Welcome to the Dr. Friday Radio Show! In this episode, we have tax expert Dr. Friday take on the latest tax updates, answer the caller’s questions, and talk over the following topics:
- How To Get In Contact With the IRS
- Sub S Corporation Tax Deadline September 15, 2022
- Individuals That Filed Extensions Deadline October 15, 2022
- Dr. Friday Can Help You Get a Tax Resolution
- Is It Better To E-File or Paper File?
- What If I Haven’t Filed My Taxes In a Number of Years?
- How To Find Legitimate and Honest Tax Resolution Companies
- Dr. Friday’s Tips on Getting In Contact With the IRS
- Tennessee’s General Assembly Approved Sales Tax Holiday on Food & Food Ingredients August 1-August 31
and much more!
Dr. Friday 0:00
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or 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. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day. I’m Dr. Friday, and the doctor is in the house right now here in the Spring Hill area. We are not seeing any rain, but according to my phone, it’s supposed to be raining anytime. So hopefully, you guys are staying dry and not too humid outside for you guys. So if you want to join the show, it’s easy. Call 615-737-9986.
Dr. Friday 0:54
We are live here on this beautiful Saturday. So if you’ve got questions, we are getting closer to the tax deadline. So if your business is a corporation, or unless you’re on a fiscal year, LLC, anything like that, sub S corporations, you do have a deadline of 9/15, September 15. And then individuals that did file extensions, and this is only for individuals that have filed extensions or businesses, the deadline is 10/15.
Dr. Friday 1:21
We are already at the first of August, guys. So if you haven’t started working on your numbers, preparing that information, you’re going to need to make sure that you are dealing with that I do want to also open the show explaining that I don’t know about other tax people. And if you’re listening, I always appreciate the fact that you guys do listen, I’m going to say I’m running into issues where people we file back in March and April on time and do not have their refunds yet.
Dr. Friday 1:50
When we go online, the IRS just has this whole apology sorry, it’s taking longer than normal to process your return blah, blah, blah. And in no, no letters coming to the taxpayer saying that there was some issue, they couldn’t prove the W two or your federal withholdings, or you know that they change the tax return for some reason. It’s just sitting out there in limbo.
Dr. Friday 2:12
So would be great to hear if anyone else has had that problem because hopefully, it’s not just my clients. It’s not that many, but in comparison, but still, any one client that’s been waiting for months and months, you know, to get your money is supposed to take 21 days on most basic tax returns, then, you know, we’re always wondering, and if anyone has had any success, calling the IRS now I haven’t had a call them last week, but the week before I did, and it took me two days, pretty much straight calling to get through to somebody that at that time, was having computer issues, and they weren’t really able to help out wasn’t the IRS issue.
Dr. Friday 2:52
But you know, when you’re you’re spending 12 hours, on and off, you know, getting hung up on and everything else, it becomes that person’s problem, because you’re sitting there basically saying, “I understand you’re having computer problems, you know, totally can relate to that. But this is like 12 hours, and I’m trying to get a resolution for someone, and we’re not able to do anything. Can you call me back? Can you, you know, transfer me to someone that maybe is in a different state that’s not having computer issues where I don’t have to wait?”
Dr. Friday 3:22
And the answer, of course, is, “No, no, no.” So all we can do is keep working with the system that we have. I know, we had a seminar here in Tennessee, where I had a couple of people say that they have used some of the robotic services that will actually call the IRS and get through, some have had a lot of success. Others that I spoke to did not sound like they were having any success.
Dr. Friday 3:46
So again, I think it’s really the luck of the draw when you call the time of the day and possibly where you know where you’re at. So hopefully, if you’re dealing with this issue, and you have a question, I’d be more than glad to help you and tell you what we’re doing. It doesn’t mean that it’s going to be a lot of help sometimes. And I always feel I wish I had a better answer on some things, but you can join the show at 615-737-9986.
Dr. Friday 4:14
I sometimes think it’s nice when other people hear, you know, either they’ve had this issue, and it got resolved that you know, whatever. So if you’re, you know, if you’ve had it or you’re still dealing with it, that’s an important situation. I also want to put a huge shout-out to the tax advocate office here in Nashville, Tennessee.
Dr. Friday 4:32
I had a client in an unusual situation happened she ended up with a large amount of money, and she’s on a very small fixed income. And it was a 2020 return we filed we corrected we’ve communicated through the mail. And now you know, we’re already a year into the process. And she was very upset, very just feeling like you know that this wasn’t going to happen than those you know. 30 some $1,000 out there.
Dr. Friday 5:00
And one of the taxes that we did a 911 form, submitted it to the tax advocate office, I’m preparing her that, hey, she went online made an appointment at the IRS, his office because I’m like, okay, we can go down there, I don’t think they will be able to help us. But you know, whatever we need to do, let’s see if we can get somebody a human being to talk to you, so you understand what’s going on.
