Listen to this week’s episode of the Dr. Friday Show, broadcast live every Saturday at 2:00pm Central on on 99.7 WTN! Radio personality John Haggard is at the helms, taking over the show while Dr. Friday is on the phone. Together, they discuss the following:
- Trump Tax Changes Update
- How Safe Is Tax Computing Program Software?
- Is There a Way You Can Use a Sale’s Proceed Without Getting Taxed?
- Social Security Issues
- Companies That Provide Medical/Family Medical Leave, Should They Get a New Business Tax Credit This 2019
- Do Self-Employed Individuals Get Additional Tax Benefits?
- Sole Propriety vs Corporation
- Any New Reporting Requirements for Partnerships?
- When Does the IRS Call You? How to Know If It’s Legit?
- Tax Credits and Legal Fees
- Are Social Security Disability Benefits Taxable?
- What IRS Would Do If You Move to a New Address and State You Didn’t Get Their Memo?
- What Do You Gain or Lose When You Sell Your Rental Property?
Announcer: 00:01 No, no, no. She’s not a medical doctor, but she can sure cure your tax problems or your financial woes. She’s the how to girl. It’s the Dr. Friday show. If you have a question for Dr. Friday? Call her now 737- WWTN that’s 737- 9986. So here’s your host to financial counselor and tax consultant Dr. Friday.
John Haggard: 00:29 Live from America’s music city. It may be Saturday where you are, but it’s Friday all day, every day, all the time. With the tax doctor, the tax lady, the doctor of accounting known in these parts of America as the Dr. Friday and right here she is. Hey, Dr. Friday.
Dr. Friday: 00:47 Hey John. What an intro. The Dr. Friday. I liked the way you play that. You know there’s only one.
John Haggard: 00:55 The only one. You are totally unique. Absolutely. Well you know it’s kind of hard to believe here we are. You know, of course we’re talking taxes all the time because there issues of things that are going on all the time. But we’re really a little under six months to go before we close out 2019. And I guess some people ask, well. When did all that tax stuff that Trump got passed kick in? So, Are we going to see more benefit overall this year if our business is the same or a person’s… You know, tax return pretty much the same as it was last year. Is there going to be like more goodies, more money back this year? Or we’ve already seen what we want to see.
Dr. Friday: 01:38 I think you’re going to see what you want to see. I think the biggest thing is it went through in December of 2017 effective basically 18. Which means a lot of people really couldn’t make any change by the time 18 happened. So I think 18 might’ve been a surprise. Even the tax code itself didn’t actually change the W2 I want to say until March or April. So 18 was definitely a transition year for lack of a better term. So I think in 19 more people are going to have it, really won’t change the tax law, but I think we’re more prepared. You’ve had a whole year of withholdings at the new rates. You’ve had the ability to make adjustments if your 18 was filed and you found out that you didn’t have enough paid in or whatever. I would hope that people have made those adjustments to take care of the shortfall or if you’ve gotten too large of a refund to make the adjustments so you’re not getting such a large refund.
John Haggard: 02:33 Gotcha. So pretty much the same story minus, you know, some sort of minor adjustments there, like you talked about. We’re pretty much set in concrete if you will. We pretty much have a good idea of what we’re going to look forward to this year.
Dr. Friday: 02:45 Right. And I think one of the bigger things is also from the tax preparer side of things. There was a lot of new tax laws that many people maybe didn’t have the time, a QBIB one qualified business income. I think there was a lot of people and even some of the tax softwares that were doing things incorrectly, they later found out and made some adjustments and corrections. Some people had to amend, but if you were doing your own taxes and you really aren’t sure that you’re a small self employed, maybe you drive for Lyft or you’ve got rentals and you’re not sure what QBI even was. So you just basically said no or whatever. I mean I think a lot of people are now getting a better handle on those and it wouldn’t be a good time if you do your own tax returns and you have a rental or you do a small business and I’m talking what years I got. They are sitting there, scratching your head saying what is Friday talking about? When it says QBI if you’re not sure what a 199A, or QBI is, you may have missed some tax deductions on your 18 tax return.
John Haggard: 03:45 Wow. So if you don’t know what QBI is, you may be in a little bit of trouble.
Dr. Friday: 03:50 Yes. It was a new term. It wasn’t something that we had prior under normal tax. There was a 199A but, it did not apply to the everyday ordinary business owner. It did effectively as of the first of 2018 but knowing myself how many classes and courses and just questions I’ve had to ask to really get a handle on it. I can’t imagine an everyday ordinary person. I do my own taxes. I can say yes or no to these questions if that would’ve been done correctly or not.
