve got questions, call 615-737-9986. Let’s get to Ann. Ann’s on the line. What can we do for you, Ann?
Hi, my mother-in-law is 93. We had to move her to nursing assisted living. She lived on a farm got 35 acres of farmland. Bought it in 1963 for $1,000. Gonna sell it for about $150,000. She didn’t pay taxes in many years because there’s been no income. Now, how much money will she owe on this when we sell it?
Dr. Friday 2:48
Well, I would do one of two things. I don’t know if she has the ability to do it in a split sale. I mean, theoretically, she’s looking at basically 15% that’s what her tax is going to be. And since she pretty much had no real cost to it. There may be a small step up in basis with her lived there with her husband, but he may have died many years ago. I mean, she’s living a nice age.
He died 11 years ago.
Dr. Friday 3:19
Sorry, when did he die? 11 years ago. Ann, did they live together on that property? And did they live together?
Yes, they did. Now there’s still a house there with four acres. My husband is power of attorney. And there’s still a house with four acres that they’re not selling yet. Just the farmland. The guy that’s been farming it wants to buy it.
Dr. Friday 3:48
Well, she would be able to have the exclusion on the home sale, assuming that the house is worth less than $250,000 or plus harassment. You know, so if that’s the case, she wouldn’t have to worry about the capital gains. Since it’s farmland, we can’t tie it to the home sale, unfortunately. So she’d be looking at 15% tax unless she could work it out where there are like three payments.
Dr. Friday 4:16
And then that way, if it’s under 50% each year, her total income, she would have zero capital gains. I don’t know if that’s something that’s a possibility of doing if it’s the same farmer, it’s the possibility that you could work it out where it’s going, that he has three, you know, three contracts on the property instead of one. It’s something to think about zero tax versus 15%.
So, like if she is financing it and he pays $50,000 a year, then she wouldn’t owe that many taxes?
Dr. Friday 4:51
Yeah, it would have to stay under 50,000 a year with her social security becoming taxed. So you need to sit down Ann with your tax person crunched the exact numbers. But it may be that it’d be smarter to finance it over five years or four years, and spread the sale out versus doing it all at one time, is all I’m saying. It’s a possibility. It may not be what you want to do, but it may be the best way to do it.
Yeah, the problem with that is we’re having to sell this so that we have money to pay for her in the assisted living. And so and he has two brothers. And then what happens is she dies?
Dr. Friday 5:34
If she does, then you have a step-up in basis on the property, and there would be no tax on it. So if they inherited then sold it, there would be no tax. But unfortunately, while she’s still alive, she’s the primary owner, and therefore this capital gains right now.
Okay. All right. Thank you so much, I appreciate it.
Dr. Friday 5:53
Thank you. Great questions. And that’s the kind of thing you really do want to, you know, you want to consider when you’re actually doing these. I’ve had several situations where, you know, a lot of times parents. I have a situation right now, where parents, actually grandparents, just basically quick claim to house over to her grandson because she was afraid that if something happened, he would not get the house.
Dr. Friday 6:21
And now, of course, quick claim basically means that has been quick claimed, in his case as $1. But she would get her basis, which was $16,000, houses selling for $450,000. So instead of inheriting the house, which would have given him a step up in basis, it may still have some capital gains, but it would not have been as much.
Dr. Friday 6:44
You need to consider there is trust and there are estate tools that you can use. I’m not an attorney, but there are a lot of tools that you can use that would protect the individual. Now in the case of Ann calling, it sounds like the land is needed to be able to give the person the mother enough money to pay for her care. That’s not a choice, you got to do what you need to do. But I’m assuming she doesn’t need all 150,000 in the first year, I would assume that would be something that maybe could be spread out over a period of years. But that, again, is a matter of getting that properly tied together and done.
Dr. Friday 7:25
And you know, everything in pre-empting that kind of situation if it’s at all possible, you know, where if we had known that mom was going to possibly end up in a nursing home at some point, then you’ll obviously, you know, talking to this farmer and having him buying five or 10 acres every year, instead of you know, instead of waiting till the end and that way, then it would have been in cash and, and tax-free.
