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:
- Owing Money to the state of Tennessee Increased the Penalties to Almost 13%
- How to Get Money Back From your Child’s Bank Account When the IRS Pulls It
- What Is a Revocable Living Trust and How Does It Compare to an Income Tax Return?
- If You’re a Business Owner, Take Seminars at the Tennessee Department of Revenue
- When Is the Best Time to Start Making Your Quarterly Estimates?
- Is Living In A State With No Income Tax Better Or Worse?
- When Is the Best Time to Start Making Your Quarterly Estimates?
- Qualified charitable deduction for those over 70.
- Tax Responsibility for 2023 and the 30% Energy Tax Credit
- The Tax Deadline Is October 18 for Individuals
- How To Do Tax Preparation and Financial Planning The Right Way
And much more!
Transcript
Announcer 0:00
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 0:30
Good day. I’m Dr. Friday and the doctor is in the house on this beautiful Saturday afternoon. Let’s start out the day with a couple just reminders for some of you that may be still procrastinating a little bit on Monday, July 17 is the final day to to file and you have to do this by mail, we cannot file electronically your 2019 return.
Dr. Friday 0:54
So if you have not filed and if you would like to get your refund if you actually have one that would happen by July 17. Which of course is this coming Monday, I believe. So we have that notice. And then the second notice, I just wanted to make sure if you are also a person that lives in Rutherford County McNair Macon, and Haywood and Lewis, there’s about five counties out there cannon, your final deadline without extension is July 31, 2023, due to the storm damage that you were under federal disaster extensions.
Dr. Friday 1:32
So one to start the show out with those times and extensions, just so if you’re listening, and you still haven’t filed your 19, or you forgot to file your extension, and you happen to live in one of these other counties, about eight of them most common for my listening audience, Kenan Rutherford and making you You still have time and you won’t be late, which is the important part of that conversation.
Dr. Friday 1:57
So if you’ve got a question, you can join the show 615-737-9986 State of Tennessee has come out with their new interest rates. I think I told you guys last week, maybe a little bit about this. But they’re pretty ridiculous. If you owe money to the state of Tennessee, federal, you know, for sales tax or any of that, then, you know, they have increased that to almost 13%, I believe.
Dr. Friday 2:32
So that is huge. When you’re trying to make a deal you’re trying to get paid to get things paid off. I also found out an interesting thing. One thing I like about the people that do actually handle audits, and I know most of you guys are like no one likes audit as well, you know, it’s a job, it’s not something that anyone else, it’s just it’s a job that anyone has to do. And sooner or later someone has to be done.
Dr. Friday 2:55
And sooner or later, most of us will probably be audited by some format, if you’re in business, especially, but had a situation where a young man had filed reports be that sales tax business tax franchise exe, but he filed them, but just did not file them correctly. So when we got audited, all that had to be corrected. And when that was done, it actually eliminated the fact that the penalty was assessed, which I thought was pretty neat.
Dr. Friday 3:22
Because, you know, normally we have as much in penalties that we’re dealing with, than we do with anything else. And because of the way the state law is written, they do not charge a penalty. So again, it goes to show that if you are trying to do things, right, if you’re working on things, then you know, you make sure that you are not going to be that person that causes I mean, you know, penalties could have been 25% on top of the interest on top of the amount due.
Dr. Friday 3:52
And you don’t want that to be a problem with any one individual. So, you know, just just putting that out there that you want to make sure that if you’re going to be doing your business taxes, your sales tax, and sometimes people think well, if I don’t file anything, then maybe everything will be fine. Everything would be great, right?
Dr. Friday 4:14
So, but if you file something, and even if it’s wrong, then at least you have the ability to make sure that you can make it right. So just saying that is important, as far as being able to, you know, make it happen. And that’s all we want to do. We want to try to keep our penalties and everything down again.
Dr. Friday 4:37
If you want to join the show you can 615-737-9986 is the number here in the studio. I did get some calls. Last week I was talking about having your name and someone else’s name on your bank account. So I just want to recap exactly how this is is going to work for individuals, mainly, our biggest concern is, is having what’s the easiest way to put this? Our biggest concern is what if there’s a lawsuit someone gets in a car accident and they have their name on their mother’s bank account? Is it chance that if they’re sued, is that money going to be considered theirs?
Dr. Friday 5:20
Now, according to what I was told any bank account that has your name on it, even if you are only there as a backup plan, I guess you would say that that can put the money into a situation where you are going to possibly cause a problem with someone thinking that money is yours. So if you get sued, and your name is on your parents bank account, and your pay and you get sued for that, then they can theoretically say that money is yours.