John Haggard: 04:22 All right. Now an important question to ask Dr. Friday in a moment, and some of you use this and you will want to hear her answer to this. But first off, here’s the phone number to call because when we say live, that means you can call right now any tax question at all that you have, there are no dumb questions. Dr. Friday would tell you, if you can put some additional money in your pocket, why give it away? Why make a mistake? Even if you could file for a refund later. But you know it’s expensive to do that too. And so, you know, take care of your money and the phone number to call right here. 737- WWTN 737-9986. We’re here until 3:00 pm So that means you’ve got about 52 minutes. Now’s the time to jump on the phones and get your questions in to Dr. Friday, we’ll answer them here for you. So for those, Dr. Friday, who do this, and there’s some of you out there who do this, so take a listen. They say, well I listened or I use this software program’s been out for years to compute my taxes, and things do change and all this and that. How safe is it? You know, to put your hands into a computer software program. Because we’ve heard some horror stories over the years. I guess that would be number one, and number two, if it does make a mistake, Who pays? Can you blame the software companies say, no, no, no, that’s their fault. They need to pay the tax. How does that work?
Dr. Friday: 05:44 Right. Well, there’s been several court cases, just to deal with the fact that I use the software, it made the mistake, therefore I shouldn’t be liable for penalties or interests. In some cases they’re even thinking the tax and the courts have come back every single time basically saying, sorry that you need to know enough about taxes to know that this mistake happened. Big Rule of thumb, in my personal opinion, if you have a W2 you are what I consider a simple tax return, especially under this current tax law where standard deduction is over $12,000 married couples over $24,000 lot less itemizing, required no employee reimbursements. You probably could handle that because it would be pretty straight forward. But if the tax return is too good to be true or one way or the other, you owe a lot more this year than you did last year. You have a larger refund this year than you did last year. I would get a second opinion. I would, in many of these systems, they actually have someone you can call. I would contact somebody because once you sign that tax return, it says you have filed this to the best of your ability. It doesn’t say there’s no mistakes, it’s just to see the best of your ability, but it’s harder to correct the mistake with the internal revenue service than it is to catch it before you send it back to them. So always do your very best before you make the mistake, and no one does it on purpose. I don’t believe people intentionally make errors, but you know, if it seems too good to be true, I’ve had people that come in my office and the other getting $3,000 and $4,000 more in one year than the next. They thought it seemed odd, but they went ahead and filed it and got the refund. And of course then the government came back and say, wait, this is a big mistake. You owe us that $3000 now plus another $2000 for penalty. So you’re deprived, all this other stuff. So the loan was very expensive.
John Haggard: 07:37 Wow, wow. So, you know, when you sign it. You’re basically, it’s your deal. I mean, you can’t say whoa.
Dr. Friday: 07:45 Yeah.
John Haggard: 07:45 Gotcha. All right, let’s go to the phone lines and let’s bring Dan onto the Dr. Friday show. Dan, you’re on the air.
Caller: 07:53 Hi, Dr. Friday. My mom passed away in January and we’re just now getting the sale of our house in July. And my son is starting school, college in August. And I want to see if there’s a way I could use the proceeds from her sail of her house without having to pay taxes on it. We do have a 529 plan and she lived in Pennsylvania.
Dr. Friday: 08:16 So there’s one good part of that conversation and it’s hard to find something good when I say someone’s parent passed away. But, in January whatever the house was worth the day your mom passed away is the basis. So, unless the house has a huge growth between January and July, which in this current market there could have been a little bit of capital gains, but probably not a huge difference. You will pay zero tax. So, whatever was worth in January, let’s say it’s worth 300,000, you sell it for 300,000 there would be a zero tax to you or your beneficiaries. So you could use the money certainly for college. There no additional tax deduction available to you for doing that. But I would think that there’s probably going to be a very small tax due to PA or to the federal government on that particular transaction. There may have been some other things that are taxable that mom left behind, but the house probably won’t be one of them.
Caller: 09:14 Yeah, my brother said it was a 5% Pennsylvania tax of some sort. So that’ll come off the top. And then when it split 23 of us, a lot of say the third on my taxes and that part will not be touched. Well thank you so much.
Dr. Friday: 09:27 [Inaudible] Sell it the one part. No worries. Thanks, Bye.
John Haggard: 09:30 Well, I’ll tell you what. It’s nice to have some good news, in it Dr. Friday?
Dr. Friday: 09:35 Let’s see, after you know, really bad day, but at least it’s nice to give people their events to say. Hey, there is a little golden lining in this whole conversation.
John Haggard: 09:43 There really is. And we were talking about you before the show came on today and there’s one thing that people should know about you and I like to brag on you because I know you don’t brag on yourself. And so I’m going to be the one that does it. But anyway. Speaking of good news, there are people and clients that you’ve had, we talked about one that owed over $1 million dollars. I mean, that’s not a title. Over $1 million dollars received letters from the IRS basically said, You got to pay and try to get the money and probably eventually gonna come to get you. And this person found you and you were able to settle that for how much was it?
