Listen to this week’s episode of the Dr. Friday Show, broadcast live every Saturday at 2:00pm Central on on 99.7 WTN! For this episode, Dr. Friday singlehandedly answers questions from callers and discusses these following topics:
- Are All Fundraising Activities Can Be Considered a Charity?
- Some Changes Under the Current Tax Law
- The Best Way to Get out of Trouble from IRS
- Taxation on Cryptocurrency
- Are Pensions Taxable?
- Is Your Federal Pension Taxable When You Move to Another State?
- How Long Would It Take for Someone to Change Their Residency?
- When Is the Best Time to Collect Money from a Quadro?
Announcer: 00:01 No, no, no. She’s not a medical doctor, but she can share to your attached problems or your financial woes. She’s the how to girl. It’s the doctor Friday show. If you have a question for Dr Friday? Call her down. Seven three seven WWT in that 737-900-987. So here’s your host to financial counselor and tax consultant doctor Friday.
Dr. Friday: 00:29 Good Day. I, I’m doctor Friday and the doctor’s in the house. I am live here in studio. So if you’ve got one of those wonderful tax questions, maybe you’re dealing with a new business entrepreneurship, thinking about going into business and you’re not sure what type of business entity to go with, you know, this is the show to get started on those questions. All you have to do is pick up the phone. (615) 737-9986, (615) 737-9986. We also have introduced our new website. So, hey, if you haven’t been to the web for a while and you want to see some of the services we offer as well as learn more about me, we have just brought out the big guns. We’ve got a brand new website out there, so it’s Drfriday.com. Feel free to check it out. Even email me if you see something different or something that we need to, to, you know, spice up or correct.
Dr. Friday: 01:20 I mean, you know, we really are trying to make it the perfect website as best we can. So if you’ve got advice, please feel free to email me on the site again. That’s Drfriday.com. Okay. So one of the things I’ve noticed, I’ve gotten a couple emails and, we all know that, there are times when, let’s say your kid goes to school and you offer maybe your home as a vacation rental for something, maybe a fundraiser of some sort, and somehow you, your home or maybe one of your rentals, maybe you have a house in Florida and you offer up that time. As a way of raising money for the fundraiser, I would think twice, several cases have come down, but the most important part of that conversation is it is not considered charity. It would be considered actually personal use of your rental, even though you were not in it. And the cost factor according to the current tax law would be that, that you would not be able to write any of that off as actual rental. So, you know, unless it’s your private home and it’s within two weeks of the time that you’re there and you can, well it still would not be a legitimate tax deduction cause there was no money paid out of your pockets. So, even for the utilities and things on the rental, if it was your own rental and you give it to charity, the government of the IRS ruling has come down saying that is not a legitimate rental and therefore it’s going to be considered part of that personal use or limited part of use that we actually have to claim. So think twice about, using that as a possible write off for your stay, and obviously we know if we spend more than 14 days at any one rental, then we have to start to excluding certain costs on that unless it’s for additional repairs or maintenance that you’re doing. So really, really important that you’re moving forward on that. Still have guys a lot of fraud coming through. People pretending that they are the internal revenue service. It’s been a while, to be honest. For a while there almost every single week I had someone calling me saying, Hey, I got a call from the IRS. They basically said that the police were coming to my door, blah, blah, blah. And we all knew that, you know, just the verbiage that the people were using. It was a fraud and therefore the people, you know, we can, we can fairly safely, but apparently, someone else got a hold of that fraud and it is back out there.
Dr. Friday: 03:43 So again, be very careful if anyone from the internal revenue services calls you and you do not know or have any knowledge of them. It is not rude to take down their name and number either call the IRS back, say, I have an officer calling me, this is the name he’s given me, blah, blah, blah. They will either tell you he’s a legitimate officer and you can call him back or you can call them directly at the one 800 number and say, Hey, I’m getting phone calls. Do I have a tax issue? I mean, the ones that I often find that are more nervous are people that actually do have some tax issue, right? Maybe they haven’t filed their taxes in a number of years. Maybe they owe some back taxes and therefore they think the IRS because theoretically. There may be issues out there coming back at them and the odds are in the favor of the Robo people calling in doing this because there’s something like 1 million people that owe the IRS money.
Dr. Friday: 04:37 So statistically they’re eventually going to knock on the right door at the right time, but it doesn’t really mean it’s the internal revenue service. So just be careful about that information and making sure that you have done what you had and don’t ever give… No internal revenue service officer’s going to ask for your full social security number. They’re not going to ask for your banking information or your credit card. They may confirm a home address, but even that, I would be very leery. I mean, I wouldn’t give it to someone that I didn’t know. so all of that is very, important to make sure that you’ve taken care of other changes. Again, like kind, we’ve talked a little bit about this. We’re gonna probably get, an attorney on here. Again, the same one that I always use to come on and talk a little bit of like kind exchange.