Dr. Friday 7:49
So these are the kinds of things we all need to think about. No one likes to talk about it. No one likes to deal with it. But if you’re in a situation where or maybe you’re the custodian of a parent, you really do need to sit down with a good attorney. I know you’re gonna say, “Well, that cost money,” but it’s going to cost you a lot more. Just a prime example is this again, you know, the situation you had with Ann. So we have a situation we can take care of it. And you know, we’re all in good shape.
Dr. Friday 8:19
Alrighty, guys, we’re back. Sorry about that confusion. I couldn’t hear myself, apparently, you know how much I talk. So if you guys want to join the show you can at 615-737-9986. Before I got a bit confused there with being able to hear myself talk or not, I was going to go into talking a little bit about what Biden is suggesting, because I have quite a few people that are contacting me trying to figure out, “Should we go ahead when and if this is going to happen.”
Dr. Friday 8:50
We all know back in about June maybe before then, one of the meetings I was in is in around June of 2021. We were discussing, you know Biden’s top federal tax rates for long-term capital gains. And right now the top rate for guys is basically 23.8. That’s, you know, roughly 24 without any state income tax, we don’t have one. So in Tennessee, we don’t have to add that in.
Dr. Friday 9:16
What he was wanting to do is start moving that up or basically go right up to he wants to maximize it at 39.6 which is basically the same as ordinary income tax, plus the 3.8, which actually then puts you at 43.1 or 43.4 thereabouts. Which I think Ireland is one of the only somebody was saying is that 51% is the only state that’s higher or the only country higher than we would be at that point in doing it.
Dr. Friday 9:46
Now he is not necessarily talking about doing that with everyone. He’s basically talking about these would apply to people with a million dollars of income or more. But the question is, is it going to be just like every other kind of tax? So right now we have 15. And then when you get a little bit closer right around 250, for a single person, or 200 for a single, 250 for married, you add the surcharge of 3.8. And then when you get around the 470s, they’re about to add another, it goes to 20%. So you would have 23.8, running around $500,000 of capital gains or income.
Dr. Friday 10:26
They’re talking about changing that to a million, but they’re also going from the highest to 43.4 for individuals, which would double your tax pretty much on what you have today, on a lot of people that may have a one-time inheritance, individuals that may have done very well in the stock market. I will say last year, I had quite a few people that they weren’t working. I mean, they were working from home, they were able to do some and so they were doing more stock, and I had quite a few people that did very well in the stock market. And, you know, I mean, you’re talking short-term capital gains in many of their cases, so wouldn’t apply in this scenario. But it still doesn’t change the fact that you’re still looking or working with individuals that may be coming around.
Dr. Friday 11:10
And, you know, I was having a conversation with a gentleman I have been working with probably for the last seven, eight years. And this is a guy that I mean, a true started on the streets truly started on the streets, built a very good business from hard work. And today is quite successful. And you know, we were just talking about well, everyone talked about, you know, the million dollars being a lot of money, the net worth of an individual being a million dollars.
Dr. Friday 11:10
And when I was a kid, that was the richest people in the world were making a million dollars, now it’s a trillion or billions of dollars. Um, and so it comes down to is, you know, a million dollars sounds like a lot. But when you’re actually looking at the value of the dollar, inflation, and all the things I mean, many houses in Tennessee, are selling for half a million dollars right now. And I mean, 15 years ago, those same houses were about 250.
Dr. Friday 12:12
So inflation and the dollar have definitely changed. All I’m saying is that you a lot of people hear those numbers and go, “Oh, I never have to worry about that. I’m never going to have a million dollars.” But you might be surprised if you have a family with housing real estate investments that that money could eventually become because it’s just like anything else, right?
Dr. Friday 12:31
I mean, taxes were put into play well, back in the, I think it was like 1914, thereabouts when the first tax and there only tax the rich, that’s all they ever taxed. And you had to make more than $5,000 to actually be taxed. And then they just left it there, right? And then guess what? More and more and more people became what they qualified at the beginning as wealthy now. And that’s what they do, they sneak in the tax, and then they wait until inflation and other things happen. And then, “Hey, you’re going to start paying everybody $15 an hour, which was used to be $7.25, you’ve doubled people’s income.”
Dr. Friday 13:08
Now, what’s going to happen with all those same people that, you know, you can only make $35,000 to get earned income credit, or you can only make this much to get food stamps, and now those people have doubled their income. What’s going to happen to those benefits? These are the kinds of things that you have to watch and think about.