Dr. Friday: 10:19 Just a little under a hundred thousand dollars.
John Haggard: 10:22 Wow. And I know you’ve had a number of cases like that, but if we take that one case right there, and of course everybody’s case is different, circumstances are different and so forth. What you do hear, and you’ll start hearing about in October. I think you may have heard of a few commercials and seen some TV spots as well about you. We’re gonna view all money, the IRS, you know, at least 10,000 or whatever all this and that. And there was a national company that was spending just tons of money advertising, I think. The state attorneys general, whoever, I mean, it would seem to be a scam or whatever and put them out of business. So, you know, what? In terms of that situation. What to be looking out or how do you take a million down to 100,000? I mean, just in general terms.
Dr. Friday: 11:09 Right. And that is a great question, John. Because I have quite a few people. I mean, once you get in and you really do want to get out, but, so here’s a couple of different things, I would first say. If you call any company, does it make a difference? Including myself, any company in the first things out of their mouth is, Oh yes, we can fix this problem. Here’s a payment plan or send us 5,000 and start sending us $500 a month without looking at your case. Which means they have to have power of attorney, which means they need to pull transcripts, they need to know how many tax years you’re going to be defiled. Is it even a taste that they can settle? I mean, if you have equity in your home, if you’ve got access to a 401k How old was the debt? Did you just file all those years of taxes? You know, in the last year? The government has over 10 years, at least 10 years to collect back debt. So obviously older the debt, more flexible, they’re going to be in the ability to remove some of the penalties or make a deal with you. Everybody doesn’t get a deal. It’s that simple and more stable. You are probably less likely the deal. Now I can tell you we’ve made some great deals but in most cases just as the one we talked about from the beginning of the show here is that situation is somebody that really had nothing else the government could go after and part of it was also he hadn’t filed a number of taxes and the IRS had done an assessment so he never really owed the million dollars once we got their records corrected in the IRS side of things. So a combination is what it takes to make those things work and so my biggest thing is I have people walk in and the first thing they say is, I called this company, they said they could take care of me. They haven’t done anything in the last two years. I’ve been paying them so much money every month. And I’m like, well what was the original questionnaire? And they like, this guy just said he could do it and all this. It sounds really good because the IRS is pressuring you. They’re sending you love lot of saying. We’re gonna tend to levy lean, sees all these different things and you just want a break and you feel like someone needs to do it. So make sure you get someone that’s really going to represent you, not someone that’s just looking to collect money.
John Haggard: 13:28 Good advice on that. Especially if they’re not a power of attorney. You are an enrolled agent with the Internal Revenue Service. People saying, wait a minute. I don’t want to talk to the IRS enrolled agent. Doesn’t that mean you work for the IRS? No, you do not. You are an enrolled agent with. That means the Dr. Friday can represent you. Like an attorney could represent you in court. Same thing, She has access once you give it to her to pull anything and speak on your behalf. Is that how it works?
Dr. Friday: 13:55 Yes. I’m licensed to represent the tax payers. Yes, Sir.
John Haggard: 13:58 You have trained me well. All right folks, you’re listening to the Dr. Friday show. We’re live from Nashville. By the way, if you are ever outside the listening area of this radio station and want to hear Dr. Friday at this time every Saturday from 2:00 to 3:00 pm. All you do is on that smartphone of yours Download the app. The iHeart app and search WWTN and she will be right there for you. At T minus 43 minutes ago. That means jump on the phone lines now, get the answers to your tax questions. The number to call, 737- WWTN 737- 9986. When we come back, we’ll talk to Marcia in Nashville with a social security question and your questions. All next, John Haggard in the studio and the Dr. Friday on the telephone with all the answers here on super talk 99.7 WTN.
John Haggard: 14:50 Back segment number two. We are the Dr. Friday show. Live from Nashville Dr. Friday on the telephone with all the answers to your questions. Call 737- WWTN 737-9986. Do it now. T minus 39 minutes to go get all the tax questions and answers you need answered. Right here on super talk 99.7 WTN to Nashville we go as promised here is Marcia on the Dr. Friday show. Hi Marcia.
Caller: 15:18 Hey, how you doing?
Dr. Friday: 15:20 Good.
Caller: 15:21 Hey, Dr. Friday. I enjoy your show. I have a question about social security. If someone is collecting social security, I know that there’s a limit of other income that they can bring in, before there’s a tax on top of it. Is that limit computed on whatever the net? Let’s say it’s a little side business or a couple of k1 that account for a little money. Is it the net after all expenses? If it’s like a sole proprietorship or partnership? Is it the net or is it the gross?