Dr. Friday: 05:23 That’s for people a 1031 exchange, you might think of it. There has been some changes under the current tax law. kind of narrowing some of the boundaries, you know, and a lot of times the first question people ask me, I’ve got a rental property and I don’t want to, I want to pay taxes. What can I do? My first answer is, well you could do possibly a 1031 exchange, which means that you don’t have to pay tax on that right now, but you do have to buy like kind. Well, can I put it back into my own primary home? And the answer of course is not because even though one’s a house and the other is a house, one is investment property that you’re renting and that’s the one that you’re selling. Therefore you would have to buy another investment property that you’re renting out.
Dr. Friday: 06:03 Even if you’re going to turn part of your primary home into a VRVO, it does not meet the criteria of a 1031 exchange. So it’s very important that you do that correctly. Otherwise you can end up paying taxes when you’re not ready to do that. So, you know, do your best to, to make sure you have that situation and you know, do what you have to do. So if you want to join us, 6157379986. A good news about, for the clergy, parsonage allowance. It’s been on the books forever, at least as long as I’ve been doing taxes, 20 plus years, probably a lot longer than that. But there was a situation back in 2017 where a group of people were saying it was not a fair just situation and that they were trying to get it taken off of the tax code.
Dr. Friday: 06:54 Bottom line is the supreme court came back saying, no, this is not an individual mandate. This is something that helps the people. There are exclusions and therefore parsonage allowance is still on the books and will stay on there. It is not part of the specialty. And the group that was trying to get it excluded from the texts law has backed down and basically decided they were not going to proceed any further on that particular situation. So that my friends is in, my opinion is a good thing because, let’s be honest, the churches and everything else does a lot. And the people that work in those churches, especially the clergy, give a lot of themselves. And so the ability to actually have, and in most cases you have to live in the community in which you are servicing and therefore you’re kind of mandated that you have to stay in this certain neighborhood because you work at this church and you’re servicing these people, whatever.
Dr. Friday: 07:47 And that limits your opportunities to do certain things. So they should have certain advantages in my opinion. So that being said, make sure you have that. Individuals that maybe are operating under individual tax id numbers. if you haven’t filed taxes in the last three years, I9 individuals, especially if you haven’t filed your taxes, those numbers will expire. So if you have, don’t worry about it. If every year you’re filing your taxes, paying them, no worries. You’re not a part of this conversation. But if you have an I9 and you have not filed taxes in the past three years, the IRS says that, only those people that digits any with 83, 84, 85, 86, 87, will all expire on December 31st. So if your number ends with one of those years is on the pallets and you need to either make sure you file a tax return or maybe it’s fine because you no longer need it and it’s not one that you have to worry about.
Dr. Friday: 08:41 So just make sure that you’re taking care of those things and moving forward on that. Again, if you want to join the show, if you’ve got questions concerning tax issues, I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. So basically just means I’m kind of a shield between you and the IRS. If you’re not sure where to start, maybe you’ve got, you haven’t filed taxes for a number of years or maybe you’ve got a friend or a child that maybe just you know, what divorce, loss of work, you know, illness. These are the kinds of things that sometime lead us into these situations and there are ways of us helping you get back on track. In many cases people are so busy trying to take care of the past that they’re letting the future or the current and future just kind of continuously add and eventually it becomes past that they’re constantly chasing and there’s a better path.
Dr. Friday: 09:28 Let me tell you the best way and the only way as far as I’m concerned, to get out of trouble with the IRS, a possibly make a deal payment plan, but most importantly is to pay forward. Make sure that you are now starting today. You know what? You’re going to start paying 2019 taxes. Anything that’s happened prior to that is not something you need to at the moment. Deal with the IRS wants to make a deal with you, but there can’t, if you never going to stop the cycle, the only way to stop the cycle is getting used to. Yes, I’m talking mostly to the self employed because with all of us we have to pay quarterly taxes. So to do that we have to actually send money every quarter, every month. I mean I have people paying it almost weekly now, especially with the online sites.
Dr. Friday: 10:11 You can do that, but you know, you need to be paying the government every time you kind of get paid so that the money is gone and you can’t spend it. We all have a partner in business. If you’re self employed individual, that partner is the Internal Revenue Service besides any other partner that is a partner. And so minimum 25% of your, your profits, your net profit is pretty much going to go to them. So if you’re, you know, you’re not making enough to support the business or you know, you’re reinvesting it in the business, you need to always consider how is that going to affect your payment to the IRS? Because it’s very, very important that you remember that they are part of that business. Otherwise, sooner or later it’s going to catch up to you and it’s going to become a problem. The IRS has a lot of tools to help us to get past some of that.