Dr. Friday 5:55
Now, I’m not going to say that attorneys can’t turn around and prove otherwise, that it wasn’t your money. I don’t know, I’m not attorney, let me put that out there. Right now, I’m not saying that that is the case. What I am saying is that there are ways of protecting your parents assets, making sure that you’re safe, that your everyone is safe. And that if someone gets incapacitated, or God forbid dies, that you have control to do what you want without putting into jeopardy, the people’s bank account, I’ve had it happen directly with clients I’ve representative for the IRS prime example I had was the IRS pulls every bank account that your name is on.
Dr. Friday 6:38
And in my case, it was a child’s bank account that the parents had opened, which you can’t not open. As far as I know, a child under the age of, of 16, or 18, maybe cannot open their own bank account, right. So a parent goes in, they open a bank account, they put the children’s name on, you start teaching them exactly how it works, you know, you want them to learn how to manage a bank account how to do things properly. So you I did this.
Dr. Friday 7:06
And when the IRS pulled up this bank account, which was their teenage child’s bank account, it had money in it, and they took the money in a levy because the parents were behind in taxes. So again, this was one of those situations, I will tell you, in our case, we were lucky enough that we were able to justify proof that this was not the parents money that the parents had not put any of that money into that bank account.
Dr. Friday 7:34
And therefore this particular case, they were able to get that money back, it took months to get that money back. So if it had been something vitally important, we would have been in serious trouble, like if they’re trying to pay off their college or something you never know.
Dr. Friday 7:49
So all I’m saying is, if it’s something with and more, more likely, the one that my attorney friends shared with me was a divorce is what this one was talking about and how the parents or the mother’s bank account got pulled into the divorce because her son’s name was on the account. And when the attorneys pulled all the information, they had found this account thinking it was a fake account. That was his. Now again, I’m I’m hoping I don’t know for sure. But they hopefully figured out that this had nothing to do with him and he wasn’t hiding money from the divorce.
Dr. Friday 8:23
So the only way to really do this is a Find yourself a great attorney that does estate planning, planning. Very important. I use Russ Cook, Jack McCann, both of them are awesome attorneys in town, but I’m sure there’s others. If you have one, you know, go there, make sure that instead of having put your child’s name on the bank account, that you have provided the proper power of attorneys.
Dr. Friday 8:47
So if you become incapacitated, if you are unable for any reason that they are then able to go to the bank and have the privilege of being able to handle paying your bills or whatever it is that needs to be handled. That’s the right way to do it. Now, again, I don’t have a perfect answer for the case I had because this was a minor child. There’s not like you can’t you couldn’t close the bank, I suppose.
Dr. Friday 9:11
But you know, most children need to learn how to manage money. And the only way to do that is usually with our parents opening up bank accounts for us. So, you know, obviously the next suggestion is is let’s not get in trouble with the IRS and then we don’t have to worry about but you know, the world is so perfect, we wouldn’t have some of the problems going on them we do. So right now, the biggest thing is, for many of you that may not know who I am.
Dr. Friday 9:36
I am Dr. Friday. I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and representation which basically is all I do. So it means if you haven’t filed taxes, maybe you’ve received some love letters or you know someone that’s just basically losing sleep. They’re panicking because they know they haven’t done something but they don’t know where to start. And that’s always the hard part right? It means I haven’t filed taxes in 10 years.
Dr. Friday 10:00
How in the heck am I going to come up with the paperwork? Where do I start? What’s the process, and guess what we have what we can help you start from where you are today and help you get back on track. We’ve done it for a lot of people in the last 25 years. And we can help you as well or your friend or family member. First thing you need to know is all it takes is a phone call, first we need to do a consult, figure out what we have, possibly get a power of attorney, and then you know, we can talk about what’s going to fit best into your situation isn’t an offer and compromise payment plan non collectible.
Dr. Friday 10:33
None of that can happen unless you’re in compliance. Very important to get all of your tax pictures taken care of. And the second thing is no, this will not happen fast. I mean, I have people I’ve been working for, I should say with for years, I mean, we’ve been you know, knock it out, getting things moved around. But it takes a lot longer than most people realize when when you think , “Okay, all I want to do is get caught up, pay off the IRS or get a payment plan or make a deal.”
Dr. Friday 11:02
And all of those can take I mean, offering compromises have been renowned to take, you know, eight to 16 months to get resolved. So it’s gonna it’s not something you’re going to have happen. And the best time to do if you’re really thinking about trying to get even with the IRS is when you aren’t at your best. I know it’s so hard to believe.