Dr. Friday: 15:55 Well, it would be I guess either the k1 and maybe the net of box 1 minus box 12 which would be like accelerated depreciation, right. That would fall down onto the box 14 so it would be theoretically the net on all cases. Schedule C, it would be what you’re actually putting, what you actually claim as income. You can have a million dollar sales, but if you only made 5,000, then 5,000 is what they’re going to offset against your provisional income. Or, the tax that will start coming in on your social security. If you make more than biggest 17,444 or something in that ballpark. If you’re under the age of full retirement, if you’re over, it’s half of your retirement and then they add that to whatever your income is and it becomes, taxable. You know, they don’t take any benefits back, but it would be taxable potentially.
Caller: 16:52 And is it taxable at whatever rear right happens to be at the moment? Or is that some sort of, okay, it follows before. So basically if you have a little side business, but do you have expenses against it. It’s whatever your net income is, it’s going to be put into question as to whether or not you’re under or over the limit.
Dr. Friday: 17:14 That is correct, yes. They’re looking at what did you really put in your pocket, not what did you earn.
Caller: 17:20 Okay, great. Thank you so much.
John Haggard: 17:23 All ready 2:23, Dr Friday all the time. Super talk 99.7 WTN we hear a lot about family and medical leave and some companies do provide and I guess some don’t? There are some possibilities there that some employers who do provide paid family and medical leave to their employees in 2019 might qualify for a new business tax credit or are we understanding that correctly?
Dr. Friday: 17:49 Well, that’s what we’re understanding. Yes. If you provide a medical leave or family medical leave, which theoretically could be, for the wife has the child and the husband is going to come home and help take care of them. That there is going to be, some credits available to businesses, that offer those kind of business. But I will tell you there is a couple of outstanding things when it comes to that, they may be eligible for the 2018, 2019 tax credits and you’re going to find that under a publication with the IRS of 45S. I’m quite honest with you, I think when you really getting into this client, you also have insurance credits in different things that will come, if you’re in a large enough business. And some of this is gonna have to do with how much per a year your paying. many of it’s going to be based on how much you pay for family leave. The amount cannot exceed certain things like 50% of the wages. So, it’s gonna to be one of those things that your human resource individual is going to definitely need to be tracking. But there is some credits out there and there’s a couple of the new ones, with health insurance and things like that coming out. So if you’re interested, if you have this family, maybe you have a small family corporation and you offer family medical leave because most of the people are family one way or the other, check out a form 8994 you’ll find, it was a new one that came out in 2018 and it is available for review. And you might see that may be one of those things that you did offer an 18 and you didn’t know anything about the new credit and boom, you may have put a few more dollars in your pocket
John Haggard: 19:37 Got it. You know, there are a lot of small businesses where husband and wife work together or two brothers or two sisters or brothers – sister, that type of thing. Is there any danger in filing taxes brother – sister, that type of thing where the IRS would come back or there’s some way that not to qualify that way? Well that’s a family member and you know. You’re just trying to pick up an expense by giving them something. So, how does that work? I mean, how do you?
Dr. Friday: 20:07 Same thing happens with children. I’m a firm believer that was small self employed businesses. My father was a prime example. You know, kids have a tendency to learn and to work with the parents. But to make it legitimate, you must have a true job. You must pay them true wages, which means an actual paycheck every single week if that’s how often you pay monthly, whatever it might be. And you must treat them as an employee. You can’t just give them a paycheck every week and the kids are out at the beach and they’re traveling or whatever and they couldn’t be working, the hours that you’re saying that they’re working. There’s a fairly good court case that came out where a mom basically said she paid her child so much money, but she paid him in pizza. So she wrote it off as wages. But she said, it was because she never wrote him a check. She just brought pizza all the time for him and his friends. And of course the IRS said, sorry Charlie, that’s kind of a parent thing, not a true employee. So husband, wife, brother, sister, I mean. I have a family, my brother works for me, my niece works for me. But there is hours, there’s salaries, there’s check in, checkout and work that is justifiably being done to justify that. Nothing wrong, loved family businesses. But you really do need to make sure that if you’re going to offer benefits and you’re going to pay salaries and you’re going to do that, just as if it was a stranger, that you have the same rules and obligations that the family members have to follow.
John Haggard: 21:38 Gotcha. So in other words, just follow the same rules. It doesn’t really matter if they’re related or not. As long as you have the backup documentation, the time sheets, what they’ve done. No, fear there.
Dr. Friday: 21:49 Exactly.
John Haggard: 21:50 What about? A lot of people are self employed as well. It’s kind of hard to understand the difference. If you’re self employed. Say, okay, so I own my own business. Am I also an employee of that business or is there a way to get, if I own the company and I work for the company, is there a way to get any additional tax benefit on that or how does that work?