Dr. Friday: 10:57 But you know, again, if you’re not willing to, to start and change a little bit, and sometimes it is lifestyle changes. I mean, I’ve had people, I can’t tell you, come in and say, well, my child’s in private school. You know, we’ve got to pay for, you know, hair, nails, Starbucks every day, eating out all these different things. Yet you haven’t paid the government. You owe hundreds of thousands of dollars in the case that I’m thinking of, you know, you may have to rethink your lifestyle a little bit. You may have to downsize a little bit because right now you’re living a lifestyle on the government’s ticket and sooner or later that is going to come back and bite you. So you’d need to figure out what is it going to take. Either make more money, which is an entrepreneur is sometimes an option or revaluate what is important.
Dr. Friday: 11:46 And part of that is it’s a lot easier to live your life when you’re not looking over the shoulder for the IRS to intent to levy lien or sieze properties. And it happens every single day as far as like a seizure of property. I mean there are full auction houses of property that has been seized by the government. So to think that it can’t happen to you is kind of thinking that like what, you’re too small of fish, it’s not important enough. I think that that’s a little scary. So I, I rather live my life with the idea of doing the best I can. And sometimes it’s outside of our control, but sometimes it’s a matter of taking control. So if you’ve got questions you want to join the show, it’s really easy. 615-737-9986 61-FIVE-SEVEN-3799, eight six. We’ll be right back.
Dr. Friday: 12:41 Alrighty. We are instant video. I’m doctor Friday and enrolled agent Internal Revenue Service, to do taxes and representation. So if you’ve got questions you can pick up the phone. (615) 737-9986. Okay. So let’s talk a little bit about something that I seem to be getting more and more into. Crypto Currency. Mainly the important part of that conversation. Taxation on that. So crypto currency is treated as property to the federal tax purposes. So when you’re doing an offer and compromise a payment plan, when they’re asking about financial information, guess what? One of the things they ask now specifically, do you own crypto currency? So virtual currency token, it’s all the same. It’s all basically the same language, just different things. So for the federal tax purposes, crypto is not currency. As lot of people like to think it’s treated. it’s basically more, I think the simplest way to put it as far as the IRS or the federal government is more of a trade. So basically in exchange for goods or service, the gross income from the receipt or the fair market value of the crypto you received.
Dr. Friday: 14:00 So, for a while there was a lot of, of barter services out there, which I haven’t heard as much about that as it used to be five, six, seven years ago. It was really big where businesses would put in, you know, let’s say I have a chiropractor and a hotel guy, they would exchange services. You get to stay free at my hotel, I’ll use your services. And no one thought that they had to report that because, well, I just gave him something that was mine. He gave me something and we need their exchange money. Well, that’s where the misconception is, bartering is a taxable situation and that’s what they’re considering. Crypto Currency is more along the lines of bartering for the federal tax laws. So a basis of currency received in exchange for goods is the fair market value. So if you’re purchasing something in Cryptos currency as an individual, probably not a taxable situation, but as a business, let’s say I start collecting Crypto Currency for my tax preparation.
Dr. Friday: 14:59 So you’re paying me $600 for a tax preparation and I accept that. So the value of that crypto is $600 because that’s what I billed you for it at the time. So no matter what it may be worth in other markets or the variables that’s in the thing, I accepted at that value, I have to pick that up as income in my business at that value, no matter what happens after that fact, the exchange for this is property trigger to gain or loss should be treated as capital gains or ordinary income tax depending on long term or short term, of the disposal for the assets. So again, it is huge guys. I can’t go to a meeting even having a dinner with friends sooner or later. It seems like crypto currency comes into conversation. One of the biggest reasons people love the idea of cryptocurrency, in my personal opinion, is that it is something that is not supposedly trackable.
Dr. Friday: 15:57 It is not something that the government has their hands in, right? So the US dollar, they can control the value of it. They can do a lot of other things where bitcoin and crypto currency and all the different mining and all the different things that come along with it. Is held there one of the biggest things or the problem with this particular currency, I think from the tax standpoint, again, this is more from my standpoint, the buying and selling is something that is you know, if you’re a very active buyer or seller, it really is no different than being active in the current marketplace. And that’s where you’ve got to figure out how much the original basis was. What are you selling at? For sure. If you’re buying something with it, then at least the value is set by the person receiving and how much crypto they’re taking from you. Therefore that’s the sell price. So therefore you have at least the sale price. But the tracking of this is still very, very gray as far as I can tell. I know there’s a bunch of software out there now coming up, helping people try to track it, but if you’ve got questions or maybe feedback, please join the show. (615) 737-9986. We’ve got Dave on the phone.
Dr. Friday: 17:10 Hey Dave, what you got babe.
Caller: 17:13 I just recently retired and moved back to Tennessee and I get a small pension. Are pensions taxed?
Dr. Friday: 17:22 Pensions are only taxed based on Tennessee. We don’t have a pension tax, so no, there’s no tax in the state of Tennessee federally, depending on how much the pension is, you could be taxed
Caller: 17:33 And it’s from California, if that makes any difference.