Dr. Friday 11:21
But the fact is, if you’re making all the money you want to make and you’re you know you’re you have equity in a house and you’ve got a 401k and you’ve gotten everything that way, guess what you’re going to end up with not the kind of deal you keep hearing about on the radios that says, “Oh, I’ve got 10 cents on the dollar. I can make sure we’ve made many of those deals.”
Dr. Friday 11:41
But to be quite honest, that’s not people that are in homeownership with lots of equity. They’re not people that have a ton of collectibles are cars or, or money in 401, K’s or stock portfolios, you know, the government’s going to say, “Hey, you guys invested into that with our money because you didn’t pay us.”
Dr. Friday 11:59
So they want their share of it. But if you know, if you’re at the rough time and you’re trying to get things squared away, then that’s going to change a few things. So that’s important. We’re also going to talk and see if anyone’s actually listening that knows anything about the whole unemployment situation where people are being told they have to come back and then they have to pay back the unemployment that they received from Tennessee Department of Labor. We’ll talk a little bit about a case or so I have going on. But to be honest, we don’t deal with Tennessee Department of Labor audit.
Dr. Friday 12:33
So anyways, we’re gonna take a quick break when we get back you can join the show c. We’ll be right back.
Dr. Friday 12:38
All righty, we are back here live in studio. This is the Dr. Friday show. And if you want to join the show, you can at 615-737-9986. Taking your phone calls. And it looks like we’ve got Jean on the line. Let’s see if we can get Jean on the show. Hey, Jean, thanks for calling.
Caller 13:12
Hello, Dr. Friday. I have a question regarding revocable living trust. I believe you have to file an income tax justice if that is an individual. And I want to know a comparison of the the right like $50,000 of income to an individual or couple would a trust that they had applied to their farm land and the income came from the farm? Would a trust wind up with time, right?
Dr. Friday 13:57
Well, revocable living trust is basically the kind that you don’t file a tax return on but irrevocable and I get those sometimes I will tell you, you know often there’s two sides, but if it’s a revocable that one comes into play after you’ve passed away. So the tax rates don’t really come but if it’s an irrevocable that one does have and they do have a higher tax code in the in those situations, then then a normal individual for tax rates on on that situation.
Dr. Friday 14:32
So their tax rates basically the highest tax rate is 37% which is pretty much the same as ours, that run under there, but they end up starting at like 24% and we start as low as 10. So it it is definitely not a compatible situation. There are there are usually legal reasons that people want to have an irrevocable trust or inheritable reasons but the Normally with a revocable trust, which is what I have, and probably many people have it, that will only happen if we pass away.
Caller 15:07
All right. So with a revocable trust, the income from that property that end the trust flows to the individual, right?
Dr. Friday 15:20
100% Correct. Yes. Yeah. Oh, well,
Caller 15:24
You are so informative, and we enjoy your program. And thank you.
Dr. Friday 15:30
Thank you very much for listening. I appreciate it. Okay. All right. Thanks. Have a good Saturday. Okay, so we’re gonna, if you want to join the show, you can I appreciate the phone call 615-737-9986. Taking your calls, talking about all my favorite subjects. And then hopefully, some of your favorite subjects. If there’s something that you have happening again, it is still tax season for 2022.
Dr. Friday 16:01
And so we’ve been working a lot on getting them completed, partly because a few people were actually in the storm area. And so we’re trying to get those completed before the deadline. And otherwise, it’s just the quieter time. So if you haven’t, you know, if I know a lot of people or many people prefer to have their taxes done on or before April 15.
Dr. Friday 16:21
The nice thing about waiting until after the April 15, or thereabout deadlines is that if you have a business or if you have a a number of rentals or just a larger tax return, it is usually probably more beneficial to have someone do it after because then we have more time, things aren’t quite as crazy in our offices than they are when you are actually, you know, dairy in the midst of seeing a client every half hour and and producing tax returns.
Dr. Friday 16:52
But there hasn’t been a whole lot of changes in the tax code for for the new year. So far, am watching a lot. There has been discussions again, they’re trying to add more there, they’re successfully add a more revenue officers. Again, when I was dealing with Tennessee, Department of Revenue, who was handling a couple audits for a couple cases were handling. They have taken on a number of new trainees in the they’re out of the Cookeville area.
Dr. Friday 17:24
And so they have Ratan. So they are training a lot more people to be able to help perform, obviously more audits, which actually produces more income for the state. So therefore, that’s the reasons for it. And, you know, there are some pretty interesting changes. If you’re a business owner, I would definitely suggest taking some of the seminars at Tennessee Department of Revenue. They have usually one they have a bunch on their website, but they also have many of those that you can go on live ones that will also be available, especially for small business owners, hotels, because many of those things are constantly changing.