Dr. Friday 13:25
If you have a question or you’re doing your taxes, I know it’s a weird time. We don’t have to wait. I want to make sure you guys all remember because of the federal disaster they passed in Tennessee and most of our counties around us Williamson, Davidson Murray, we have until August 2 to file our taxes and pay them so that they won’t charge a penalty for not filing or paying or yeah, for not paying them and following them on time.
Dr. Friday 13:51
So if you haven’t filed and you, you know, just been kind of waiting because you didn’t have the money or whatever, you know, August 2 will be a very good day to send those off. And you might find that you’re surprisingly, not having to worry about the pain as much as you might have thought. This doesn’t happen too often. So again, August 2 is a big day for most of us in many of the counties around the Tennessee area.
Dr. Friday 14:17
So if you want to join the show 615-737-9986. We are taking your calls, talking about all of our favorite conversations, mainly about taxes. You know, as an enrolled agent, we deal a lot with the Internal Revenue Service. And I have to tell you that a lot of my people or many people think that sometimes I know how hard the basic people that work for the Internal Revenue Service are. They work hard, they tried to do their jobs, and they do a very good job.
Dr. Friday 14:26
But the problem is when you’ve got, you know, I don’t know, something about 100 billion people that file taxes or something like that, and 2020 has been Just a really bad year. 2019 it kind of started, we filed our taxes. And that was by March, April. You know, of course, they extended it till June. But the real COVID and a lot of the things that happened didn’t really delay anything, because they only had their first check.
Dr. Friday 15:18
And then of course the second check came out in December, early January for the 600. And then, of course, they changed the tax law on March 14, or thereabouts. So the IRS had to go back and amend a ton of tax returns that people had already filed. And then, of course, they issued a $1400 check been issued out to pretty much everybody, this time, there weren’t as many rules put on that one.
Dr. Friday 15:43
And meanwhile, people filing their tax returns and trying to get the stimulus from number one. And number two. All of this is happening yet, they really haven’t taken on more people. And so tax season, which is usually becoming more and more automated, has, from what I understand from talking to some of my people, it’s basically slowed down. Because now they have to try to match up all those people that say they didn’t get the stimulus, and then try to make sure they did or if the IRS is showing the stimulus was received.
Dr. Friday 16:16
We haven’t even gotten a policy for that yet, as far as I know. Maybe some of my listeners that are also in my business, have any of you that might be listening, ran into the situation where the taxpayer has not received the stimulus. But yet, the government has not allowed it to be on the tax return, basically return it without it saying that they did receive it, is there anything that any of you guys know, that’s out there that we need to be starting to prepare for because I have not yet found any forms or additional process to be able to move forward and help the client, you know, be able to still get those checks that are out there.
Dr. Friday 16:58
Now, we know that pretty much in some cases, the money might have been used for back taxes, back child support, you know, back state income tax. Because once it became a tax refund instead of a stimulus check, it was then put into the pile of money that was going to actually go. So, I know in some cases, we’re going to have individuals that would have been able to keep the money if the checks had come through the normal process. But since it became a rebate check on the tax return my understanding is they are treating it as more an additional payment in and out versus a true stimulus check situation.
Dr. Friday 17:40
So if any of you guys there listening, I have actually received your stimulus and you’ve done something I know a couple of people have contacted their congressmen or their statesman to help them. I’m curious to see if anyone has had any more success with that. Because at this point, I can honestly tell you and some of you are sitting there listening, we’ve got people out 70-80 days easily, that have not received any kind of lettuce. When they go online, it says “your tax return is in process.” And when you call, that’s all they tell you is that “we’ve received your return and we’re processing it.” They’re not saying there’s any reason for the holdup. They’re not looking for any additional documentation. They’re not giving any additional reasoning.
Dr. Friday 18:25
So I will tell you again if you are one of those individuals, I am now encouraging my clients to start calling the IRS because I was trying to give the IRS a benefit of the doubt give it a little extra time we were told that they’re running 30-60 days out. But we’re now obviously probably close to the 70-80, even 90 days, and some people and you know, all we know is that they’ve received the tax return. As a tax person, that’s really all we have is the documentation through e-file as well as looking on the internet. And seeing that it’s been received. It doesn’t help the client that’s been waiting now 80 days for their refund and in some cases, their stimulus money.