Dr. Friday 5:22
But less than a few weeks after we faxed the information in, someone from the advocate’s office called, and I spoke to her as well as myself. But the bottom line was they were able to say, “Hey, I see your situation, I’ve got your case.” At this point. it’s a human being. It’s just that simple. When somebody in a different division or whatever can call and just say, “Hey, you know what? We know it’s taken a while.” It’s just that, that was huge. Just making that phone call at this point.
Dr. Friday 5:52
She’s not sure what kind of resolution, she’s still just getting the files and getting the information. But by being able to talk to the client for me, and just put to heart that hey, you know, I see the taxpayer. And I see, I understand what you’re saying, I’ve got all the documents to give me 30 days, and let me see what I can do. That was just, it was a lot of help. I mean, even if she had said, You know what, this is what the problem is, and we can do something, it still would have been more help than where we’re at just guessing and trying to make things happen. So again, the tax advocate office, I am a big fan. And more than once, you guys have definitely helped my clients.
Dr. Friday 6:29
So let’s go on to the phone lines. We have a Jen first in Nashville, she looks like she might have a love letter to share with us. Hey, Jen.
Dr. Friday 6:40
Jane. I’m so sorry. I am so sorry, sweetie. That’s totally Lovedious’ fault.
Absolutely. I have a very young son who has young children. And this is the first year he’s claiming them on his taxes. And I’ve been lucky enough to hear from the IRS three times. They denied his return and requested proof that they were his dependents. Then I got another letter in was how much he owes for what they sent him in return plus penalties plus interest. I went up, I filed his taxes for him. So what I did was I sent them copies of the birth certificates with his name as the Father on them and some school records/
Dr. Friday 7:30
Perfect. That’s great. School records are wonderful.
They sent me another letter that said, we’re reviewing your submission. You’ll hear from us anytime from now to January 23.
Dr. Friday 7:45
Yeah, well, I mean, at least they’re communicating. I mean, it may not be the kind of communication we want. I’m often in those situations. Did someone else claim the children the year before or prior years? Or is it a brand new child?
I claim the children as my grandchildren for the last two years,
Dr. Friday 8:04
Because they were living with you. And you were the main support. At that time, it sounds so well. Yeah. I mean, normally, I have had that happen under those same circumstances where somebody else was claiming the children. And now someone new is in the picture. The IRS does matching, they’re like, wait for a second, why is this person claiming and you know, etc, etc.
Dr. Friday 8:26
But you did a great job. adversative because they’re good, but the IRS doesn’t really consider, I mean, yes, it considers that he’s the father. But really the school records or daycare or something, depending on the age of the children, something that shows medical, where it lists their address the same address as the Father. So that way they six months a day.
I sent in their immunization records also with the address, which was perfect.
Dr. Friday 8:53
I mean, just giving them all, you know, options saying hey, wait, you know, we lived in the same home, I was the main caregiver, etc. And that’s, that’s all it’s just, and of course, meanwhile, they disallowed it. They’re showing he owes money because whatever, you know, but those letters will disappear once they get there. And I won’t be surprised. I will be honest with you. Don’t be surprised if you get another letter that says we need another 45 to 60 days because we’re getting two to three of those letters before the resolution is actually happening. But at least we’re communicating. At least we know that there’s something happening.
Right, right. That’s a bonus. I just wanted to ask if you thought when I sent in would ultimately rectify the situation.
Dr. Friday 9:35
It sounds like you did a great job. Seriously. It sounds like you did a very good job. And I think it will. And if we’re scenarios, they’ll come back and say do you have any other documentation showing that they were living but since you were the prior caregiver, and now it’s your son, because what we run into in our office is often one let’s just say the ex is claiming, even if they’re not entitled to, and so we’re arguing, “Wait, they should never claim them in the first place. Here’s our proof that we were the caregivers,” right?
Dr. Friday 10:03
In this case, that’s really not the situation. You only one person claimed them and so they’re not, you know, sometimes people that shouldn’t claim them, because they aren’t the main caregivers try to claim just because they know they can get money from the children, you know. But this sounds like a fairly straightforward situation once the IRS gets on the same page, which could take you a little while.
Okay, thank you very much.
Dr. Friday 10:28
Thanks for the phone call. I appreciate it. Let’s hit Michael real quick. Thanks. Okay, Mike, how are you?
Hi, I’m good. I’ve got a paper return on March 7th, 2022, from 2021. Taxes are, again, no refund, her refund from the IRS tax refund hotline can’t give me any information. Well, on May 27, I filed a second filing, and send it by certified mail with a tracking number. And it was delivered on June 1. Still, I’ve heard I’ve got no refund heard nothing from IRS in the tax refund hotline can’t tell me anything. And I can’t read your personal.