Dr. Friday 18:02
I still run into people that haven’t set up 10 Tap accounts. So I mean by by law, now you have to pay electronically for your franchise, excise your business tax, unless you had been able to get a waiver, there was a couple of older individuals that were able to because they didn’t have computers to be able to get that waiver.
Dr. Friday 18:21
But most of those have now I think expired. So again, things that you want to do making sure that your business is in compliance, not just for the federal government, but also the state. You know, I mean, we have last week, I must have had eight different people. They got letters from the state of Tennessee for their annual reports and none of them knew exactly what they were supposed to be doing and usually comes on a big yellow sheet of paper or there abouts and it says notice of determination and has your company.
Dr. Friday 18:24
And you know that’s that’s not even really attacks. That is your annual report that you have to file and then you know pay your annual fees to stay as a corporation or an LLC. But again, if you know to do to operate a business in Tennessee, especially if you’re operating as an LLC or a corporation, you’ll be dealing with the Secretary of State Tennessee Department of Labor most corporations have to have employees not every LLC does but most corporations do so you’ll have labor then you have the federal and then of course you have Tennessee Department of Revenue which handles all of our business licenses and our franchise excise and and then if you’re a truck driver, right guys, you guys all have different taxes, road taxes and things I think most of those are also paid liquor taxes, all those are almost paid right through the Tennessee Department of Revenue or ABC. So the problem with this is is that there’s so many little people, little situations out there.
Dr. Friday 18:52
But if you are not able to file all of those reports and stay in compliance, you’re going to get somebody caught knocking on your door. And in many ways, I believe that the small businesses have a harder time in many ways, because they sometimes just forget, or they, you know, they have a friend and they buy inventory directly from them instead of buying it through the vendor, and therefore, the retail accountability doesn’t add up, or those kinds of things.
Dr. Friday 20:24
But you know, once you get everything going the right way, you’ll find that it’s a little less stressful. So if you’ve got a question, maybe you’re thinking about, what should I do to open up a new business? How do I make a new business? You know, it shouldn’t be an LLC or a corporation? What’s the really the big difference? And yes, you do need an attorney to set those up.
Dr. Friday 20:43
But yeah, I can certainly tell you tax wise, what is the best way for you to set it up at least as far as what I’m doing and where I’m doing it, and what we have going. So we will be able to take a look at those. And also, when an owning a business is smaller to save money and tax living. So okay, I’m gonna answer those questions. In a few minutes, I’m getting some emails or taxes in guys, sorry, I’m one of those people, I can’t necessarily talk and read at the same time. So it makes it for challenging I’m sure for all you guys that have been listening to me for almost 15 years, you’ve probably heard me more than once babbling over on my side, because sometimes that’s what you have to do.
Dr. Friday 21:26
But if you want to join the show, you can 615-737-9986. We’re going to talk a little bit after taking a break, we’ll talk a little bit about what it will take for you to get back into compliance. What should you be watching? What is the what is the more what what could cause an audit? I’m always asked that I’m asked that many, many times, what is the you know, what is the most likely thing I could do that would cause an audit, you won’t be surprised and what those kinds of things can be.
Dr. Friday 21:59
I’ll share with you what the IRS has shared with all of us the most of the time, whenever I start an audit, I will let you know that they come up and they say it’s, it’s a random pick, you are randomly picked for this audit. But we find that sometimes that isn’t always the case that sometimes the word random is not so random, that there’s a you know, actual computer system that picks out the things that are irregular, or something that’s happened a little less or a little differently than other things.
Dr. Friday 22:28
So we make those choices in there. And sometimes sometimes we don’t have a choice. I mean, you sell a big piece of real estate or you relocate or you change jobs, those are things that’s going to make your tax returns seem or move a little differently. And then also what the things they see that will sometimes consistency, it doesn’t wave as many flags them when you might do things differently.
Dr. Friday 22:52
So that’s really the biggest secret the IRS basically has triggered or the the IRS is looking at something like they’ll be auditing people that all have stuck, right? I’ve had that many times certain number a number of transactions or something like that, where it comes out and, and becomes more of a situation. Alright, hey, sweetheart. Let’s go ahead and do Karen before the break. If I go over a bit, and then my we can not have her hold through.
Dr. Friday 23:17
Hey, Karen, what can I do for you?
Caller 23:20
Thank you. My surgery is the executor of my father’s estate. She picked her husband over $6,000 to do work there to get the house ready to sell 99 for that work?
