Listen to this week’s episode of the Dr. Friday Show, broadcast live every Saturday at 2:00pm Central on on 99.7 WTN!
Transcript
Announcer: 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 doctor Friday show. If you have a question for doctor Friday. Call her now 737-WWTN that’s 737-9986. So here’s your host financial counselor and tax consultant doctor Friday.
Dr. Friday: I am doctor Friday and the doctor is in the house. If you want to join the show, it’s really easy (615) 737-9986 (615) 737-9986 taking your calls. All my favorite subjects, talking about money, talking about taxes. Maybe you’ve received a couple of the love letters and you don’t know what you’re doing. The IRS, why are they sending you these notices? You don’t have any idea. The letters are so confusing. Sometimes you’ll get these that say we’ve changed your tax return, right? We’ve changed something on it, but you don’t understand why they’ve changed it. What the letter doesn’t give you is all the details that you were hoping for. So if you need to know more about how to handle those, or maybe you have a generic question, maybe you’re starting a company and you’re like, should I be an LLC? Should I start out with being a sole proprietorship, subcorporation? I keep hearing so much about the corporations and things like that. Maybe it’s a better taxes. We’ve got a whole new tax law on the table guys, so if you want to join the show, (615) 737-9986 (615) 737-9986. So as we always say, I’m an enrolled agent, licensed with the Internal Revenue Service to do basically two things, representation and taxation. So when I talk about things like that, it basically just means if you haven’t dealt with IRS, maybe you haven’t filed taxes for a number of years, maybe you’ve gotten divorced and you were kind of stuck with some of the tax bill from being when you were married. Is there anything that can be done? Maybe we talk about collections, offering compromises. Really, What are they? How do they work? What is the purpose of an offer and compromise? Because everyone’s like, well. Can’t I just make a deal with the IRS? That sounds so great! Let’s just make a deal with the IRS. I love the concept, but you know what? If you have assets, if you have equity in your home, if you have the ability to borrow from a 401k, maybe you have multiple cars in your house or collectibles or many different things. The IRS isn’t just going to turn around and say, Hey, they have this much money. Let’s just say you owe him $100,000 and you’ve got $25,000 accessible, but yet you make enough money where you could be paying them $500, $600, $700 you might not think so because you’re like, we’re living paycheck to paycheck. The government has a different story. They basically look at certain things. You have a limited life style as far as how much do you spend on utilities and rent? How much do you spend on food, entertainment, clothing, all of those are locked in. So you might think that it’s great to be able to go out and eat every night, or you’re able to go out and do things every night. But the IRS basically says you only have $150 a week for food, clothing, you know, all those different types of things, everything and anything, utilities, all of that. And so if you only have that kind of situation, what’s next? If you’re spending $300 and they say you spend $150 guess, what. They expect you to change your life. That’s what it comes down to. They say that you can’t have more than a mortgage of $1,700 in the basic numbers, statistics of things normally before you utilities and things, that’s the maximum. Some people have $2500 or $3,000 so they’re going to back those out. They’re going to say that is a choice. Now some of these numbers don’t make sense. I’ll be honest with you, it would be really, really hard to live with the idea that you can actually pay that kind of money when it comes to living on the lifestyle that the IRS basically says you have. But that’s the way the game is played.