Dr. Friday 11:08
You’re doing what we do. But I’m gonna tell you, Michael, once, once it shows received, it’s going to take them six weeks to post it on the online site because paper filings are taking that long just for them to get them. And I think that you did the right thing. Because after that long a period, it should have shown up in there if nothing else showing processing, right? I mean, at first, really. So since the first mailing got lost, we don’t know what happened.
I sent the first one just regular mail, that was a mistake.
Dr. Friday 11:41
That’s what I mean, there’s no guarantee I have done more than one where I’ve had to put on the top of it. I’ll put a second copy, you know, five months later, you know, or whatever to do it if then I will say anyone, Michael first thanks for phone calls, because that is probably one of the biggest things is that people mail them and they’re expecting normally prior to COVID.
Dr. Friday 12:05
You know, you weren’t that far behind people that were filing electronically, to be quite honest, maybe you’d have to wait a month longer or so. But it wasn’t months, you know, 6090 180 day difference. So, anyone that may have mailed them in, I’m gonna say do exactly like Michael did, I would actually put on the top of the return second copy, just so they know that this isn’t a late filing.
Dr. Friday 12:27
This is my second time giving you a tax return. And I would always do the certified mail just so you have documentation or paper trail showing, hey, this isn’t my you know, especially if you owed money Michaels getting a refund. It sounds like But Michael, thank you for calling because that was great advice. All right. Thank you. Thanks, buddy. But yeah, hopefully, hopefully in about six weeks, Michael will hear something or at least be able to go on to the IRS dot govt click Where’s My Refund, and be able to see a pending out there at least but I would give it about six weeks.
Dr. Friday 13:04
And again, if you don’t see, I mean, again, like the one case I was talking about prior with the tax advocate office. I mean, I believe I read someplace, or maybe it was in one of the meetings I phone conference things that we have with the IRS. I heard something they said that they have like a year or what their record, I think two years but like a year to process the returns. But if you don’t have proof, there are several cases. There’s one here where prior to the tax changes was it 2018 where the 2106 or the employee expenses disappeared. Many people were able to itemize because they did travel or had out-of-pocket business expenses that they were taking against their W2 income. And there’s been some interesting tax courts that have provided that unless an individual makes an election under certain tax years, no itemizing will be allowed now.
Dr. Friday 14:01
So at this point, we really can only go back three years to get refunds. But we go back further because the IRS loves to do this. Where they file a tax return on our behalf right, so they have only so much time before the collection starts. So and all that so they basically have a computer that goes through, and they basically pull out these returns, and I don’t know who or why it’s chosen because I’ve had some people that have never filed in 20 years, and then I’ll have a person that hasn’t filed in three years and the IRS has assessed them.
Dr. Friday 14:32
Some of it has to do with 1099 income. But anyway, so the IRS goes in, and they file a tax return for you. And then normally, what we would do if this could have been 2012 I have one 2012 The person never filed their taxes. They had some stock sales and business and all that. And so then we go back because the IRS had filed one and they started collections and we were like wait a second.
Dr. Friday 14:55
We don’t owe this much money and what you know, but the IRS is saying if that kind of This situation, they’re not going to allow itemizing against w two incomes unless you make a Pacific election under the IRC 63 e one. So it’s important to do if you’re if you’re listening to the show, and a lot of times, I try to help give you guys some basics. But keep in mind that anytime you’re doing anything major, like trying to fix your tax problems, or get your tax returns in order, all that kind of stuff, we’re going to take a break, but I’m gonna tell you more about what you need to watch out for, and why you might need to hire someone just to keep it out of trouble.
Dr. Friday 15:36
But I see my clock is past a normal time. So I’m gonna take a quick break. When we get back, we’ll take more of your phone calls at 615-737-9986. We’ll be right back.
Dr. Friday 15:50
All righty, we are back here live in the studio. I’m Dr. Friday, an enrolled agent licensed by the Internal Revenue Service to do taxes and representation, which is what I’ve been doing for 20-plus past years.
Dr. Friday 16:02
And one of the things that we want to always keep like I say, this show, I’ve been loving it, we’ve been doing it. I don’t know, I think we’ve passed ten years. Maybe longer than that, I keep making myself older, I keep remembering those things. But anyway, you look at it. We’ve been doing this for quite a while, having a great time. Thank goodness for all you guys that listen and have listened all those years for me.
Dr. Friday 16:24
And one of the things about the show is I try to give you guys the basic advice of what or how to do something. But on the other hand, keep in mind that when that kind of situation comes up, you may need to get advice. For example, in one of the new tax courts the tax laws that came through tax court was they said that tax court went on to explain that the statutory direction to elect to make an itemized deduction must be made by the taxpayer. And it’s mandatory.