Dr. Friday: 22:12 Okay. So a lot of times people want to become one of the first things. What kind of entities should I be? Right? Should I be an LLC? Should be a corporation? Should I be a partnership? Should I just stay a sole proprietorship? And again, this is not going to be legal advice, just a little caveat. This is a tax advice. So from my opinion, when someone is starting out a small business, the last thing you want to have to do is meet additional regulations and make sure that you’re making, code and LSD this other different things, and payroll be one. One of the biggest problems people get into in small business is payroll taxes. So if you’re starting out just you and your wife, or maybe just yourself, start off as a sole proprietorship because then you can take draws. And what’s nice about a sole proprietorship schedule, see from the tax code is that you get credit for half of your social security tax on the front of your 10 40. So even though we still pay, we really pay half of our social security as a sole proprietorship. Now, if you go into a corporation and you want to be your own employee, myself, I work as a corporation. I had myself on salary, the corporation has to pay half and I have to pay half just as it is the employee still there. The taxes go up as you go into different entities and the types of payroll that you’re going to go into. So I would always have people double check the situation. Maybe it’s better to carry a lot of general liability or limited liability protection and stay a sole proprietor versus going into an entity like a partnership or corporation where now you have franchise excise tax plus you’ll still have additional payroll taxes that you’re not paying as a sole proprietor. So, yes. There are benefits in having a corporation, but most of the time it really only comes with the growth and success of a company. If you’re not making money because benefits go away very quickly.
John Haggard: 24:11 Gotcha. So in this situation, in terms of just paying into social security, whether you are a sole proprietor or an employee, you’re part of that, it’s still the same, is that right? What’s, you’re paying it?
Dr. Friday: 24:23 Correct, exactly. But, as a sole proprietor, there’s no employer. So we get credit for the employer portion so we don’t pay it because it’s actually a credit on your tax return. If anyone looks on their 10 40, you’ll see a credit for social security on the front wall. Used to be on page one of the 10 40, now it’s under section, I think schedule one. So, sole proprietor gets the best deal because you get as much credit as every other person that contributes to social security, but you don’t actually pay as much in, as the employer employee relationship.
John Haggard: 24:57 Gotcha. Folks, it’s 2:30. You’re listening to the doctor Friday show live from Nashville, Dr. Friday. By the way, if you’ve just joined us and maybe the first time listener that you could be, because there are always those. We’re going to want 125 people, including 25 babies moving into Nashville every single week. So Dr. Friday is an enrolled agent with the Internal Revenue Service. No, she does not work for the Internal Revenue Service. I think they able to make that a different, you know, nomenclature or something because it sounds like when she works IRS, I don’t want to talk to them, but an enrolled agent folks. What she can do for you is represent you like an attorney can for you in a court of law. So you’ve got some problems. Or as Dr Friday says, you’re tired of the love letters and you just don’t want to talk to him anymore. She can legally represent you as an enrolled agent with the Internal Revenue Service. When we come back, we’ll be taking your phone calls. We’re down to 28 minutes t minus 28. So now is the time to jump on the phones. Get the answers to your questions cause we’ll be gone at 3:00 o’clock. Phone number to call now 737- WWTN 737-9986 John Haggard in the studio, Dr Friday on the phone with all the answers and your phone calls all next year on super talk 99.7 WTN. [Inaudible] back to segment number three, We’re live from Nashville. That’s the Dr. Friday show. Dr. Friday on the telephone with all the answers. Your questions now the time to call 737-WWTN 737-9986. T minus 24 minutes time is flying. Get the answers to those questions. Keep more money in your pocket. If you got a problem with the Internal Revenue Service. Dr. Friday can also represent you just like an attorney would in a court of law. You don’t ever have to talk to them again. So, call now. 737-WWTN 737-9986 back to Nashville we go. Lets bring Troy onto the Dr. Friday show. Hey Troy.
Caller: 26:55 Hey, how’s it going?
Dr. Friday: 26:57 I’m good. How’s it going with you?
Caller: 26:59 Doing all right. So, I own a roofing company and I’m not really big yet, you know. we’ll probably do around $200,000 for the year as far as my profit. So I went under a corporation. I was advised by my tax guy that that’s what I should do. I didn’t ask around or anything. I just started and so you were talking about being a sole proprietor versus a corporation. What’s the threshold between like. Once you make this much money then you need to change. I’m just trying to figure out if it’s being a corporation incorporated a better thing for me if I’m right around $200,000 as far as profit margin?
Dr. Friday: 27:58 Well, because there are some nice things we can do. My opinion is you need to also have a retirement account. If you’re making $200,000, there are some ways we can defer income and you can do more successfully through a corporation. You can actually set yourself up on a salary, which is actually much easier to live off of versus the flexibility of a sole proprietor that often is, sometimes are living more paycheck to paycheck. So, there’s a lot more control and there’s ways of differing. If you’re making 200,000, I would say a corporation would be good.