Dr. Friday: So when you hear people saying, I’ve settled with the IRS. I’ve done it every day. In fact, just last week we closed a deal. We offered them $150,000 what they owed, we offered them $28, $28 and guess what? In this freaky situation, these people got away with actually only having to pay $28. That is not normal. It’s not the usual situation. And you can just imagine how much these individuals have lost or are living on to be able to settle for that little amount. But it does happen. And that’s why I always try to tell people also when things are not going well, when you don’t have that top paying job, when you don’t have a house, if you’re just renting. All of these things are happening might be the time to really look into dealing with the IRS. So if you want to join the show, all you have to do is pick up the phone. (615) 737-9986 (615) 737-9986 the number here in studio, we can take your call live and then if even if it’s something you know. We always say there’s no stupid questions and there isn’t because something that you might think, I should probably know this. It’s probably silly that I’m asking it, but guess what? It isn’t. I mean, I wouldn’t know how to fix a car. I’m not expecting everyone else to understand. Especially something as complicated as tax law as I’ve always told people that come in my office. Bottom line is you are constantly learning and doing things with taxes. Taxes are constantly changing. The laws are constantly being updated and altered and what may apply to your neighbor may not apply to you because of certain circumstances. So you really need to understand what is best for you, what is the best way of doing something and can you make it work for you? Because that’s really the important part of making the tax law perfect for you and making sure you’re maximizing the taxes. But the number one thing, people are always trying to pay off back taxes but constantly getting in trouble moving forward. Right? So if you’re moving forward and you say, okay, self employed people, let’s talk about the people that I deal a lot with. I love the entrepreneur for many reasons, but this is the one hard side for most entrepreneurs. You are responsible for all your taxes. So people are always like, well, I don’t want to pay quarterlies. It’s not really a choice. The difference is an employee, they get to actually do things with their W2 Right? When you go to work, your employer doesn’t say, do you want taxes come out or not? It’s not a choice, they’re coming out. That’s the same thing that self employed, but the self employed individual gets 100% of all of the tax dollars. So they have to be the smart person. Any self employed person should always have a savings account or a tax account is what I call it. Every single time you get paid a percentage of based on your profit margin should be going. Whatever your bottom line is, whatever your profit is, whatever you’re taking now to live at your household absolute minimum should be 25% that is the truth. Should be a minimum of 25% and then it could be going up from there. Let’s go ahead and hit the phones. Hey Ed, what’s happening?
Caller: Hey, good talking to you. My mother passed away in April and I inherited her house. I was wondering a plan to keep the house for the foreseeable future and what I need to do to assess my own cost basis for income tax purposes going forward.
Dr. Friday: You are a smart man, Ed. Great question. Because of the fact. I say that because so often people forget. So when your mom passed away, and I’m sorry you lost your mom. It’s always hard to lose parents or lose anyone but, so at the date, within 30 days of when mom passed away, if you can get. I don’t know if an appraisal was made? It’s not necessary, but you need to go online, get something from a couple of the different sites like Zillow and a couple of the real estate. If you have a friend in the real estate market, you need about three or four comps just to keep yourself protected. Put those away in your file, with all your other documents and that’s going to be what we refer to an average of that would be your basis.
Caller: Comparative sales from within a month or so after her death.
Dr. Friday: Exactly. So what, you know. if you were to list it on the market, if you have a real estate friend, they can pull comps. But you basically want to have three or four properties say this is in the same neighborhood, same rough. You know, of the house. Like Zillow and then you can actually put in the address and this is what they would say and they can actually, the bottom, they’ll give you a couple other comps are similar homes in the area that have sold or whatever. But use any different site you want nothing specific, but that would be our basis. Then if you decided to rent the home might decide to do that. You can start using that for depreciation or if you just basically going to hold on to it and use it for other reasons, then whenever you sell it, that would be your basis.
Caller: Usually on an existing house, what is the price assessed? Usually about 80% of that figure for the House and about 20% for the lot, isn’t it?
Dr Friday: That’s a good appraisal. And a lot of times, again with. You could use property taxes and see what they’re using for the breakdown of the house and land.
Caller: All right. Thank you so much.
Dr. Friday: Thank you. Appreciate it.
Caller: Have a good day. Thanks. Thanks.