Dr. Friday 16:52
So if the taxpayer fails to file a return, he has made no election to itemize, therefore, the IRS is saying you’ve lost your opportunity. So some of you guys that sometimes say Well, I’m just not gonna file or I’ll wait and I’ll file later. My answer to that is you may lose out now. right this second, to be quite honest with you. Many people are not itemizing. But that does expire at the end of 2025.
Dr. Friday 17:17
We could go back to the current past tax laws in which itemizing will become something that will probably go back to doing if they don’t keep the laws in the books we never know. Right, so we have to prepare for both sides. So if, for some reason, itemizing is something that you want to do, theoretically, the IRS is saying, “Hey, if you don’t file the tax return, and we’ve filed one for you, then we’re saying that you’re a standard deduction. And now you’ve not made the election to be able to itemize so many tax returns in the future could come down to them rejecting your itemization because you didn’t file the tax return in a timely manner.”
Dr. Friday 17:17
So you just want to make sure that you are able to track and deal with those kinds of situations. We also were talking about the individuals where you’re filing, I will say guys, I know a lot of, or I shouldn’t say a lot. I don’t think it’s a lot of people, but statistically, at least but we have a number of people that still do old-school taxes where they actually prepare their tax returns. Sometimes they’ll use software, they’ll print it, and then they mail it. I’m gonna suggest not doing that. Okay. I mean, I get it, I understand.
Dr. Friday 18:31
I mean, obviously, I used to, but e filing your taxes is going to give you two senses of things. One, you have proof that they’ve received it, too. You also have the time clock moving a lot faster if you have a refund most e files come back most e-files are back in 21 days. So when you mail it, and I get a lot of times when people mail, sometimes it’s because they don’t want to have to rush it but a check in it. You know they have that. But I’m just saying that’s not probably going to be your most efficient, especially if you have a refund.
Dr. Friday 19:08
All right. Let’s get Gary in Lebanon. Hello, buddy.
Yes, Dr. Friday. Thank you for taking my call. I appreciate that.
Dr. Friday 19:17
Thanks for calling. What can I do?
Yes, six and a half some land acquired, I guess, by eminent domain for road, and TDOT going to be acquiring it may be a large sum of money. Not sure can you use that money to avoid paying capital gains by doing what is a 531?
Dr. Friday 19:39
It’s 1031. But in some cases, is this tied to your primary home? No. Okay, so it is a farm or just some other property that you own? Yeah. Okay. Yeah, then probably your best bet is 1031. Now 1031 is basically a light kind of exchange. So if you sell four acres for, I don’t know, $100,000 just using an example, then you have to go by, it doesn’t have to be four acres, but you have to go buy some sort of land rental. Or it can be commercial rental residential rental, or farmland in most cases, that would still meet it. It’s just basically investment property for investment property.
Okay, are you saying that you can’t do a 1031 Exchange?
Dr. Friday 20:27
Yes, I’m saying you can, yes.
Okay, it wouldn’t be a problem. But it has to do it have to be done within a certain amount of time through a certain agency or what?
Dr. Friday 20:37
No, I mean, most title companies have someone that will handle those. But you do have 90 days to tell what property you’re going to spend the money on. So the money that comes out of your sale goes into escrow, and in escrow, you got 90 days, to actually go into another piece of property; I think there are some extensions with extenuating financing or whatever, but basically, 90 days.
And if you can’t come to an agreement with TOD, the price of the property or the appraisal, then…
Dr. Friday 21:10
Then you’re not selling, or, I mean, within a domain, I mean, you have you need a good lawyer is when my understanding is on that one because there are rules they have to follow. But we all know they like to look at the lowest price of an appraisal, and we all like to look at the highest price, and somewhere in the middle, you hope you’ll meet. But it really depends on who you’re dealing with.
Dr. Friday 21:31
And you may have to at some point, depending on, you know, if they’re that far distance, you may need to talk to an attorney on that one, you know, because you don’t want to leave money on the table just because they’re, I don’t wanna say bullying you, but they do have certain legitimate things they can do that kind of makes it harder for us when you’re the landowner.
Sure. Okay. Well, thank you very much. I appreciate you. Have a good day.
Dr. Friday 21:52
Thank you. Appreciate it. Great Call. All right, so we are talking about taxes, which is one of my favorite phone calls or situations that we’re talking about, yep, you can hang up on him. And we’re talking about things that you can do one of the things that Gary was asking about, is 1031.
Dr. Friday 22:11
For any of you that may not have known what that is, that’s a light kind of exchange. And anytime if you’ve got rental real estate, any kind of investment, real estate, pretty much, you can take that in, turn it into another piece of investment and keep the tax dollars growing, I kind of think of it as a 401k concept where we put money in it just keeps growing tax-free until we eventually sell out sort of like that with the property.