Dr. Friday 19:06
And in some cases, this has nothing at all to do with stimulus. I’ve also had several people that have large refunds, fairly large refunds, that have been held up as well. And in past years, we’ve not had this kind of delay. So I’m thinking again, that all of this is somehow the wheels have stopped turning. So if anyone has some advice that we might be able to use, I would appreciate the call at 615-737-9986.
Dr. Friday 19:35
Because I know there are a lot of individuals out there listening that is a bit frustrating. And I don’t blame you at all. I wish I had better advice but at this point, there aren’t a number people can call there’s not a department that we can refer to. And when you do have the time call– I was on the phone, I think it was last Tuesday and it was one hang up and when it was all said and done, there was no one there. I can actually handle the issue I was calling about. So I had to leave a number and one of the supervisors are going to call me back. But it just was a bit frustrating when it was like four hours later. So it can understand the frustration, guys.
Dr. Friday 20:16
So if you want to join the show, if you’ve got questions on that, or maybe you just basically saying, “Hey, it’s time to get straight with the IRS.” Right now, they’re so confused, maybe you can just get it all done. If you’re interested in how to get started, or you just got some basic questions about how to get the paperwork and things give us a call at 615-737-9986 the number here in the studio, and we can walk you through some of the basic things that you can do.
Dr. Friday 20:40
Just to get started, find out the information, even see what the IRS has. And possibly, you know, how easy it might be to find out more information about what you actually owe the IRS. Either way, the phone number again, 615-737-9986. When we get back from this next break, we’re going to talk a little bit about some of the emails we’re getting here in the studio, as well as what we might need to be starting to think about for the 2021 tax season.
Dr. Friday 21:09
Most of us or many people have filed their 2020s even though our extensions are good for businesses until September, and individuals until October and again, if you were in the federally zoned disaster area, you would be good until August 2. Any one of those situations you would have. But what do you need to be doing this year? And is there anything we should be pre-empting possibly to start thinking about what we need to be doing for, you know, before the end of this year to prepare for maybe tax changes?
Dr. Friday 21:42
And or maybe I mean, quite a few people are selling real estate. Is any of that going to cause a taxable situation? And what options did you have if you’re thinking about selling some investment, real estate, what other options are on the table for you to possibly consider when it comes to selling the real estate? I mean, right now is a great time to sell. Maybe not the greatest time to buy, but a great time to sell. So what can you do invest in and maybe, you know, not have to pay all those taxes as we have right now? So we’ll figure that out.
Dr. Friday 22:16
When we get back, you can join the show by calling 615-737-9986. Again, 615-737-9986. I’m Dr. Friday, this is Dr. Friday’s show and we’re gonna be right back.
Dr. Friday 22:44
We are back here live in the studio. If you want to join the show you can 615-737-9986. Let’s go to Rosie. Hey, Rosie, what’s happening?
Hi, Dr. Friday, thanks for taking my call. I have a question. I open an IRA a couple of years ago, a traditional IRA a couple of years ago, and contributed two years to it. I did not file, I think I was supposed to maybe file a form 8606 with it, with my tax return.
Because recently I read an article about double taxation on traditional IRA withdrawals because I use after-tax money from my savings account to put in the traditional IRA. And then when I make withdrawals from that IRA, I’m going to get taxed again, is that correct?
Dr. Friday 23:43
Well, it is true. When you do a traditional IRA, you should have filed for it on your tax return to deduct the dollar amount so it becomes tax-free. Now you can do there is a non-taxable contribution to a traditional IRA, but you need to track that information. And then you do need to file it with the government so that they know that you have after-tax dollars in a traditional IRA. It happens sometimes.
Dr. Friday 24:13
But you don’t want to take it out or anything rosy at this point. And that way when you get ready to take it out you have that record because I don’t know how old you are. But most of us are awake till we get older and that information will get lost eventually if you don’t track that on your tax returns. So you need to pull the information documented and then follow the 8606 so that you’re able to show that you made an after-tax contribution to a standard IRA.
Okay, so I need to do an amended return? Or how do I do that?
Dr. Friday 24:49
Yeah, you either need to amend it or you need to put it on to, I mean, you can put it into the next year so the paper trail will be there ideally going back to the year that the contribution happened would be great. I don’t know what years that was, you can only go back a few. You know, what years are we looking at recently or like 2013-2014?