Dr. Friday: 17:36 Well, we are finding out, I mean California would love no matter what, but if you are not a, there are two arguments on that I have heard, but most of the people I know in Tennessee that are retired fireman or I know a couple of them, if they’re living fully in Tennessee, they are not filing a California tax or paying California income tax. Unless they’re withholding it, then we’re filing non-resident returns to get the money back.
Caller: 18:01 Okay. So I need to establish residency in Tennessee.
Dr. Friday: 18:05 Absolutely. Six months and one day. Yes sir.
Caller: 18:08 Man. What smart first step and doing
Dr. Friday: 18:11 Well, it would be to be paying rent or purchasing a home or whatever. And then having all your mail in Tennessee.
Dr. Friday: 18:18 Okay. Have all your mail received there. and then on your tax return, use that as the address of your residency.
Caller: 18:26 Okay. So I don’t contact the IRS and tell them that I’ve moved. Nope. Okay. All right. Thank you.
Dr. Friday: 18:35 No problem. Thanks for calling. Appreciate it. All right. So, again, if you’ve got a question easy enough, join the show. Six one five seven three seven, nine, nine, eight, six, six one five, seven three seven, nine, nine, eight, six. so there is been some framework for future models of cryptocurrency taxation. Representative Warren Davidson, a Republican of Ohio, and a Republican Darren Soda, a out of Florida, a Democrat, a Florida, sorry. The House of Representative, crypto visionaries. So there is actually a panel of, people that are now being assembled to help work on, taxation on, you know, what they’re going to do as far as the token texts act. that was introduced back on the 20th of 2018… December 20th of 2018. which focused pretty much on the taxation of it. It did not come all the way through. they are still working on that, but it is something that, I will tell you the IRS when I sit down with them, again, I just reiterating this because I have probably once a week someone walking in my door or walking in my office and part of the conversation eventually becomes, Oh yeah, and I’m also invested in Crypto or Bitcoin or I’m mining or I’m this or that and the next thing, you know, but I haven’t been reporting anything but I’ve been doing this for the last five or six years or whatever.
Dr. Friday: 20:02 You know, you need to talk to your tax people. You think because there’s no necessarily paper trail, theoretically in this conversation that you’re not going to get caught, but sooner or later you’re going to either take the money back out, bring it back into US dollars or into a foreign currency. And remember, as a us citizen, any currency you convert money into, it’s still taxable in the United States as long as you’re a US citizen. And even if you’re not a US citizen, I mean they didn’t create the 1040 NR for no reason. you know, taxation is a part of what we have to live with. There is some, a diminishes for exchange of currency if is less than $600. So keeping certain things under a certain dollar amount is not a bad thing, but I’m just trying to make sure, because this is relatively new and a lot of accountants are not even on top of it.
Dr. Friday: 20:58 You do want to make sure that you are dealing or at least having those conversations with individuals that are, wanting to make sure that you’re doing everything you’re supposed to do for taxes. Right? But I mean, that’s really the port part of this conversation. I want to make sure that you’re not blindsided a year or two down the road when you decide to do something or the IRS finally gets, you know, all the access to bitcoin or you know, whatever kind of currency there is at that time. And next thing you know is like, oh wait, I didn’t know I supposed to do this. Well, boom, now you do. It is buying and selling. Just like anything else. It is a, a bartering if you’re using it to purchase goods and services. Person receiving bitcoin for goods and services needs to be reporting that as income just as they would do any other type of business.
Dr. Friday: 21:48 So it’s really, really important that you make sure that you have that information there and that you’re doing what you’re supposed to do. Because to be quite honest with you, you need to make sure that you have everything that you’re supposed to have when you’re supposed to have it, how you’re supposed to have it. Otherwise, my friends, I don’t want to hear it. When you get in trouble and the government comes back and says, Oh yeah, sorry, you’re not qualified for this or you’re not qualified for that and you’re sitting there going, wait a second. That’s not the way it’s supposed to work. It is, that’s how it’s supposed to work. So we’ll see what we have. Let’s see, we got Don one more time. We’ll get him before the break. Hey Don.
Caller: 22:25 Hi there. Thanks for calling. I retired Tennessee and have a Tennessee pension. It’s a federal pension though. And I moved back home to a tax paying state. But I haven’t paid any state taxes and I have been told that I don’t have to do that, is that correct?
Dr. Friday: 22:48 My opinion though, that’s not correct. My opinion would be Chicago. I think of Illinois. But Illinois tax would require you because you are now living in their state using their roads and everything else. That money is now being deposited in Illinois Bank. It is now Illinois income doesn’t make a difference if it’s a state pension or a federal pension, unless… Is it military?
Caller: 23:15 No, it’s not.
Dr. Friday: 23:17 Ok, let’s say sometimes there are certain exclusion for military, but for regular people, no. You know what I’m saying? I think your tax person, I honestly think the state of Illinois would eventually catch on. They may not know easily because it’s probably not being turned into Illinois at this point. How long have you lived in Illinois for? I mean, how long ago was this?
Caller: 23:42 Three years.