Dr. Friday 23:37
Absolutely. Absolutely. If she paid him, he is not a beneficiary of the state. So she can’t even consider that as a, you know, an advancement. I’m assuming the checks were made out to the husband. So that it wasn’t it was work. I mean, he prepared, he cleaned. He did whatever he did, which was actually considered labor. It wasn’t part of the inheritance.
Dr. Friday 24:02
So he needs to pick it up. And then you know, obviously, he can write off any expenses he might have had driving back and forth. If he was, you know, whatever his situation might have been he may have some deductions to write against that. But yes, there should be a 1099 issue to him on behalf of the estate, because of the work he did.
Caller 24:23
I greatly appreciate your help. Thank you.
Dr. Friday 24:26
No problem. Thanks, Karen. I appreciate you calling. Okay, let’s go and take our next break guys and we get back we can hit Charles and some of the other people that might be joining our show. We’ll be right back with the Dr. Friday show.
Dr. Friday 24:42
Back here live in studio, you can join the show at 615-737-9986. And let’s go ahead and hit Charlie. Hey, Charlie, what’s happening?
Caller 25:03
Yes, ma’am. I am interested in buying an electric vehicle and utilizing the $7,500 tax credit. Okay. My, my only problem is, is because my wife and I are retired, and we use live on Social Security and a small IRA withdrawal every year, I do not have a taxable income.
Dr. Friday 25:32
Well, I’m not laughing at you. It’s a wonderful problem to have at the moment, but also the credit if I’m correct. And let me just double check to see if it’s refundable, but I don’t think it is. If it’s refunded, well, if you don’t have taxable income, you can’t file it. Well, you can file a tax return still. So that just curious,
Caller 25:54
I file every year. And I always give back everything that was withheld from my withdrawal from Ira. I guess my question is, I’m not sure this would be a sound judgment. Could I take a very large distribution from the IRA to the point where I would have?
Dr. Friday 26:13
Yeah, yeah, no, you I love your thought, because it’s not refundable. But you could spend it. So you could take a larger do a conversion, maybe convert some over to a Roth, even if you don’t need it, and use that money and put it towards those taxes. And you could convert, you know, whatever, depending on your income bracket, you know, anywhere between, I mean, theoretically, 4050 grand possibly, I mean, again, I’m throwing a number, I don’t know you personally, but it would be a nice healthy conversion that you could use, and then either roll it over or do what you want to do. That’s totally your choice. But I think that’s a great idea.
Caller 26:53
Our Social Security jointly is probably around 50,000 a year. And I just thought it might be a good idea to liberate some of the money out of an IRA, and let the government pay the taxes.
Dr. Friday 27:09
Well, that’s, I mean, that’s until especially if it’s something you want, I always try to tell people, you know, we don’t want to just go buy something, because we can maybe save some dollars, but in your case, it’s something that you want anyways, so it would be a win win, because unfortunately, otherwise, it’s a loss, you know, I mean, you’re gonna go out there, you’re gonna buy what you want.
Dr. Friday 27:29
Because it’s, you know, it’s a smart investment, but you’re not going to get the benefits of it, or at least the Benefit They’re handing out right this second it, but if you did the conversion, that would be very, very intelligent. As far as I’m concerned, you can always put, like I said, put it in a Roth, let it grow tax free, you don’t have to physically take it out of your retirement. But now the mandate for having to take your RMD is out. So I think that’s a great idea. Definitely thinking outside the box, my friend.
Caller 27:57
I really would. I guess my other kind of question would be, how would I calculate, I realized my Social Security would become taxable, or at least a portion of it.
Dr. Friday 28:08
Right? So what you’re gonna want to do. Do you do your own taxes usually?
Caller 28:14
No, I have someone do it.
Dr. Friday 28:16
Okay. Anyways, as I say, sometimes if you do, but what you’re going to want to do is take yourself to be on the safe side, take the Social Security and take 85% of that added as income. Because that’s the worst scenario, then take whatever you might have for your RMDs that you’re just normal life raw RMD, add that in, and then take a look at the tax code.
Dr. Friday 28:39
Because if we take out another $30,000, we’re going to be making most likely your Social Security. That’s the mistake a lot of people forget is that right? Now, your social security may not be taxable, because you’re able to live off Social Security and your RMDs and not actually have a very high taxable situation. But if we take another 30, or 40,000 out, now you’re doing dollar for dollar, almost of the conversion.
Dr. Friday 29:03
So every dollar you take out you actually taking and paying another dollar and Social Security, you know, I mean, so you need to make sure you add back in and if you have a question, I can certainly throw it into our system, if you want to give us a call during the week. And we can do you know, give you a rough idea of what that will be like, just to give you an idea of how much you might want to convert that week that you’d be able to use with the 7500 wouldn’t take that much.