No. 2019 and 2020. I mean, yeah, because right now we’re in 2021. Yeah, in 2019 I started it, in 2020 I contributed to it. I started in 2019.
Dr. Friday 25:20
So you have two options. You can either go back, amend them and add them as actual deductions on your tax return, and you would still get the refunds back. Or you can go in and put the 8606 showing that you made a contribution that was an after-tax contribution in a standard IRA. So that way, you’re tracking that information, whichever way you’re going to do it.
I actually put them on my, I put the 7,000 and the 7,000 in 2019, and 5,400-5,600 in 2020.
Dr. Friday 25:51
Oh, so they are showing on your tax return.
Dr. Friday 25:55
Then they are, then you will pay tax. It won’t be double taxed. What they were talking about, Rosie, I misunderstood. I thought you had not shown them on your tax return. So you actually made more like a Roth contribution to a standard IRA. But if you deduct them, then there’s nothing really for you to do that information is already being tracked. And when you take it out, you’ll pay tax, because you deferred it on your tax return right now.
But didn’t I pay tax already, like when I was paid that money initially?
Dr. Friday 26:28
No, because you put on your tax return and I reduced your income by $7,000?
Yeah, I guess in my thinking, I paid tax on it when I got paid through salary, and then I put it in my savings account.
Dr. Friday 26:46
But then they reduced your salary by 7000 on the tax return. So when it went into your bank account, yes, it was tax-free, but then, I mean, it was already after-tax dollars, but when you deducted it on your tax return you accomplished by reducing your overall income from what you already paid taxes on.
Got it. Okay.
Dr. Friday 27:05
So in your case, it will not be double taxation.
Okay, so it washed out when I deducted it?
Dr. Friday 27:12
Right. You got the money back from what came out on the taxes. Yes.
Got it. Oh, because our income was reduced that year as a deduction. Okay. Got it. Okay, cool.
Dr. Friday 27:23
Yeah, thank you very much. I’m an accountant, well, I was an accountant. I’m retired now. But I was an accountant, my prior life and I’m like, I can’t screw something up. Okay, good. I’m glad I didn’t.
Dr. Friday 27:34
Sometimes just saying it out loud, Rosie, makes us both think. So no worries. I appreciate the phone call. Thank you.
Thank you, Dr. Friday.
Dr. Friday 27:41
Bye, bye. All right, let’s get Frank. Hello, Frank.
Hello, I have about five properties that were originally purchased under a 1031 exchange. And I’m getting ready to sell my farm and I’m going to relocate. And I’m gonna have about a $2 million gain off the farm. But I’m gonna, what I was thinking of doing with building new rental properties in a new location. And use the money that I get off the farm to buy the land and or loan the land to my daughter. And then, as I said, the 1031 exchange property put them buying from her, even though she’s carrying a loan from me to buy those rental properties after I get them built. Is that legal?
Dr. Friday 28:41
Not totally. I mean, well, for one. Is the farm your primary home or the land? I mean, we’re not talking, we’re talking more than five acres around your house I’m gathering, right?
Yes, it’s over 100 acres.
Dr. Friday 28:53
Okay. So you would have to do a lifetime for farmland to whatever rental or other land.
No, no. You don’t understand what I’m saying. I have [inaudible] I’m going to get about a $2 million gain off of that. I have five rental properties in different locations that are under 1031 exchange. The farm is not under a 1031 exchange.
Dr. Friday 29:19
No, but are you going to put it under so you don’t have to pay tax?
What I’m trying to do is loan my daughter enough money to buy properties and get rental properties with and as I to sell the five rental property buying from her through a 1031 exchange.
Dr. Friday 29:41
Yeah, I understand what you’re saying, Frank, but I think this is probably a little bit more complicated because I would like to say that I don’t–I know what you’re wanting to accomplish. I’m not too sure if I’m hearing it correctly. Because it sounds like you’re going to sell the farm and go ahead and pay cash taxes on that. Am I understanding?
Dr. Friday 29:57
Dr. Friday 29:58
Does she have the capital and the money? And It seems like, to me, you could still do a 1031 and accomplish what you want with your daughter through 1031. Now, again, I know you’re probably trying to get more of this into her name. But if you pass away with 1031, the step-up in basis, right, the second, and she would never have to pay capital gains on any of your other properties.