Dr. Friday: 23:43 Okay. So I be surprised that they’ll catch up. I mean, to be honest, I personally still think that that is a taxable thing to the state. It would be the same way if Tennessee was a state, you know, and it was vice versa. You were living here and it was Illinois. And we had a tax audit. Myself, I would file it. That’s like the gentleman called earlier that moved out of the state of California. California no longer has a bid audit, but if there was a tax in Tennessee, he would be required to pay it in Tennessee.
Caller: 24:13 So you believe that I should be paying state tax?
Dr. Friday: 24:16 I do. I do. But you know, best answer is get yourself or contact an enrolled agent there in Illinois. They should have the ability to get that information directly off the state website saying if federal tax pensions are not, there are some times in certain states, I don’t do a ton. I only probably have three clients in the state of Illinois. and they don’t, that doesn’t apply in their situation. There may be an exclusion. Some states have exclusion of all pensions. I don’t remember that being on the Illinois state site though, personally.
Caller: 24:52 And you say an enrolled agent… how would I find one?
Dr. Friday: 24:55 If you want to email firstname.lastname@example.org or give me a call on Monday, I’ll be more than glad to look it up. Obviously they’ve got their own website there and I can send you a link and you could find one that’s close to you.
Caller: 25:11 Okay. Well thank you. Very much.
Dr. Friday: 25:13 No worries. I appreciate it Don. Thanks. Yeah, state income… The problem I have with state income comes really quick is only because I deal a lot with federal and then guess what, when we get the federal straightened out, if people have lived in Ohio, Illinois, New Jersey, whatever, then we end up having to go back to those states and clean up that mess as well because sometimes people just didn’t realize that they had to do things in the state as well as the fed. All right, we’re going to take our next break if you want to join the show. (615) 737-9986. We’ll be right back.
Dr. Friday: 25:47 Alright. We are back live in studio and I’m hopefully Don, if you’re still listening though, the gentleman that called from the state of Illinois, I need to retract… While the break I went onto the Illinois state tax website and it says specifically Illinois is exempt from all retirement income including social security, pensions and retirement savings accounts. So you do not need to pay tax on your pension in the state of Illinois, one of three states that actually has that exclusion just for all those that are listening. So that is pretty cool. So I do want to retract Don, you do not need to sweat paying taxes. You have done everything correctly and a good job. And I just wanted to make sure, because I certainly didn’t want to put somebody in a tailspin saying, hey, this is what’s happening. And then boom, he goes to his tax person and says something otherwise. So just want to be again, one more time. Illinois does not tax pension, social security, so you don’t have to worry about it.
Dr. Friday: 27:00 Alright, so back to the conversation here. If you want to join us. (615) 737-9986 (615) 737-9986. If you want to join the show, ask questions. Again, not always going to tell you I know the exact, but I can get the exact answer that we need. So, we don’t waste time having people worrying about if they do or do not need to pay something or what they need to do when it comes to doing their taxes. So if you’ve got a question or questions, six one five, seven, three, seven, nine, nine, eight, six, you know, as an enrolled agent, basically what we do is we handle obviously tax preparation, but the, the more important part of that is representation. So if you haven’t filed taxes for a number of years, maybe you’ve received a lot of love letters that you’re starting to get love letters and you’re really not sure what to do with them cause you can’t afford to pay them.
Dr. Friday: 27:56 And therefore, what do I do? I mean, do you call them? Do you ignore him? Do you just put them in a drawer and hope that no one knows? Do you move? I mean, I have had all kinds of craziness, that I have seen and sometimes, you know, it is, it’s more of a survival thing. You know, you’ve got to do what you have to do, I get it. But sometimes there are better ways, so you need to at least get some advice to figure out what that’s going to be. So when it comes down to it, you want to find out what can you do and then, is it an offer and compromise? And when you hear me say offer and compromise, I will tell you right now, I probably have five a week come in my office to talk about offering compromises.
Dr. Friday: 28:35 Maybe two a month. Do I actually fully get into a true offer and compromise? Part of that is obviously, it’s just like bankruptcy or anything else, it’s not for everybody. second thing is, uh, probably 50% don’t qualify. You have a 401k, you have a home with a lot of mortgage or a lot of equity in it. You own multiple vehicles. You, you’re inheriting money in, you know, your mom passed away and you’re trying to get rid of your hair, your debt before you get the money from your inheritance. While the question is, are you going to inherit money? you know, you own land someplace even though it may not totally be, all yours, but still you have equity in it. There are so many different things you have to consider. And even though you may be theoretically cash poor, you may be rich enough for the government to sit back and say, in part of this conversation comes down.