Dr. Friday 22:40
So you’re able to use the tax dollars that you would normally have paid, you know, to the IRS and you leave it in there, your basis will change based on the basis of your old property, not what you paid for the new because obviously, you didn’t pay tax on it. So your basis is going to be lower. And then if you have if, in this gentleman’s case, I don’t know because there’s land and land is not usually depreciated. But if they’re in some of your guys’ cases, maybe you have a piece of rental real estate.
Dr. Friday 23:09
And so you would have two sides to that you would have the capital gains, as well as the recapture of depreciation, all of that goes into the light kind exchange. And then your new basis goes in. So I have people that may bet you know, spend a million dollars on the property but maybe only have $50,000. Left and basis because they had already taken so much in depreciation as well as it was a very low-priced property when they first started.
Dr. Friday 23:37
So it is a great plan. I think it it’s a good tax vehicle to know about. It’s not for everyone that I want to make sure I say that for some because sometimes doing 1031 If you only have 50 or $60,000 in capital gains, the likeliness unless you’re in the higher income brackets, the likeliness is you’re paying 15% I would maximize my 15% because well why not pay it now it’s going to be the same later. And then that way the IRS is not in your investment but in some cases it can be up to almost 24%, and that hurts. And there are partial-like kind exchanges. So again, you need to talk to a good attorney, a good tax person. Make sure you do that before you make those decisions to see what’s going to be best for you. All right, we’re gonna take our second break here. You can join the show easily by picking up the phone at 615-737-9986. And we’ll be right back with the Dr. Friday show.
Dr. Friday 24:26
Alrighty, we are back here live in the studio. And we are trying to make sure that I had too many things open on my computer; I think it may be making a little hardship here. So hopefully not. But if you have questions, you can reach us at 615-737-9986 just seen all the videos, I seem to have lost our joint screen. But we’ll see where we’re at. Who knows. So if you have a question, you can reach us at 615-737-9986.
Dr. Friday 24:56
And I still live here. So in case, I need to text, my boy, he’s out there. So if you have questions, and that way, then we can move forward. And also, we will talk a little bit about a couple of different things. Like I was saying, if you have tax issues, you haven’t filed taxes for a number of years. This is one of those deals where you want to make sure that you have somebody that is there to help you to understand what are your options. How do you get it done? What do you need to do?
Dr. Friday 26:05
Because let’s be honest, if you don’t have any concept, any options on that, then what do you want to do about it? I mean, you can go ahead and file your taxes. If you think that you have the ability to file taxes, that’s great, there’s nothing that’s going to hurt you on that situation, probably besides possibly leaving some money behind. I’ve got it back. So you know, that’s, that’s fine. No, no big deal on that one.
Dr. Friday 26:30
But, you know, you need someone that’s going to represent you, because sometimes you’re gonna get love letters, and you’re gonna sit there and go, I don’t really know what they mean, how that’s going to work, why it’s happening. We have all that, you know, you’re working on, but the answer that comes down to it is you need to be able to have someone that can actually talk to the IRS, make the time take a meeting. And again, I get it, guys right now, it is difficult. I mean, I’ve made a living out of resolution.
Dr. Friday 27:00
And it’s hard to do the resolution when it’s taking me four or five, six months to do what used to take only a few months to get, you know, the person we got a contact, we will do things we’ll be able to move forward. But you know, we are in a good position with that. So we’re all good, yes. Lovely to just say no, I can see everything I’m good. So here’s the situation. So first, if you haven’t filed taxes for a number of years, you can only collect tax refunds for three years. And in many cases, some of you guys did not receive the stimulus.
Dr. Friday 27:36
And so you have to file 20 and 21 to get the stimulus money, which means the time clock is going to be sooner or later, you know, well, next few years 20 is going to drop off first, which is the higher of the two. And then you’re gonna have 2021. So if you’re one of those that sit there and say, Ah, a little bit of a procrastinator, you know, I’m just I really never really, I know, I don’t owe the IRS, or I just really don’t like dealing with the IRS, I can hear but do you really want to leave money on the table with the IRS because that’s something that I don’t quite understand.
Dr. Friday 28:11
We all work very hard for the money we have. And the last thing we want to do is leave money on the table when you know when you don’t have it, and you know, heck, if you don’t need the money, donate to somebody or give it to somebody, it’s not something that you have to actually put in your own pocket for some reason if you feel like you don’t want to have it. But you know, in many cases, I know during the time when stimulus money was coming out, I really did have a number of clients that would walk in with the checks and say, “Hey, I want you to send this back to the IRS. I don’t want it.”