Dr. Friday 30:17
So I’m not sure if I’m following the whole conversation, this may be one that we want to sit down and really crunch some numbers and make sure we’re both understanding versus, you know, the radio.
Yeah, I follow you. I know it’s complicated.
Dr. Friday 30:30
Yeah, you know, give me a call Monday or something, I’d be more than glad to, you know, really give you my opinion on that one with pen and paper. Okay?
Okay. All right. Thank you.
Dr. Friday 30:39
Thanks, Frank. I appreciate it. All right, guys. I do appreciate the phone calls, because it always makes the radio show go a little bit better. Unfortunately, with Frank, I think I probably need to get a little bit more detail because I would keep as much as I can in 1031 exchanges, even if you have to go from one to another to another. Because why not grow your money, even if the IRS money is in it for right now. They may change that particular law. And I’m not even saying that that particular one may or may not be. Maybe it’s not the best law for everybody. Because it may be a way for people to get away with not paying tax at all, but it is on the books right now. So we need to maximize it.
Dr. Friday 31:19
Anyways, if you want to join the show, this is gonna be my last one after this break coming up here in a second 615-737-9986. For all of you that have no idea who I am, I’m Dr. Friday. I’m an enrolled agent licensed by the Internal Revenue Service to do representation and taxation, which basically means I can represent you in an audit, I can represent you as far as doing offer and compromise during the fresh start getting back taxes completed, making a deal with the government making payment plans to the government or making you non-collectible, all of that’s going to depend on the situation you have.
Dr. Friday 31:57
Each one of you is very special and unique. But there are certain sets of rules that we have to follow. And most people will find out, I’m not one of those people, you’re going to call them the first thing they say is, “Oh, we can help you and just start paying us $500 or $1,000 a month.” And you know, $15,000 later, you really have no resolution. That’s not going to happen. I’m also local, which means that you can call me and we can actually sit down, talk about your situation, and make sure we’re all on the same page. Because anyone that tells you it’s fast to deal with the IRS is crazy.
Dr. Friday 32:28
I mean, we had a situation last week, about four weeks ago where a guy got a levy on his paycheck. And it took us about three weeks to get everything to the revenue officer and the revenue officer was a great guy, he’s working very hard. But to get something like that straightened out and to prove things to them and to provide proper documentation to get that. So it went from $1200 a paycheck down to $200 a paycheck was a big step. And next step will be possibly an offer and compromise.
Dr. Friday 32:56
But we can help you do these kinds of things. But you have to know what the tools you need, what kind of documentation and then you know, we just have to get it out there so that you can start getting back to living, buying a house, taking care of your kids, going to college, whatever it might be.
Dr. Friday 33:12
So if you want to join the show, you can 615-737-9986. And I know sometimes calling the radio show or if you’re afraid that a question you might ask sounds stupid, I’ll be honest with you, no such thing as a stupid question. I’ve always told people if you don’t ask, how are you ever going to know the answer? Because that’s the only way. And I always appreciate when callers call because, in all honesty, there’s a lot of us that probably would never call a radio show, even though we really, really, really want to know the answer.
Dr. Friday 33:42
So again, it takes a lot of guts to pick up the phone. But if you’ve got a question, call 615-737-9986 we’re gonna take our last break here and we get back we’ll get some of your phone calls and more of the email questions that we’ve had throughout this week. We’ll be right back.
Dr. Friday 34:06
All righty. We are live here in the studio and we are back for the last 10 minutes or so. So why don’t we go right to the phones? We’ve got Dan from the Boro. Hey, Dan.
Yes, ma’am. Can you hear me?
Dr. Friday 34:19
Yes, ma’am. So um, my wife and I got divorced what seems like several years ago. We maintained the house together. But when our youngest child turns 18, this coming year, I’ll be doing a quitclaim deed and the house will be hers. And it never occurred to me to check and see if there would be any income tax impacts for that. And I thought I’d call an ask.
Dr. Friday 34:44
Yeah, that’s a great question. And the answer is basically, no. She’s going to, If she ever sells it, she could end up with I mean, if it, you know, appreciates quite a bit, that may be something she’ll deal with. But from your standpoint, Dan, no. There’s not going to be anything thing on your side that would require a tax file, you know, tax filing or anything.