Dr. Friday: All right. If you’d like to join the show (615) 737-9986 (615) 737-9986 taking your calls. Talking about taxes, small business, maybe you’re trying to figure out what you need to be doing. I do want to put a little caveat in there. One, you need to make sure if you are going to make any of these decisions, especially when it comes to what type of entity or anything like that. You do need to go in and either talk to myself or talk to an attorney, get some actual advice on your individual situation. But statistically are basically on the average. Most individuals, are now operating probably not so much as a sole proprietorship as an LLC single member. There are some liability protections that come into play. But if you are a sub s corporation, this is really important. One of the big things that they’ve put out. Some notices from the IRS has come back and they’re saying if you’re a sub s corporation, there has to be employees. Any corporation, your bookkeeper or the person running it. How does the business, whoever’s working that business has to be an employee. So if you are only taking dividends from your sub s corporation, I will tell you that is very, very risky because at that point basically you’re going to turn around and say. Wait a second, you know. We have this situation and they’re only taking dividends because you’re avoiding self employment tax, let’s just be honest. You are avoiding self employment tax by taking solely dividends only on the distributions from a corporation and you’re going to get caught at some point in the penalties and assessments can be quite hefty. So I just want to make sure that you’re following along, making sure you understand that if you have an S corporation or C corporation, that you need to be on payroll. You cannot take a 10 99 if you’re the main person. You cannot, you know. If your wife’s doing the bookkeeping and you know it’s a family thing that’s fine. I’m not saying that. But if you want to pay her you should, you know. It’s always nice to get paid for the you do. It may be a smart thing to be able to make sure, especially for people that are looking to make sure they have the 40 quarters, I think or whatever that you actually have that what you need to make sure you have working with you. All right, so if you want to join the show (615) 737-9986 (615) 737-9986. We’re gonna take a break and when we get back. We’ll get to your calls and talk more about some of the ways you can save tax dollars. We’ll be right back.
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Dr. Friday: We are back live in studio. I am doctor Friday and the doctor is in the house. So if you’ve got questions concerning taxes, money issues or especially dealing with the IRS or you haven’t filed your taxes yet or maybe your small business owner.You’ve got some questions about how to deal with situations with the state of Tennessee, this is the show you want to be listening to. Again a number here, If you’ve got some questions or maybe you’ve got a friend that’s asked you something and you’re just not sure. (615) 737-9986 (615) 737-9986 I did want to hit really quickly about a notice that the IRS put out about receiving suspicious IRS related mails and phone calls. It’s huge guys. I mean I probably have gotten in the last number of years, especially with telephone calls, probably at least 10 of them that have called and said, I have IRS debt. I actually enjoy having some of those phone calls, because of the fact that I know A I don’t have it B, I also know that they’re not going to bring the police to my door because I first have to have received a letter many, many letters before they had any kind of reason to come and seize our lovey properties or anything along that point.
Dr. Friday: So, but it is a bit scary, when you get a call like that. Especially if maybe you haven’t filed taxes or maybe you do know you have a tax liability and you’re thinking, oh my gosh, the IRS has called me, you know. At any point if somebody calls you and it could be the true IRS. I would get the name, the badge number, and then I would call the local IRS. You can either call the one 800 number or there’s a 615-250 number. I would call one of the two and I would then verify this person, that simple. If they are who they are, they’re not going to be offended. If you actually call and say, hey wait, I want to hang up. I want to call your supervisor. I want to call and see if this badge number is legitimate from a number I know, not a number that they provide you necessarily, make sure that you’re dealing with the right situation. And if it is, then you know what IRS does come knocking on your door. Trust me, I have had people calling me at seven o’clock at night because a revenue officer is knocking on their door and they’re sitting there, going. I’m not answering this door. I’m not doing it. There’s no law that says you have to answer the door, but probably not a reason that you don’t want to answer the door if there’s no reason of what you’re doing. I mean, obviously you probably want to get representation at that point. That is one of your rights as a taxpayer and you’d probably rather have them meet that representative, instead of going into your house initially and then dealing with that situation. But if you’ve got questions or maybe you have a story of where the IRS has come knocking on your door. I think it’s always good to have anyone that’s willing to share a little bit about maybe, they’ve got some experience or a friend of theirs that may have had this experience and you want to share it (615) 737-9986 (615) 737-9986. So hopefully you guys have already filed your extensions. Obviously those would do back in April. And so at this point we’re good until October 15th for individuals, September 15th for companies, different businesses, LLCs, corporations, sub S corporations, assuming they’re all on calendar years. You have all of that. If you did not file an extension, you’re going to be looking at some pretty healthy penalties. Depending on the number of shareholders, or members in the company, multiply that by $200 or $300 times, theoretically the number of months. So it can be quite expensive. What the ones that we’ve seen come through our office was $3,600 for penalties and interests. So you do need to make sure that you have, your extensions are really important to get filed and if not, they can be expensive. There is though, I had a gentleman called me the other day, I told him to just call the IRS and see what would happen, as far as if they would be willing to waive the penalties and he sure enough did and he called me back and said, IRS volunteered. Basically said, let me see if we can waive the penalties. And they came back on the line and they had, so you know. I am a firm believer in asking, right. Can’t hurt to ask if you are person that has IRS issues and maybe you normally don’t, normally maybe you’re really good shape and you usually have everything that works out great, good, wonderful. But if it isn’t, something happens when the IRS or whatever, guess what? They do have, I call it get out of jail free card but you’re not at jail. Just the waiver of penalties sometimes, especially for first time. All right, let’s go to the phones. We’ve got Hillary. Hello Sweetheart. Thank you for calling.