Dr. Friday: 29:32 I will tell you, we have had many cases in the last 20 years where someone had equity in a home that we were still able to get an offer in compromise, and get a really good deal. Which basically means we offer them, if you owed $100,000 and all the numbers came down and you could only pay 10 we offer them 10 and they agreed to it, but most of the time that’s partly because they’ve been trying to collect from you for seven years. There’s only three years left. You don’t have the assets, even if it’s in your house, because you can’t borrow the money from your house. Therefore, what do you do? Well, first you got to get rejections. I hate to say it, one of the first things I have to tell people, go get rejected. Bring me paperwork. Showing the bank is not going to loan you this money no matter what.
Dr. Friday: 30:17 And I’m not talking about the 10,000 that you offered. I’m talking about the a hundred thousand that the government wants. We need rejections, right? Same thing. Maybe you’ve got a 401k, but you don’t have the ability to take money from that 401k or maybe, you know, the loan would be too big of a burden. The government cannot force you to take money from your retirement, but they can also make your life pretty darn miserable. They can seize levy and lean properties and bank accounts. so you know, the best thing we do as enrolled agents is really to stop all that right. Where they get a payment plan offer and compromise or we make you non-collectible. A lot of times people are sitting there going, I don’t know if I really want to be non-collectible. Well, it’s not for everyone. And you know, I have people that’s paid $5,000. They get themselves put into non-collectible, which is not necessarily a good thing in many cases. So you really need to make sure you understand what someone’s gonna do for you and how it’s going to work, you need to get into that. All right, let’s see if Julian can join the show. Hey Jillian.
Caller: 31:15 Hey, Dr. Friday.
Dr. Friday: 31:16 Hello Sweetheart.
Caller: 31:20 Thank you. Okay. So my question is, I was in southern Pennsylvania visiting my mom. Okay. I, and she’s elderly, she’s 88 and she has got, you know, she’s got like social security come in or IRA or retirement, my dad’s retirement. Right. And so I think she’s tough on all that stuff up there. And I’m thinking if she came down here she wouldn’t be. Is there like, okay, so my question is when, if I can remember down here, she would come down here, how long til she’s like established as the residency, is it like six months, a year, or two years? How does, how’s that work? Do you know?
Dr. Friday: 31:55 Perfect. Julian. Yes. Six months and one day. So you need to be in the state for six months and one day to be able to contain, claim your citizenship, or stateship, whatever it’s called. So yes. So she would have to move down. And you know, in theory, since we’re already past that marker in, in 2019, she had basically still file PA for 19, but if she moved here in the next couple of weeks, obviously all of 20 or a next, next couple months, in 2020, she would be a Tennesseen and instead of a PA person.
Caller: 32:29 Okay. And then if she went up there to visit and came back down, just, I mean, you know,
Dr. Friday: 32:34 Again, as long as she’s not up there more than six months and a day.
Caller: 32:38 Gotcha. Okay, good. Thank you. And there’s no, there’s no tax on Ira stuff and…
Dr. Friday: 32:44 Right. So in Tennessee, Tennessee, the only thing she might have, and I don’t know her situation would be if she has interest or dividends that she’s receiving that could become taxable and that would,
Caller: 32:55 See, she does have that.
Dr. Friday: 32:58 You know, that’s only, I mean, we’re losing the hall tax in two more years. So well 2021 is the last year we have the hall, assuming that they have, it’s a war, almost to a zero tax here next year is going to be 2% tax in Tennessee. So I doubt PA has a 2% tax only on interest and dividends. She pays tax most likely on all income. Again, I’m not an expert on pa, but you know, certainly Philadelphia, taxes, her other income.
Caller: 33:25 Yeah, they tax everything. It’s just like you breath air and they’re going to tax you for it. No, they don’t hate people. They just like money I guess. But, and then, and then the inheritance tax also. What is the inheritance tax payer a better like what is it? Do you know or no?
Dr. Friday: 33:43 the what? I’m sorry.
Caller: 33:45 The Inheritance Tax.
Dr. Friday: 33:46 Well, our inheritance tax follows the, state, the federal tax. So right now it’s like $11 million per person. so I don’t again, pa, but I will tell you, cause last time I gave some, Philadelphia is another one of those states that does exclude retirement from taxation. So public, private pension, railroad, social security, excluded from taxable for tax purposes within the state. So she, she may not have a lot of income tax.
Caller: 34:15 Oh my goodness. Okay. I just figured PA.
Dr. Friday: 34:17 I know everything’s tax and PA in most of those states, the sales tax and property taxes are rather high. They’re saying according to the Internet, uh, but PA is another one of those that was listed like Illinois. So she may actually have a fairly, you know, fairly low state income tax for tax purposes.
Caller: 34:35 Oh No. Let me try to move to Pennsylvania. No, no, no. That just sounds like a bad move girl. All right. Bye. Oh Man.