Thank you, ma’am. That’s what I needed to hear. I very much appreciate it.
Dr. Friday 35:09
Perfect. Thanks for the call, Dan. I appreciate it. Alright, let’s see what George. George has a tax question. Let’s see what it is. Hey, George.
Hi. Yeah, I wanted to check. We had a small inherited IRA. And we’re in our 50s. And just trying to find out how quickly we got to take that out. Or if we took it all out, we’ll just be taxed as income. Are there any penalties for that?
Dr. Friday 35:36
Great question. Because IRAs have changed. It used to be when you inherited IRA you had like the lifetime to take it out your lifetime, and etc, etc. But now, I believe it’s five years that you have to take it out. And let’s see here, and then it is ordinary income tax, George. So, you know, it may come down to depending on your guys’ age, unfortunately, you’re too young. I mean, your likeliness of you retiring before that time period to your income is not likely to come down any.
Dr. Friday 36:14
So it might be smarter to play with a little bit and just find out how much you can what, you know, I don’t know how much he said a small one. So let’s just say it’s 50 or 100,000, maybe you can take out 20 a year keeping you in the lower, even if it’s still in the higher of the tax brackets, where it would only hit a portion of it versus all of it going into another tax bracket completely by taking 100% at one time.
I got you. Wait until the end and you got to pull the whole chunk out or something.
Dr. Friday 36:41
Exactly, exactly. And that’s what I would not do. I mean, at least I would sit down. If you do your own taxes, review a tax person, I would sit down with them or just call them and say, “Hey, how much can I take out that’s gonna keep me in?” I don’t know your brackets. But if you’re in the 22, bracket or the 24, or whatever bracket you’re in, and try to keep it in that bracket. Instead of if you take the whole thing out, we’ll kick you automatically, pretty much into the next bracket. So at least I can pay 22 instead of 24-26, you know, percent. It’s not a lot of savings. I get it, but it’s better than nothing at this point.
Dr. Friday 37:15
Okay, well, thank you very much. That really helps.
Dr. Friday 37:18
Thanks. I appreciate the phone call very much. Thanks. Okay. All right. It looks like maybe we got Rosie. Let’s do Rosie again. Hey, Rosie.
I hate to correct you. Because you have a doctorate in taxation or doctorate in accountancy and I’m only a CPA retired. But I think its 10 years for inherited IRA instead of five.
Dr. Friday 37:42
How many years? Is it 10? I thought it was actually I thought it was 10. And then I thought somebody told me there was only 10 if it went into a trust.
Because, I have, my parents died before the rule went into fact, I think it’s 10 years, I’m pretty sure.
Dr. Friday 38:05
And you know what, you may be 100% correct. I knew the law for a long time. But when they change them on me, I will tell you, I don’t do a ton of inherited IRAs. But I’m looking on here. And it does look like yes, George, listen to Rosie. Um, it is 10 years, but you still want to take it all out probably in multiple years versus trying to do it at one time. But she is correct. And you might want to double-check that with your financial person.
Dr. Friday 38:30
But, um, but either way, yes, it has. They’ve limited us, Rosie, to how many years versus before was over a lifetime, which was a lot better deal as far as I’m concerned. But thank you, I really appreciate that. I’d much rather everyone know the right words versus the wrong. Appreciate it.
You’re welcome. I prepared taxes for over 10 years. For sure.
Dr. Friday 38:51
I agree with that. Okay, thanks. Bye.
Dr. Friday 38:54
But all right. And I do. If, you know, it’s not perfect to be know all the answers. As I said, they did change that on me. And I’m still trying to find something, but I think she’s correct. For some reason, and I think I have it backward. It says “what is the five-year rule” but I believe the five-year rule is because of beneficiaries taking an unexpected payment balance as of December 31, the fifth year. Let’s see here. Real quick guys.
Dr. Friday 39:22
It says “the five-year rule requires the IRA beneficiary who is not taking life expected payments to withdraw the entire balance of an IRA by December 31, the year containing the fifth anniversary of the owner’s death. So there is a five-year rule out there. So my advice on this everyone is before you do anything crazy, talk to your financial advisor and or whoever’s handling the IRA for you, because that would be the person that would know the rules that would apply to that.