Caller 29:28
Okay, excellent. I will probably do that. I think you thought about the Roth rollover.
Dr. Friday 29:35
Well, a lot of people, I mean, at least seems like whenever I’m in the, you know, office or whatever, that’s a big thing to do. And again, especially if you don’t need the money, you still want the people to be keeping it invested. I mean, that’s what most of us hopefully the same investor and it grows tax free and people inherit it tax free versus the traditional IRA which now they put the mandate of having to be out in 10 years after so, you know, I’m just saying they Nowadays, if I inherited an IRA, I have to cash it out within 10 years, I believe.
Caller 30:05
Okay, thank you very much.
Dr. Friday 30:07
Sure. I appreciate the phone call. Thank you. All right, we’re going to be taking more phone calls. If you want to join the show 615-737-9866. I had someone send over a quick question. I thought it was an interesting one. It was, is it is there a better tax advantage to people that live in a tax free state like Tennessee, where we don’t have a state income tax versus states that do have income tax, and I’m sure, I’m gonna probably be a little bit less.
Dr. Friday 30:41
I mean, I love Tennessee, as far as myself, and I love the idea of not paying a state income tax, I have a brother that lives in California, I do his taxes, and with the current tax code, and not being able to write off 100% of his state tax, he’s now leaving from back in 16/17, when we did taxes, you know, he would have 20,000-30,000 between his state income tax and his property taxes.
Dr. Friday 31:08
And now he can only maximize that area. So instead of having 30,000, in there, he can only take off 10 or so states that have a higher state income tax, or you happen to be lucky enough to, to make a decent living, that you’re able to, you know, in your paying state income tax those states right, the second are being penalized in my opinion. So it definitely not an advantage.
Dr. Friday 31:32
As far as for tax purposes, there may be other advantages to living in other states. But the advantage as far as I’m concerned, right, the second out of the tariff tax could not an advantage to be in a state where you have not able to write off all of your state income tax that is not a winning winning situation. So just putting that out there an answer to that question and having to get in do something with our situation. All right, well, hey, I got lucky enough. Hey, Gary, from Lebanon. Hey, Gary, what do you got happen in my friend?
Caller 32:09
Thank you, Dr. Friday for taking my call, appreciate it, enjoy your show, starting a new job. And they’re gonna treat me as a self employed individual contractor, and just need to know about how to set aside money for my income taxes. Is there a formula for that? And how often I had to pay for for those taxes?
Dr. Friday 32:33
That’s a great question. So I’m gonna give you a basic rule of thumb, you should in the first year that you started out, it’s ideal to try to start making your quarterly, which the usual dates, April, June, September, and January, always on the 15th, you can download those forms, they’re called 1040, e S stands for estimated statement, and you can put in and fill those, you can also go to irs.gov, and click on the pay button and pay them electronically.
Dr. Friday 33:02
Either way, they usually, I mean, again, it really will depend on how much money you’re making, if you’re married, or if you’re single, there’s a lot of other things. But I always suggest any of my clients, a minimum of 20% should go into a separate bank account called taxes. And then the remaining and this would be from your profits, not from gross. So I don’t know for sure exactly what the job would entail.
Dr. Friday 33:28
But if it’s all your brains meeting, like I do, or there’s not a lot of cost to what I do, but more of what my expertise in Therefore, most of the money I make is taxable give or take a few dollars for my, you know, computer or something like that. So, but I would say if you’re, if you’re single, and you’re making more than 55,000, or if you’re married and your joint income is more than 115, then I would change that to 25%.
Caller 33:58
Okay, well, it’s a counseling job, I’ll be in I am married, four kids.
Dr. Friday 34:08
Just put it aside. Now, you may find out in this first year, you know, I my tax law says we have to pay in 110% of what we owed in 2022. So I would look at that number and assuming your income is going to be somewhat the same. I would not give the government more money than what they need, I guess is what I’m trying to say, Gary. So if you look at last year’s taxes, it says total taxes were $5,000 before all of your credits and deductions. That’s what you’re on be targeting again for this year, roughly 100, you know, so maybe 5500.
Dr. Friday 34:40
If your wife works, a real job W 2 job I should say she’s going to pay in some money. You’ve already worked half the year possibly paid in some money. So I would only be trying to match that number. And then the rest of it will be sitting in a bank account. So when you do your taxes and you find out you might owe a few more dollars, you’ll still have it sitting there but you won’t pay penalties, I’m not making the payment. I just want to make sure we don’t make a payment and then have to worry about it later.
Caller 35:07
And I can use my associates current social security number for doing that.