Dr. Friday 28:43
Because at the time, I think many of them thought it might have been an election like I didn’t elect to get this money. My income hasn’t changed. Because some people you know what we live in Tennessee, some people obviously are living on what people in California or New York may consider a lot less money, but they were all qualified for the stimulus even though nothing had changed. They did not lose any of their jobs.
Dr. Friday 29:06
They didn’t lose anything but yet they got the money. And so you know, basically just told him, go go go to charity, go give it to someone that is having a hard time, go help somebody else that you have something that you wanted to make sure is going to be a part of, you know, a good, good way of doing the money work for you, not the other way around. So if you want to join the show, you can 615-737-9986 of the people that I’m always reading all these little blogs and different things.
Dr. Friday 29:44
And I thought it was funny that somebody said Congress should permanently extend the filing deadline. Keep in mind that no matter what the filing deadline is it’s never going to be the deadline that you probably want. I have people that will always wait to the last minute I have people that come in the first week of February with paperwork, all organized, all they had was a few W twos a little mortgage interest, some stock sales, whatever, totally organize many of my clients to be quite honest, because either they are, they have multiple investments and investments often come in later, or they are self-employed, which of course, you know, you have to still reconcile December, which you don’t really get to until January, which, you know, usually least February is the earliest you can even do it.
Dr. Friday 30:27
And you still have to make journal entries for, you know, assets and different things that happened in the last two years with PPP and ERTC in my want to talk about that, or employee retention tax credit, because some of you guys may need to go back and amend tax returns. But anyways, so you have all these different things, and you just need to make sure your books are right before you file taxes, right?
Dr. Friday 30:49
So again, if you have questions or you need help with that kind of thing, not a problem. That’s what we do all the time. But one of the other things, I want to talk about employee retention tax credit, we’re doing it for a lot of our clients, we’re getting the money finally coming back in, it’s helping, it’s a great thing. But keep in mind that if you’re using 2020 information, or 2021, I think most of ours are using 2021, that once you get that money, you have to go back and amend those tax returns back out the taxes that you wrote off. A
Dr. Friday 31:22
nd that becomes income to you the difference of whatever it is, and I have several people that you know, had a large number of those kinds of situations. So again, just want to make sure that you have the ability to know that you understand that this is not like PPP or something where you have that situation.
Dr. Friday 31:43
So we just want to be okay, let’s go to Jack in Franklin. Hello, Jack.
Yes, ma’am. You’re looking for some help, as we’re, we loaned the boys some money to buy a house. And he’s been paying on it each month and so forth. I got late. And they tell me that I have to turn that money and the interest I made on that is three and a half percent, actually, or so forth. He’s got that loan bought half paid off. Is there any way we can that loan can be forgiven? Otherwise, we’ll just go up the rest of the loan and say, Hey, you don’t know us anymore? Anytime? Let’s go for it.
Dr. Friday 32:28
Yeah, Jackson, they’re going this is more work than what I intended it to be in the first place. Yes, there is a way of doing that. This is your child. Correct? Your son?
Dr. Friday 32:38
Dr. Friday 32:39
Okay. Is your son married?
Dr. Friday 32:43
Okay. Are you married?
Yes, ma’am. 60 years.
Dr. Friday 32:48
Congratulations, I’d be lucky to make it 60 days. Oh, my goodness. So what you guys can do is there’s a lifetime of $11 million dollars, we can gift to anyone theoretically. But depending on the amount, the first 15,000 that you give to your son and your wife gives to your son, that is not something that has to be reported anything above that. So let’s say it’s a $50,000 loan, you can gift him 30 under the normal, and then you’d have to take 20 out of your lifetime gifting.
Dr. Friday 33:19
And if it’s a $200,000 loan, same thing 5030 would go and then 170 would be, you know, would be gifted, there are no taxes on either side because you’ve already paid tax on the money when you gave it to your son and he’s just paying you back. So this, you would have to file a one-time gift tax return in the year in which you forgave it. But there is nothing else that would stop you from doing it. Nope.
Okay, so you’re saying now this is not ten years old; he’s been playing each time. And he still owes $120,000 on that loan.
Dr. Friday 33:57
Right? I know; he owes 120. You can give him 30. And then the remaining 90,000 would be gifted on a gift tax return that you and your wife would file, and you just basically put his name, social security number, the amount of gifting, and it comes out of your $11 million lifetime. It’s not a big deal. I mean, right now, you know, you’re probably not going to give that much away.
The wife had taken I don’t have to take and pays that interest has made on on the boy when he pays me back the loan so much as it is interesting. Do I have to file out as ordinary income on my taxes?
Dr. Friday 34:38
Well, in theory, yes. I mean, because it was set up as a loan. He may have written off the interest on his personal tax return because for years, there were itemizing last couple of years, probably not. But in you know, in all honesty, yes, you do need to be reporting and correcting those years to be straightforward. Yeah.