Caller: 28:32 I’m projecting to be around $200,000 You know. Not even a year in, I’m probably getting already to around a hundred. So I mean I think any decent roofing company should probably do about that. I would imagine. Maybe even more.
Dr. Friday: 28:52 With a roofing company, you also have a lot of liability issues. So probably having the shield of a limited liability is a good idea. I would also have great general liability insurance and work comp and all those things that go along with it. But, Do you know if you’re a C corporation or an S corporation? Either of those?
Caller: 29:13 No. My wife is helping me out a lot with that. She’s behind the scenes kind of person that I want to say escort. But I could be wrong.
Dr. Friday: 29:26 You’re probably 99% correct. That’s what I would suggest you being as an S Corp. So, the biggest thing is making sure you’re dealing with a good tax person because you’re going to want to make sure that you’re distributing out as much as you can through payroll the end of the year so you don’t pay big franchise excise taxes. So you need to make sure you’re dealing with someone that’s gonna work with you throughout the year, not just do your taxes at the end of the year. Because there are ways of differing between retirement and bonuses to you and your wife, if your the employees and things to keep your taxes as low as possible.
Caller: 30:02 Well. Maybe we’ll be looking into doing a private conversation with you, where I can meet you or something. I’m going to let my tech person know about.
Dr. Friday: 30:15 I’d be more than glad to sit down. At least go over the numbers with you.
Caller: 30:19 All right. So basically what I’m taking away from this is being incorporated with what we’re making is not a terrible thing. I’m not making a bad move right now.
Dr. Friday: 30:30 No Sir. I don’t think you’ve made a bad move. I don’t think so.
Caller: 30:33 Okay. Well, I feel a little better. Thank you maam.
John Haggard: 30:37 2:39 Dr. Friday all the time. Super Talk 99.7 WTN. We’ve been talking about reporting requirements and partnerships and sole proprietorships and all those type of things. Are we seeing any new reporting requirements for partnerships in any way?
Dr. Friday: 30:54 Well. Seems like there is, and this is a big one. Because we haven’t had to do basis on actual returns many times and people are like. What’s the basis? Well just like we talked. You hear me a lot of times talk about the basis of a home when someone passed away. You know, they inherited a step up in basis as well in a partnership. The basis is how much money have you put in over the years? Have there been profits that haven’t been distributed? Because you could actually be in business and theoretically have a negative basis and that just means that you’ve distributed, maybe you took out some loans and maybe the money was distributed to the partners as form of payback, whatever. And if that is the case, you can’t take losses on a company. The basis is very important. If you owe money because you have income, that’s one thing. If there’s a loss, you can’t take a loss. If there’s a loss in basis. And up until now, we really haven’t had that reported on the tax returns in 2018. That was a new situation that we had to go back and track down. You may find that your tax bill goes up a little bit because accountants we’re having to put basis on which is a little bit more documentation required from our standpoint. So, yes, there is some new reporting needing. If you do your own taxes, you need to be reporting that as part of your K1 to the IRS or they may turn around and send back a little love letters saying, we need more information about your K1 information.
John Haggard: 32:25 All right folks. So, you know, it gets complicated. It really does. And if you’re in these situations best to get advice rather than to be caught on the backend, especially with penalties and things like that. There’s one thing that never goes away and seems to be getting perhaps more serious as time goes on. And that is fraud where people are trying to steal one’s identity and trying to open up credit cards and things in your name and all this type of stuff, and calls from the Internal Revenue Service. And speaking of calls from the Internal Revenue Service, what is really valid, what’s a true call? Because you know, you can spoof. They got these people who spoof, you know. So you look at your caller ID and it looks like the number that’s from the IRS. Do they call collecting debt or how does that work?
Dr. Friday: 33:17 Okay. So the IRS can call you. They usually will not call you unless there’s already been a number of love letters sent to you. But if they’re not getting responses or if there’s an open case with a collection, they could call you. What they will not do is ask for your banking or credit card information or ask you to go down and wire money to them. They will not threaten you with the police coming to your door. This is standard collections and if for any reason they’re asking you anything, even if it’s just like they don’t know your name properly, or they asking for your social security number over the phone? Anything that you feel uncomfortable, hang up the phone, call the IRS directly. There’s local numbers as well the 800 numbers you can get, call them and then ask if there’s an issue or deal directly. Get the name of the agent, call the local revenue and say, “Is there a revenue officer with this name”? He’s knocking at my door. So don’t ever feel just because they say that they are the Internal Revenue Service that you need to open a door or answer any questions until you’re sure you really talking to a true agent.