Caller: My husband just received his love letter from the IRS and then right afterwards we got a letter from conserv a debt collection agency. It seems like it a private company. I know that we owe them money, but is that reasonable?
Dr. Friday: It is and I will tell you because I represent people a lot. I would, I don’t like to deal with collection companies personally. All you have to do put a letter or just right on the top of that letter he got, say please return to IRS. Meaning they have to return the case back to the IRS. I wants to deal with the people that actually have the debt with. Now I can tell you they can’t collect personal information. There’s not a whole bunch. I mean they have their hands pretty well tied. It’s not like when they come after you, if you haven’t paid a bill, sometimes they have a lot more leniency. They can’t take you to court and get a judgment. But the thing is, the IRS only sent out letters to the collection companies of accounts that they really haven’t been aggressive or unable to really collect because they’ve just got higher priorities. Not so much that it’s not there, but you’re not necessarily their most important individual, which is great. We never liked to be important to the IRS. So, if I’m not that important and you sent it to this collection agency. if I send it back, I’m going to give you put back in the bottom of that pile again. So that’s where I want to be and then that way I can deal with them as long as they’re not levy leaning, doing anything crazy. You know, I would suggest if he’s got the ability set up a payment plan, a partial payment plan or you know, things are really, really hard an offer in compromise but do something to them, eventually it will go away. Probably refunds are going to go against it. But you know, depending if he’s self employed, that may be something like myself, I have never seen one of those. So, It’s not something that’s almost actually seats you often but I would. That’s, I mean I would just send that little sweet little letter saying, please return my account back to the IRS. I don’t want to deal with collections. Okay. All right. No worries. Thanks! That’s a great question because we get especially nowadays. I was never a fan of the collection companies taking on individual cases because there’s certain information that only the IRS needs to know. We certainly don’t need it out there with collections. And then, you know, sometimes people that are having a difficult time with the IRS may be having times troubles with other bills. So now they getting they say. They promise, that they’re not actually exposing any additional information, but I don’t know. I mean, just the idea that some private company has potentially access to tax information and other things is not something I would prefer. So if you do have one of those letters and you don’t want to deal with them, you don’t have to. By law, you can ask them to send it right back to the IRS for them and then deal directly with the IRS, which is the collection that you need to be dealing with as far as I’m concerned. All right, so if you want to join the show, that was a great question (615) 737-9986 (615) 737-9986 Taking your calls, talking about taxes, talking about, obviously. It does seem like sometimes there’s or you wonder if there’s like a whole cycle, right? There’s certain times of the year it just seems like a bunch of letters often come out dealing with different issues. And we’ve had quite a few of them. I think, on Monday, this last week, I think we had like 23 letters from the IRS on different cases that we’re handling. So things are moving also getting from their newsletters and things. Just keep in mind the IRS has specifically said that, they are still running behind on some of the refunds depending on when you had it, what you filed if you mailed it, if you were able to E file. So just keep in mind that they are still working and processing some of that. You can go if you haven’t received your refund and you’re wondering where is my money, especially if you had it as a direct deposit, but you visit check, just go to irs.gov and then click on, where’s my refund? It’s pretty simple and get my refund status. Click on, get my refund status and that will give you the idea. And also if you have filed an amended tax return, that happens guys. Happens all the time actually, so maybe you ended up having to go back and file a 1040 x something on, you know. The business that something wasn’t right or you caught some mistake that you needed to have corrected on the website. You can also check the status of that. Where is my amended return? Those are really, really important. Getting copies of your transcripts as far as they know it’s still working so you can get tax