What’s the point? If he hasn’t been paying me monthly on that larger leaves? I mean, that’s, that’s my fault. Or if he doesn’t ask me why I mean, the government,
Dr. Friday 35:10
Right? I mean, the fact is, if you didn’t get any interest, and you just say it was a family loan between the two, I’m not an attorney. But there’s nothing stopping you from that. If he did not. But if he wrote it off on his tax return his interest then, it was interesting. Right? So you would just reduce his loan by the total dollar amount he paid you? And nothing happened. But if he was itemizing, I don’t really have a choice.
No, he does not itemize.
Dr. Friday 35:38
Okay, then you would just instead of, again, I don’t know the paperwork, I’m not an attorney. But from the tax standpoint, it sounds like you could just reduce the loan by the 100%, that you know, that he paid, you know, interest on it. So you’d have to back out whatever the original loan was; you would back out all the interest and just apply his payments to whatever you owe, do. You can’t get any interest in your money. Otherwise, you need to turn around and pick that up as income.
Okay, no, I don’t want to get interested in it. All I want to do is keep my half and to
Dr. Friday 36:12
Amend all your tax returns?
On my tax return, I hate to report that, you know, $1,200, or how much interest I made from him. Right? So forth, I generally, that’s what I’m trying to forgive the whole loan is, so I don’t have to take in the file out all my income tax. Right?
Dr. Friday 36:34
I mean, it’s probably only a few $100 a year, but anyway you look at it, that’s up to you how you want to, you know, forgive it or whatever. But that would be the way to do it. It’s just to forgive the loan and file the, you know, gift tax return. And that way, then he doesn’t have to pay you, and you don’t have to worry about filing interest.
There you go. Okay, so I just let my tax return person.
Dr. Friday 36:57
Yep. Let him know that you gifted your son so much money, and they’ll know exactly what to do.
Okay, I can, but I can only give him we can only give him that 30,000 per year away from that 120,000. He owes us or so.
Dr. Friday 37:12
Right. I mean, you can give him the whole thing. It’s just that the first 30,000 will be without a gift tax return everything above that falls on the gift tax return. So you can forgive all 120. I mean, that’s not a problem in one year; you can forgive it all it’s just you need to file a gift tax return.
Okay, and then otherwise, in the future, I still don’t have to pay any last minute or so forth them?
Dr. Friday 37:37
Well, that is correct, which is forgiven.
Is to file a gift tax return.
Dr. Friday 37:43
Yep. And that way, you forgive the loan, and he’s been gifted the money.
Good. Yeah. Yeah. That’s great. Well, I hear the story on there. And they say why you can’t do it and so forth. And I thought, well, you know, we’ve been given him, you know, both more, you know, it was $10/15,000 every year.
Dr. Friday 38:07
Yeah. I mean, that’s the way it is most of the time, but yeah, so just and then that way, you can take it off the books, and it’s no longer there on the books. So he doesn’t owe it to you.
I believe I understand it. And thank you very much.
Dr. Friday 38:25
Thanks, mate. All right. Do we have time for the videos for one more call? Or do you want a break? You got it. Let’s take a quick break. And we’ll come back and get Chris. After this break. We’ll be right back. All righty. We are back here live in the studio. And Chris was cool enough to wait for all the way through that break. So let’s go right to Chris. Hey, Chris.
Hey, thanks for taking my call. Thanks for waiting. That $14 million family that you were just talking about? Does that apply to siblings as well?
Dr. Friday 38:55
Does that apply to who? We’re doing? Yes. I mean, any individual can give any individual that dollar amount $15,000 I think it actually went up to 16 here, but I was gonna look it up but…
What about the $14 million exemption?
Dr. Friday 39:13
Oh, the $11 million that each year, each individual? Yeah. Each individual right now under current tax law has an $11 million gift taxing Yes. A lifetime that’s your lifetime. So if you exceed that, then you will have to pay taxes
Is that any individual or?
Dr. Friday 39:35
There is no family generational requirement. So I can pick okay person off the street and go give them a million dollars. If I had a million dollars today.
They don’t have to pay taxes.
Dr. Friday 39:49
They would not the person giving the money always has to pay the tax. So you would have to make sure it’s tax-free before you start gifting it away.
Gotcha. Okay, thank you.
Dr. Friday 39:59
All right. Cool, thanks for waiting. All righty. So again, this is the Dr. Friday show. I thought this was an interesting fact. Okay, so we all know cryptocurrency, right? We’re all learning a little bit, it did not exist in 1955. So is it time for us to update National Tax date, National Tax Day, which we all know, that’s what we call April 15 Tax Day, right?