John Haggard: 34:32 So really great advice on, if you feel somebody is asking these types of questions, say, look, I’m going to hang up and I’m going to call back because if you initiate the call and you know what the number is that you’re calling in to, and check it that way. Just don’t reveal…
Dr. Friday: 34:50 And if it’s coming out as New York City and they’re calling us here in Nashville, Tennessee, I would immediately double check. I mean, I would just basically hang up and call because if it’s a local agent, it’s going to come from our (615) 250 some digits after that, or it’s going to come from an 800 number that they’re calling from. You very rarely are you going to get someone out of Washington DC calling for collection in Nashville, Tennessee. We have our own collection. So, just be smart. Don’t share information. If for any reason they make you feel uncomfortable, just hang up the phone. Start again with somebody.
John Haggard: 35:28 Absolutely. Well folks, you’re listening to the Dr. Friday show time is really flying. We’re now down to T minus 14 minutes. So if you’ve been sitting around said, well, I’ll call here in a minute. Now’s the time to call and get that free tax advice. No matter what your situation, now’s the time to call. 737- WWTN 737- 9986 John Haggard in the studio. Dr. Friday on the phone with all the answers to your questions and your phone calls. We’ll take them all live next on Super Talk 99.7 WTN.
John Haggard: 36:03 I think that’s the Allman brothers band. If I remember what a great tune that is. Super Talk 99.7 WTN. As we go into the final 11 minutes now. The Dr. Friday show, this is a place you get all the answers. If you’ve just tuned in for the first time to all your tax questions, the advice is free. All you gotta do is pick up the phone and call 737- WWTN 737-9986 do it now. Got a few minutes left here on the show. When you own and operate a business, Dr Friday, a lot of people wonder sometimes, there are a lot of lawsuits. I mean, just seem to be lawsuits. Sue Crazy today about anything no matter what it is. But, are there any limits? Or, let’s say your employer and you’re getting sued by an employee and you’re gonna have some legal expenses. I mean, they’re just going to be part of that. Is there anything you can’t take a tax credit for? Anything that an employer should look out for? As it refers to the ability to deduct legal fees?
Dr. Friday: 37:06 Well, a legal fee basically has to be deducted when it determines. The case has to be something directly against the business itself. So, often people will be paying legal fees and one of the first things we find out later if they are paying for the divorce, through the business or something along those lines. It has to be a part of ordinary and necessary. We use those words a lot because it’s the same thing as any other tax deduction for a business. So if you’re defending your license or you’re defending someone suing you because you’re a home builder and they said, well, you didn’t do something right and you end up in court thats your reputation, you’re defending it. So it’s part of your ordinary necessary thing. If it’s that you were driving to work and you ended up in a car accident has really nothing to do with the business, but I was going to head towards work there or whatever. That might be a great area. But one of the bigger areas I’ve often found is people just putting in under legal fees. I hate to say it, but things that happen within their household.
John Haggard: 38:11 Gotcha.
Dr. Friday: 38:11 Especially divorce or you know, something the child gets into a car accident and they ended up having to settle something for court and they try to run that through the business. So it has to deal with the appropriate amount and how it affects your business, period.
John Haggard: 38:29 All right. The key is it’s gotta be a legitimate business expense that would be sort of the simple way of knowing what you can expense.
Dr. Friday: 38:35 Yes.
John Haggard: 38:35 Gotcha. All right, let’s jump back on the phone lines. Bringing Randy onto the Dr. Friday show. Randy you’re on the air with Dr Friday.
Caller: 38:48 Thank you. I’m retired. I’ve been retired several years and I’m also disabled and I have not filed taxes for several years and I’ve not be able to work. But the medication that I’m on now has abled me where I can do a little stuff and my grandson is wanted me to work for him for a while. What would I have to do or what kind of shape I’m in on that?
Dr. Friday: 39:26 Well, you say you’re on social security disability?
Caller: 39:31 Yes.
Dr. Friday: 39:32 Okay. How old are you?
Caller: 39:35 71.
Dr. Friday: 39:37 Okay. So, either way. You’re on social security at this point. So your benefits would not be affected but they could become taxed. Depending on how he’s going to pay you. If you’re just going to be a sales person or something and make a 1099 then, you’ll have to make sure that you’re holding out enough taxes, you know. Social security, Medicare, you will still have to pay on that along with a possible ordinary income tax or if he’s going to treat you as a W2 but either way. Your benefits, your social security disability benefits at the age of 71 you’re not going to lose any of those benefits. If you start making more than $15,000 a year, they may start taxing those benefits. But other than that, you are a pretty safe to go to work without having any effect on your current life. I would think. I mean, for the tax standpoint,
Caller: 40:31 Well, will there be any repercussions because I have not filed in several years.
Dr. Friday: 40:37 No Sir, because you were not required. We only have to file taxes when we’re required. And if you were living off of social security only or social security disability, there are no taxes required.