records on that same page. Again, irs.gov on the first page there. You’re gonna see get tax records, make a payments. You don’t have to be part of BFTPS. If you want, you can go right onto the website here. I have had people tell me that no matter what, because one of the questions it says, it asks you to tell you know how your filed married, single, whatever. If you put in the information for 2017, you probably want the year before or for 2018, it’s going to ask for your status of marriage, your name, address, and your social security number and date of birth. If it for some reason doesn’t work, you have a couple options. Here’s my backdoor to that. At least if you’re trying to make a payment on the irs.gov website, one of the suggestions would be. You can choose a bunch of different years, 15, 16, 17, 18. You can go back a number of years. So if you haven’t filed for a number of years and you’re trying to start making some payments for the current year or whatever, you can do that, but try a different year. Sometimes it just gets hung up. If you’re married, try if your name won’t work with date of birth and address, try your spouse’s name, address, or date of birth. If you’re making a payment, it can be made under either of you that are on the tax return. So it doesn’t make a difference either way. You just want to get the money to the IRS thought penalties and interests. Uh, you can also set up a payment plan on the IRS website. If you have a $25,000 or less due to the IRS and you’re wanting to make a plan, you don’t want to have to spend two hours waiting on the phone and hoping and praying they do not hang up on you, had that happened last week. Then you can actually move that direction. Alright, so we are going to take your calls and we come back (615) 737-9986 (615) 737-9986 Talking about taxes, talking about if you’re looking to do something with your business, maybe you’re a small business owner and you’re trying to figure out what’s best for you. Give us a call here on the show. We’ll be right back.
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Dr. Friday: Alrighty. We are back in studio. I’m doctor Friday and enrolled agent licensed with the Internal Revenue Service to do your taxes offering compromises to basically be a shield between you and the IRS. Do not, even if you do not hire my company, doesn’t make a difference, do not represent yourself in front of an audit. It’d be seriously doing the exact same thing would be trying to basically operate on yourself. It has nothing to do with how great you might know your numbers, how good you are at what you do, period. If it was me, I would not represent myself at an audit because you have a tendency to try to explain your actions. Anytime anybody does something like that. These auditors are trained to pick up on key words, key actions, key things, that you may not even know you’re doing. But then that gives away, you know, every Sunday we do this, or blah blah. I had a girl that basically said that she was paying the IRS with selling off of her purse collection, her Gucci’s and all of this. Well, this was a young lady that claimed she didn’t really have much money and you know, you wonder how did she get seven different Gucci bags where she was able to resell them fo $300 to $500 each. So, you know, She still had several others. This came up in the middle of a conversation. Apparently she was really big. This young lady never made more than about $28,000 a year. You know, so where they gifted to her, that’s fine. Maybe they were. But at the moment the auditors basically hearing this person owns thousands and thousands of dollars worth of assets that the IRS should be able to collect against, on this audit situation. Was their income that should have been reported, that she used to do this? Well, you know. So, where and how, I mean the conversation shouldn’t have come up and if you have representation they’re going to go through a complete checkoff list. Put all the dots in a row, do a cash T, come up with the idea of how much money you’ve actually made or earned. And then if there’s other income that has went through the bank, maybe your mom and dad every year give you a check for Christmas. Maybe you have sold something throughout the year. These are the kinds of things you need to be able to document because the IRS is simply going to say, you deposited this much money and you only reported this much money. Why was there a difference? And then if you’re a business owner, it could get one step further. They may say, well. You only reported a hundred thousand and $95,000 was on a 1099k which is where the merchant fees, right? Your credit cards. So you’re saying throughout the whole year you only had $5,000 of income that was cash or checks and