Dr. Friday 35:13
Absolutely, absolutely. You’re just gonna go in because this is going to fall on a schedule C on your personal tax return. So yes, 100%, you’ll just File this under your so so when you file your taxes, there’s a category it says that you make any estimates and you’re just going to use that is where you’re going to put them. But yes.
Caller 35:30
Okay, thank you very much. I appreciate it. Have a good day.
Dr. Friday 35:33
No problem. Great question. All right, so we’re gonna take another break here. And the last one of the show, if you want to join the show, you can at 615-737-9986. I’m Dr. Friday, an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. And so if you need any help with those, that’s what we’re talking about. And we’ll talk a little bit more when we get back from this break with the Dr. Friday show.
Dr. Friday 36:03
Dr. Friday, we are back here live in studio, the last part of the show. So if you’ve been holding your breath, trying to figure out oh my gosh, am I gonna be able to ask this question or not? Now be the time to pick up the phone 615-737-9986, taking your calls, talking about whatever the tax issue might be money, that’s all my favorite subjects, obviously, trying to figure out the best way to handle each situation, and then trying to make sure that you’re asking the question before you go and do something because sometimes two heads are better than one, sometimes we can come up with something better than just thinking, “Well, I can’t do this, or I can’t do that,” just because you didn’t think it through sometimes.
Dr. Friday 36:55
So that’s an important element in many things in life, but especially when it comes to our finances. Because sometimes I’ll talk about Roth conversions. I am not a financial planner, guys, it’s never my suggestion to ever tell someone how to deal with anything when it comes to that element. But I would always suggest, especially if you’re a person that is taking requirements, required minimum distributions RMDs and, and you’re over the age of 70.
Dr. Friday 37:24
And you give money to charity. You know, I talk about this a lot, because I don’t feel enough people talk about I can’t tell you how many times every year people walk in my office and they still have not heard about the qualified charitable deduction. It is for I don’t know why more. And maybe there is some financial planners that are talking about it. I have not heard it, because obviously people are walking to my office. And they’re like, “Oh, I didn’t know that.”
Dr. Friday 37:47
So you know, it’s a pretty straightforward situation. Most people when you hit 70 or older, we used to have to take our RMDs at the age of 70 and a half, the new law says we take it at 73. But qualified charitable deductions start at the age of 70 and a half, you can take your QCD, which is great, because now let’s say you want to give or maybe every year you give $5,000 to your charities. And now we can itemize it right. It’s smaller than your standard deduction.
Dr. Friday 38:18
So there’s no way of really getting a tax deduction for it. But you can if you’re over the age, and you’re able to talk to your financial planner and say, “Hey, I heard about this qualified charitable deduction.” The money comes directly out of my IRA, it goes directly to the charity through you, they usually write checks, give them to you, you then give it to the charity, and then you and you file your taxes you back that out and it is dollar for dollar tax deduction people.
Dr. Friday 38:47
So you would automatically reduce your income by the amount of your charitable deduction. It is a huge situation when it comes to getting your taxes down and enjoying still be enjoying being able to take your charity and most people don’t give to charity just because they can have a tax deduction they give because of the other advantages, but why not have both? All right, let’s see if we can get Dean from Lebanon. Hello, Dean. What can I do for you, sweetie?
Caller 39:21
Yes, ma’am. After listening to the gentleman, talk to you about the energy credit for an automobile. Just prompted my question. We have calculated what I believe my tax responsibility will be for for 2023. And we have a 30% energy tax credit that’ll be coming our way for about $1,500. So it’s going to enable us I think to have a refund simply because of that. Credit coming our way. But listen about the EV, would I still be entitled to that refund? Or the government says, “No, you only, you know, you can’t go into a positive situation, simply because you bought a new heating and air system.”
Dr. Friday 40:14
Right. Well, I mean, it sounds like to me in your case, and I can be completely wrong again, not sure. But if you actually owe any taxes, that money will offset those taxes, and you’ll get a refund of the money you physically paid in for your taxes. If you have a zero tax bill, you know that you don’t owe any taxes and you don’t have then this will be the same exact problem. These are. I don’t believe that the energy credits or any I know I looked up the car, but I don’t think these are refundable, either. I think they only reflect or go ahead. What did you say?
Caller 40:51
I would be benefit myself. And if I’ve lowered the amount of withholding coming out of my paychecks, so that I’ll actually in an owe situation at the end of the year?