Dr. Friday 39:52
But Georgia, I would also sit down with whoever does your taxes or if you need help with it either way, and let’s go play with the number two, find out how can we get the IRA out in whatever time limit we need, and have it come out for that time period. So that way you can pay the least amount of taxes. And then you can always take that money and reinvest it. Or another plan that we’ve done with a couple of our people should have told you that, George, would be the year that you’re taking out these monies, maximize your own 401k if you’re not doing that right now.
Dr. Friday 40:26
So that for example, let’s say you’re taking 20,000 from your inherited IRA, if it’s possible for you to contribute 20,000, or the most that you can to your 401k, that would reduce the income on your W2 to offset the income you’re taking in from the 1099R from the IRA distribution. So you might keep yourself in a lower tax bracket. There are some of these games we can play. And again, if you’re a financial planner, they should know how to do some of that. But if you need help, trying to figure out the best way to do it, we can certainly crunch those numbers individually for you and get that information directly to you on that situation.
Dr. Friday 41:04
But I want to make sure you know there is a time limit. Now if you haven’t inherited IRA, I believe as long as it happened after I want to say like 2018 or 2019. Again, guys, not perfect year. But last couple years, if you’ve inherited it, you do have a time limit. Prior to that we used to have a life expectancy, which gave us a lot more time to take out the money from an inherited IRA.
Dr. Friday 41:28
This has nothing to do with your own personal IRA. Or if you’re a spouse, you can actually have a spousal IRA. So, um, but, you know, make sure you understand how to do it if there’s a way of deferring it, that would basically be a way of moving it from your 401k kind of up it as if they helped you increase your own retirement account and move the money over.
Dr. Friday 41:49
Alright, so if you’ve got questions, maybe you filed taxes, maybe you don’t know exactly what direction or how to get started, easy enough to do. First thing you might want to do is give me a call my office number is 615-367-0819. You can also email questions to firstname.lastname@example.org. And for all of you that may not know that is my first name email@example.com. Easy way to get a hold of me.
Dr. Friday 42:26
And if you have no idea who I am, go to drfriday.com. And you can find out a little bit more about this crazy person you’re listening to on the radio. And that way, if you have problems with IRS, if you’re dealing with back tax issues, if you have a trust or an inherited something, and you’re not sure exactly how the taxes are going to work, hey, the first thing you need to do is to try to get some advice.
Dr. Friday 42:50
And if I don’t have it, if it’s something an attorney needs to deal with, or financial plan, planner or financial counselor needs to deal with, I have those people that I can represent or send to you so you can get the information you need. And get the right information because you don’t want to make decisions. If you don’t have all the facts. That’s all I can tell you.
Dr. Friday 43:10
Because I’ll be honest, if you tried to do it all on your own, there’s no possible way the Internal Revenue Service code is, I don’t know, 10 times thicker than the Bible. So it’s constantly changing another, I don’t know, 10,000 pages got added just this year alone. So it’s something that has to be continuously maintained, learn and there’s a lot of different parts of it. And I’ll be honest, I don’t work in every single part of the tax code.
Dr. Friday 43:37
So if you need help, we have specialists that can help you as well as get you to the right people to talk about the right thing. So easiest way to pick up the phone 615-367-0819 call me Monday morning 615-367-0819 or you can go and email me again firstname.lastname@example.org. My name is Friday. That’s my first name, last name Burke. But the email is email@example.com. Hopefully, you guys are having a wonderful Saturday.
Dr. Friday 44:11
And if you haven’t filed taxes, guys, I can’t tell you now is the time to start thinking about doing something with your taxes. You need to be able to move forward. And you can’t do that if Uncle Sam is sitting there dealing with it. And I’ve had situations where people just drag their feet, then something happens and then you’re stuck with dealing with other issues that you didn’t need to deal with. There are ways of getting the IRS and getting yourself back on track. I know everyone hates to pay taxes, but it is a part especially small business owners. It’s a part of our business you might as well figure about 25% of your profit is going to go to Uncle Sam and your Social Security, the owner Social Security, that’s the way it is.
Dr. Friday 44:52
So if you need help, call 615-367-0819. I hope you guys enjoy this Saturday. And you have a wonderful weekend. And as we always love to say, call you later.