Dr. Friday: 34:47 It’s a lot colder there. I’m thinking I do not want to go to PA. People might be a wonderful place to live. Wonderful place to visit. Yeah. I don’t think I want to go any colder than Tennessee can be, even though right now it’s pretty darn hot and we might all like to be moving to pa because maybe it’s cooler there. We’ll see. Alright. So if you want to join the show again, six one five seven three seven, nine nine, eight, six six one five, seven three seven, nine nine, eight six. We’re already coming back and just a minute here from our last break. So if you’ve been waiting to call and you’re like, ah, I need to call now, I need to call then, you know, pick up the phone, give us a call and that way then we can make sure we can get your questions answered.
Dr. Friday: 35:26 If I don’t know the exact answer, I will find it out. and hopefully lead you at least in the right direction to get to the right person. If you have questions about, you know, filing back taxes or you need to make an appointment, we can do that as well first the week to get you on the schedule to figure out what we have going as far as making sure everything is happening and where it’s happening and why it’s happening and gets you as an individual. Each of us have different situations. Rob, I’m hoping you could hold to the break cause I’ve got to take a break here in about uh, two minutes so I will, that would give you plenty of time when we get back to take your call if you want to join the show. (615) 737-9986. We’re going to be right back with the doctor Friday show.
Music: 36:15 [inaudible]
Dr. Friday: 36:16 Alrighty. We are back live in studio. So have you been holding your breath? Trying to think about what you want to call about now. It’d be the time. We only have a few more minutes left the show. (615) 737-9986. All right we have Rob, that was nice enough to hold through the break. Hey Rob, thanks for holding.
Caller: 36:36 Yeah…
Dr. Friday: 36:37 well can I do flips and after holding through the whole break, poor rob ended up disconnected. Rob Are here if you want to call us back. (615) 737-9986. All right, so I’m, if you’ve got questions don’t hesitate to call. We are talking about offering compromises and payment plans. Looks like he might be calling us right back right now. but on the offer and compromise we’ve covered basically it’s not for every one payment plans. It’s not always, it doesn’t have to always be the full amount to keep in mind and may be a partial amount that you have. Right? So if maybe you can only afford $100 and the government says I have to pay $600, there are ways of making a deal for a partial amount. So, you know, we need to make sure that we are giving them the right information to be able to see what you can afford and what you can’t afford because it’s not as simple as, oh, well the government says I have to pay $600 and well, if I can’t, then I don’t pay him anything. And sometimes there are other alternatives. Hey Rebecca.
Caller: 37:36 Hi there. What can I do for you, sweetie? 15 years ago, whenever I went through a divorce, my husband was supposed to give me some money as opposed to settle with the house, the equity in the house. And rather than give me cash, he gave me money out of his 401K in which it’s called a quadro and I haven’t touched the money. And when I do touch the money, how much tax will I have to pay on that.
Dr. Friday: 38:16 Well, a quadro, it basically went from his retirement to yours.
Caller: 38:24 Correct? It’s in my name now. Yes. Right.
Dr. Friday: 38:28 But it is in a tax deferred account at the moment. No one paid tax on it yet.
Caller: 38:34 Correct.
Dr. Friday: 38:35 So when you take it out just as if it was any other retirement, if you’re 59 and a half or older, you’re going to just pay ordinary income tax. If you’re under the age of 59 and a half, you will pay a 10% penalty for touching it early.
Caller: 38:50 So if I wait until I’m 66, right…
Dr. Friday: 38:56 Ordinary income tax. So depending on what your other income you, at that point you might have social security. I mean I’m just saying, I don’t know when you’re getting it, but you might be collecting social security. So you would have that potentially, which is tax free up until you get about $17,000 with half of your social security. So are you working right now, Rebecca?
Caller: 39:18 A little bit.
Dr. Friday: 39:20 Okay. Okay. so I mean it really comes down to this. Are you single or married? Let me put this way single. Okay. So if you have $50,000 or less total income, your tax bracket is going to be 12% and everything from 50 to like 125 that additional between 50 and 125 is taxed at 22%. This is very simple math I’m giving you, it doesn’t always work exactly. But this will give you a rule of thumb to work with. I don’t know what tax bracket you’re in, but if you can control how much you can take out and maybe take a little every year versus taking it all at one time. If you’re trying to do something, it might be smarter to do that sometimes. Or if you’re just looking at lifestyle, hey, I want to retire and I have this much coming in as a pension possibly and this much from that retirement that your husband split with you at the time. obviously the, the downside to this whole conversation, Rebecca, is if he was buying you out of a house, which would have been tax free money to you. And he said instead, I’m going to give you a portion of my retirement. You ended up paying tax on something that shouldn’t have been taxed to you in the first place. Little late to say this 15 years later. So probably not worth the conversation.
Caller: 40:32 Well he did give me an additional 25% of what the settlement said.
Dr. Friday: 40:37 Okay. So he in essence paid the tax or what his version of and you’ve left it growing all this time, not needing to touch it, which was smart. Don’t get me wrong. That was great. Uh, and so he did account for the tax too, which is also, you know, good in the mathematics.