Dr. Friday 41:02
not necessarily if you I mean, it sounds like you have other income and that you usually end up owing taxes. I mean, they they take some you may get a refund still but your own money coming back at you. So as long as your tax bill is $1,500 or more, you’re going to get everything refunded above that anyways. So anything that comes out of a paycheck or an RMD or social secur, wherever you might be paying in federal withholdings, they’re going to reduce your taxes by that $1,500 credit. And then whatever else is due or left, you’re going to be refunded.
Caller 41:36
They wouldn’t send me more than, they wouldn’t send me $1,500 If I were to have exactly the right amount withholding.
Dr. Friday 41:45
Exactly, no. I mean, if you again, if if when you filed your taxes, you had a zero balance due and then you took that credit, you would lose that credit.
Caller 41:54
Okay, thank you so much.
Dr. Friday 41:57
No problem. I appreciate that call. All right, let’s see if we can hit Ken really quick. I know the clocks kick in. But we’ll see. Hey, Ken.
Caller 42:05
All right. Thanks for taking my call. My situation is I’m selling a home. I’ve lived there two out of the past five years. And I’m wondering how much money is tax exempt? It’s the first home I’ve ever owned. And I believe there is a tax exemption for that.
Dr. Friday 42:20
Yes, you’re 100%? Correct. Are you single or married?
Caller 42:23
Married.
Dr. Friday 42:25
So it’s, it’s 250 and individual and 500 for married 1000. So in your case, if you if you both lived in that house, two out of the last five years, you would have a $500,000 exclusion.
Caller 42:39
And I’ve only been the one that’s lived there. My wife is not. I’m living in her house. So it would just be 250 for me, then.
Dr. Friday 42:48
That’s correct. So and then you would add whatever you paid for the house. And that would be your basis.
Caller 42:54
So if I sold it for 250 and paid 50,000, the basis would be 300,000?
Dr. Friday 43:00
That’s right. So you’d have I mean, you’d have a zero tax. You can’t take a loss, but you’d have a zero tax.
Caller 43:06
Wonderful. Okay, that’s great. That’s what I needed to know. Thank you very much. Perfect answer my question.
Dr. Friday 43:11
No problem. Thanks for calling in. All right, guys, we’re gonna get down to the nitty gritty of the show here. I really appreciate all the phone calls. I know it’s a kind of a crazy Saturdays right now a lot of people are out traveling kids are out of school, getting ready to relocate, I have several clients buying, moving relocating, so I appreciate you listening.
Dr. Friday 43:31
And also making those phone calls if you’d like to have some help with taxes. Again, I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. So if you need help being represented before the IRS, or if you have questions concerning your taxes, or just getting into compliance, or maybe you’ve done it all, but you just don’t know what the next step is, then you can give our office a call on Monday morning, that phone number would be 615-367-0819 is the phone number for the office. If you’re trying to figure out you know, if you’ve got someone and you’re like, I just need to talk to someone.
Dr. Friday 44:13
Remember, our initial consultation is always free. So to get a feel for what we can offer you and also gives us the ability to find out if we can even offer you you know what you need? Or if you need to go in a different direction do you need to really be talking to someone to deal with bankruptcy because your collections or your your IRS debt is really really old and it hasn’t fallen off yet. But you know, if you go to bankruptcy, you can clear it or is it something that you need to go to, you know, other types of representation.
Dr. Friday 44:42
So, that’s why we always take our initial meetings and we make sure that they’re always free because we just want to make sure we’re all on the same page. Make sure we can help you and same way that we fit into what you need. So if again, if you want to join, call the office the phone number would be 615-367-0819 as an enrolled agent, one of the biggest things that we do is actually representation.
Dr. Friday 45:06
So if you’re getting love letters and you’re putting them in a drawer, there are time periods that we can do certain things, we can try to get reconsideration on different issues, we can try to get the IRS, but the fact is, in many cases, even like the one I was dealing with, or had come into my office, it’s not what we’re representing.
Dr. Friday 45:26
But you know, had did the Tennessee Department of Labor repayment, these people, if you leave things in a drawer and you’re not looking at them, then you’re going to be in trouble because that time clock goes by. And then you don’t have the ability to actually even give your side of the story unless you’re lucky enough to have a reason why you were not able. So if you’re getting those love letters, let’s not apply them in a drawer. Let’s take a look.
Dr. Friday 45:50
And let’s try to figure out what we can do to actually come up with resolution and then you can actually start rebuilding your life and not worrying about if Uncle Sams going to come in and levy lien or see something. So again, phone number 615-367-0819. You can also email firday@drfriday.com. Friday is my first name drfriday.com or you can check me out on the web at drfriday.com. That’s our website drfriday.com I hope you guys are actually having a awesome Saturday at least in the Spring Hill area. The rain has stopped. So as we always love to say in Australia, call you later.