Dr. Friday 40:20
Hasn’t been modified since 1955. And 1955, the Federal Tax Code was 929 pages; sometimes I wish I was living in those days, but not really 1955 I don’t think I’d be running what I do today; the federal tax code is 6600 pages. filing deadlines haven’t changed. And we’ve added more to the ability to our accuracy and obviously technology, right, we had the ability back in 1955, I can tell you back in 19, the early 1970s, my father had an accounting firm, and I know all of us kids, and there was eight of us, right? We would go in, we were his auditing crew, we would run tapes, we would add receipts, all kinds of different things to help during tax time.
Dr. Friday 41:08
And everything was paper, right? Everything was paper, I think das didn’t come out until probably the 80s. I’m guessing I’m probably right or wrong on that. Who knows. But the bottom line is there really weren’t computers in those days, I remember we printed out checks for him. And there was this really cool old machine where you put in the dollar amount; it’s like money order, right?
Dr. Friday 41:30
You imprinted that information, you pulled this big, heavy handle. All of that was what I remember working with my father, but again, 1955. Today, we have had a lot of changes in tax code, along with a lot of people that were not even actually required to file in the beginning when when taxes first started to today. And that’s the thing that always gets me when it comes to taxes, right, because they’ll put it in a tax code, and everyone thinks, oh my gosh, no one’s gonna have to worry about it because it’s $100,000, or it’s $200,000.
Dr. Friday 42:05
But then inflation keeps hitting, and people’s pay rates go up. And next thing, you know, the average person in the United States is making $55,000 or something like this, or 35. And no matter what, it’s still higher than most of the tax codes requirements; when everybody went and got raises, instead of making $12 an hour, now they’re making $20 an hour, which kicks them out of in some cases, the earned income credit. So again, some of this comes in, but they just leave they don’t, they don’t move the line for inflation or anything else, they just pass it a certain dollar amount, knowing that 1015 years from now, instead of having 10% of the taxpayers paying this tax, they’re gonna have 60% of the taxpayers because everybody’s income is going to increase, and they’re all going to have to start paying this tax.
Dr. Friday 42:56
So I always love it when they say that they’re looking at a tax, but it’s really only going to affect, quote, the rich, but the rich, what you know, is, in my opinion, personal opinion, that is a terminology that is a very big, broad situation. I mean, if you’re raised in a small town in the south in, you know, you may consider, you know, making 35 or $40,000, I’ll be rich when I’m making that much money.
Dr. Friday 42:56
And then, you know, if you move from California or someplace, you might think $150,000, I’ll be making money, but it doesn’t make a difference. It’s always the interpretation of the rich which usually ends up being more like 810 15% of all society starting to have to pay it, but they pass it only on to the rich. So it is funny when you see those kinds of terminologies and people saying, well, I’m you know, I’m, we’re not going to worry about this one because it won’t affect us because we’re not going to be there.
Dr. Friday 43:55
But how about your children? You know, are your children going to be in the same position you are? Or is it going to be a situation where your children may have to pay tax on these things because of it, just like one of the tax laws, I’m opposed to one of the tax laws. Well, there’s a couple, but one is they wanted to eliminate a Biden one to eliminate the step up in basis for inheritance.
Dr. Friday 44:20
So instead of when your parents pass away, you get the home of the value, the date that they passed away, not what they paid for it when they did it, but when they passed away, which can be huge. Some people have lived in their homes for 20 and 30 years. So instead of the house is worth 30, or $40,000, it’s now worth 300 or $400,000.
Dr. Friday 44:39
And, you know, you would, under Biden’s rule would have been you’d have to go back to the 30 or 40, which I’m not even too sure how we know what the parents paid for the House to start out with because it’s not something that a lot of people have the documentation for, but that’s what you know.
Dr. Friday 44:55
So making these rules that don’t sound like it’s really going to affect people, you know, is kind of a stretch because it often is one of those situations where it is going to affect another tax law that I really don’t like in. And, you know, Clinton and a couple of these people put in which were taxing Social Security. We work our whole life for Social Security; we pay in, and we pay tax on that money when it goes in; it’s not tax-free; we pay tax on money that went into Social Security.
Dr. Friday 45:25
So when it comes back out, it just kind of seems like it should still be tax-free. But no, if you are a person that’s making more than 35,000 as a single and I think it’s 40,000 as a married couple, and in this is the provisional tax code, which also means that they take half of your Social Security to income up to that number. So if you’re making $20,000 a year in Social Security, 10 of it goes into that 35,000.
Dr. Friday 45:53
So you can make $25,000 and then be tax-free. But other than that, you just want to make sure that you have the information to make really good tax decisions and know how or what you’re going to do. Alrighty, guys, it’s been an awesome Saturday. I hope you guys enjoy it as much as I have been here, and I really appreciate all the phone calls. Or you can check out the web drfriday.com.