Caller: 40:49 Okay. All right. That’s what I was concerned about because I was afraid that I might have to go back and prove stuff from back several years.
Dr. Friday: 40:58 No, Sir. Not as long as that was your only income source than you were within compliance and you’re fine.
Caller: 41:06 Okay. Thank you very much. I appreciate it.
John Haggard: 41:10 That’s some good news.
Dr. Friday: 41:12 I’ll tell you. I’m doing pretty good with the phone calls today.
John Haggard: 41:15 I’ll tell you. You really are. Because usually there is bad news out there. I mean it’s just the way it is but that’s Kinda nice. 2:53 folks. Got a few more minutes here if you want to call in and get you a quick answer to the Dr. Friday show 737-WWTN 737-9986. Let’s take this scenario. Let’s say that somebody was in a house, their own house, their primary residence maybe in their two years, one year, 10 years, however long it is, and they decided, you know, we’re going to downsize, don’t need this big size a house anymore. So we’re gonna turn it into a rental property and then later on decide, you know, maybe it’s been five or 10 years. Like, you know, we want to sell that thing is just kind of a hassle and we just don’t want to fool with it and we think there’s some profit in it and we’re just gonna do that. So how does it work in terms of what you gain and what you lose in terms of what you can claim and how does all that work?
Dr. Friday: 42:08 Right. So basically if you have lived in the house, let’s just use a silly scenario, that happens a lot in my office at least. So someone is living in the house, two out of five years, they decide that they’re going to rent it out. They rent it for another five or six years, so no longer your primary residence, so it’s fallen outside of that tax break or the deduction we get to have. So now it’s basically investment property just as if you invested in any other rental, you’re going to have the appreciation that we’ve taken every single year and we call it recapture of depreciation, which means that if you’ve brought a $200,000 home and you’ve depreciated, you know, $10,000 of it, that’s going to become taxable at ordinary income rates as well as maybe there was another $25,000 gain because the house appreciated and you are able to sell it for more than you purchased, that’s going to be taxed at longterm capital gains, which would be anywhere between 15 to a 20% tax. So it’s not a simple answer, John, because unfortunately you’ll be dealing with double tax situation where you have not double tax, but you have two tax codes. You’ll have ordinary income on recapture and capital gains tax on. The gains from the property in both of those has to be calculated to really figure out how much you have. How much you would owe in taxes, when you decide to sell an investment property.
John Haggard: 43:38 All right, so the best thing in that situation of course, get some advice because it can be a little complicated. What about If you move, and the IRS is trying to get a hold of you and you say, well, I never got the the notice? What happens there? You still responsible for that?
Dr. Friday: 43:56 You are and it’s become more and more popular that the IRS is now basically come right out and said if you haven’t contacted us and confirmed the address in our system and we then mail out to the most recent one that we show in our system, which may that have been the most recent one on your most recent tax return, whatever, and they send it out and you don’t get it in and now penalties have assessed because you were unable to or did not know about it. The government says, sorry Charlie, guess what? You didn’t tell us. You did not make sure we had the right address, therefore we’re going to make you responsable for the taxes. Now sometimes you can get waivers, sometimes they will grant a waiver if you’ve got enough documentation. But there have been, again, many court cases where people have said. We contacted the government, we approved, we mailed in letters and our address correct on these letters, but the IRS was sending somewhere else and the IRS has won all of those cases basically saying again, sorry Charlie, your fault. You moved and you didn’t make sure we knew where you were at.
John Haggard: 44:59 Right. Okay, so your responsibility, you can’t say. Well, I forgot and all this and that. There aren’t any excuses when you’re dealing with the Internal Revenue Service. Well folks, another great hour with Dr. Friday here on the telephone. If you did not get on the air today, here’s what you can do. I’m going to give you Dr. Friday’s phone number. It’s (615) 367-0819 (615) 367-0819 that’s how you get ahold of Dr. Friday or if you would rather email her very simple address email@example.com that’s firstname.lastname@example.org and you might want to head over to the web too and learn more about Dr. Friday at email@example.com One more time, her telephone number (615) 367-0819 and you can email her firstname.lastname@example.org. Did you know that a thousand years from today you will be alive? The question is where? Did you know that many people are just 12 inches away from heaven? That’s the distance from their head to their heart. They believe in Jesus Christ in their mind, but they have never accepted him in their heart, and the biggest decision you will ever make in your life is where you are going to spend eternity and you get to choose where, you do. If you don’t know, if you’re going to go to heaven right now, I can help you settle it right now. Just say after me, Jesus, I invite you into my heart. I proclaim you my lord and Savior. Forgive me of my sins. That’s it. God willing. We’ll see you next week on the Dr. Friday show. John Haggard saying so long, everybody.