Caller: 40:51 Not willingly, but he did. Yeah,
Dr. Friday: 40:52 Exactly. Well, we are talking divorce so I don’t know if I’ve ever seen willingly unless someone really wants out. so
Caller: 41:01 So I can take it like right now I’m just piddling with projects and stuff. I could be taking it as long as I keep my salary below $50,000. And what I make a lot off of my investments, it’s about 10%.
Dr. Friday: 41:23 So yeah. So your, your small jobs that you’re taking along with any investment money, interest, dividends that you may be receiving off of those and then the, you could actually draw from this account and keep it all under 12%.
Caller: 41:38 Is there any time that after the age of 70 I wouldn’t have to pay anything.
Dr. Friday: 41:42 No. I have many clients that would love to see that, but the answer is no. You’ll always pay something on it.
Caller: 41:49 What was the tax that you were talking about just turned on your show that you said was going to go away in two years.
Dr. Friday: 41:56 That’s the hall tax, which is not, you wouldn’t pay tax, you would not pay a state tax on this particular withdrawal. Only time you pay state tax in Tennessee is on interest in dividends. And that’s assuming it’s more than $1,250 for an individual or 2,500 or 20. Yeah, 2,500 for a married couple.
Caller: 42:14 Okay. So if I have a budget of, say if I draw $100,000 out of my 401k and pension plan in the state of Tennessee, I’ll be paying, that’s a 25% tax bracket. That’s where I’ll be paying on that.
Dr. Friday: 42:30 It’s not, yeah, it’s a federal tax. The state you would pay nothing to the feds would be where you’re paying it and it would be first 50 would be at 12%. The second 50 would be at 22%. There’d be an averaging obviously.
Caller: 42:43 Hmm. I’ve already paid taxes on it. That’s okay.
Dr. Friday: 42:45 Okay.
Caller: 42:47 All right. I appreciate your time and have a good day. Thanks.
Dr. Friday: 42:49 Bye. So hopefully, she said Jerry paid taxes, but there shouldn’t have been tax already paid on a quattro if it was, should’ve been growing tax deferred. from what I know. So. All right guys, we’re almost at the end of the show. So if you’ve got questions now, you’re pretty much going to need to pick up the phone on Monday. Set up an appointment or see if I can help you. The direct line to me would be (615) 367-0819. So let’s say you receive love letters, you haven’t filed taxes, your just looking for a new tax person and you wanting to review tax situations. Maybe you’ve started a new business and you need some help with accounting plus payroll plus. What kind of entities should I be? You’re thinking about taking on partners. How is that going to affect your, your business? This is the kind of things we can help you with from the tax standpoint.
Dr. Friday: 43:39 We are not attorneys, therefore we don’t establish those entities. But we can tell you and help you make the decisions that you need to be able to go and then make sure you have that. Also, I can’t tell you, I mean, everyone has people we love and things happen. And one of the worst things that can happen when you lose someone you love is not to have a good set of estate plans. I don’t do them. You know, I am just telling you from experience that it’s, it’s much simpler if you have someone that has a will, a trust or you know, a power of attorney so that you’re able to do what you need to do for the people we care about and make sure that everything that they wanted taken care of, will continue forward and be able to move and do what they need.
Dr. Friday: 44:21 So if you haven’t taken that into account, and this has nothing to do with age, this, but the situation, I’m thinking about it, it was a young couple, something tragic happened, left two children behind, did not have, and now there was a lot of court cases and things going on. Who’s going to take care of the kids who, and no one really, you know, the parents of both sides wanted the children. you know, so as soon as you’re married, as soon as you have children, you need to go ahead and have something in writing. I know things are going to change. It’s going to continuously change hopefully as you get older and older. But if you have children, one of the best things you could ever do for them is to make sure that, gosh forbid, something happens to one of each of you, or worst scenario is both of you who is going to take care of those kids?
Dr. Friday: 45:04 What, what is your wish for those children? How do you want to see them raised? Everything needs to be documented. So you need to put some thought into that. I know it has nothing to do with taxes. It’s just on my mind, something I was reading and said, Oh, you know, this could have been so much simpler if, if the parents, and you know, when we’re young, we never think anything’s ever going to happen to us. So it just goes that way. All right, so if you want to call my office, talk about taxes, money for dealing with businesses or individuals. I do both. (615) 367-0819 (615) 367-0819
Dr. Friday: 45:42 You can also email email@example.com my first name, just like the day of the week.
Dr. Friday: 45:49 firstname.lastname@example.org. Also check out the new website people. We are living it up around here.
Dr. Friday: 45:58 We have Drfriday.com. Go on there. You can contact us. You can pay your bills. You can find out about all the services, our payroll service, our bookkeeping services. find out what that’s going to be. Send us an email through there also, or you know, again, the phone number I’m giving you is my direct line. (615) 367-0819 that way you can also text that number if you need to sell. If you need help with any of the tax issues or dealing with your small business, give us a call. Otherwise, we’ll see you next Saturday. I hope you have a wonderful day. Call you later.