statistically in your industry that usually is more like 30% of the income checks, cash, whatever. So all I’m saying here is it really comes down to really understanding where and how the IRS sees and how and what you do. We have had some 1099k audits where they were basically, I can’t tell you, apparently a lot of business owners report solely what goes to their bank, which is solely their 1099k’s or their merchant. They don’t, they don’t get checks and they don’t ever put cash in the bank. Now I’m going to be quite honest with you. You can keep the cash, it doesn’t have to go through the bank, but it certainly has to be reported as income. Lifestyle is huge. When the IRS is doing audits, it’s your lifestyle. So how can you afford to go out to dinner? Because we see that you’re doing this. Pay off a credit card every year of 30 or $40,000 for traps and trips and different things that you have meals and things, or do these different things. If your lifestyle doesn’t account for it, then it’s hard. So a guy, prime example is a joke that goes around… There was a guy that basically claimed he made $40,000 a year, yet he had a Maserati, a new Maserati in his driveway and he was living in a house that was worth, I don’t know, $850,000 and the IRS said how? And he had inherited it. It wasn’t something that he was, you know, getting from family, as far as gifting and things like that. He did not win the lottery. This was the gentleman that just was solely totally underestimating his income. Lifestyle gave it away because he was big on Facebook and he loved to show everybody his picture. So the IRS caught him in his Maserati. All right, let’s go to the phone lines. Hey Bill, what’s happening?
Caller: Yeah.
Dr. Friday: Awesome. Thanks for calling.
Caller: If you receive any inheritance, would you have to pay taxes at the end of the year on that?
Dr. Friday: Well, I’ll let you know. It depends on what it is. If you inherited a house as one of my earlier callers, you would get a step up in basis and if you sold it for whatever it was worth at the time of death, which a lot of times people immediately sell it, there’d be no taxes. If you inherit an IRA, there will be taxes because the IRA requires you to take require minimum distributions or take a distribution.
Caller: It was a house, and we sold it right off.
Dr. Friday: Then there will be no taxes due. And then usually the same thing with anything inside the house right. If there was furniture or anything, normally people have paid a lot more for that furniture. So if you had an auction or something, most of the time that is tax free money as well.
Caller: All right. Well, thanks for all your time.
Dr. Friday: Hey, thank you for calling. I appreciate it.
Caller: Bye.
Dr. Friday: All right, so if you do want to join the show (615) 737-9986 (615) 737-9986 taking your calls. I’m seeing what’d you have better a lot of you guys are all Bonnaroo having some fun and actually today, I mean. I was out doing some yard work and it was really nice out there. The cloud coverage kept coming back and forth, so it was actually really cool. So hopefully you guys are having a good time. Let’s go to the phones we’ve got Jill. Hey Jill, what can I do for you sweetie?
Caller: Good afternoon. I would like to know if there’s a difference between borrowing from traditional and IRA accounts. Does the investment firm lending money, so maybe there’s an interest charge or does it sell and then reinvest my holdings when I pay it back and I don’t want any tax consequences.
Dr. Friday: Well, as long as you’re borrowing from an IRA, which I didn’t know, I mean you may be that they’re just using that as a way of securing a loan, unlike a 401k where they can physically give you a loan out of it. I don’t know if I’ve ever heard of an IRA that has been able to give money unless it’s a self directed possibly. But bottom line is since it all stays inside the retirement account, hopefully they’ll keep the money growing. Right? Because that’s the whole purpose of why you’re trying to borrow and not take it out in the first place. Right. So you’re going to be charged an interest and it should keep growing and all that should go in. Well, as long as you don’t take the money out of the IRA, it will still stay protected and it should still grow as they had it invested in the first place. They may have to, depending on how they do it. It may be that they’ve got someone that’s willing to use the IRS collateral and unless you don’t pay it back at that time, the IRA would have to cash out and do a distribution. But as long as you paid it back, they’re going to make the interest but nothing will come to you tax wise.
Caller: All right. Does anything make a difference? When I say that I’m over 59 and a half
Dr. Friday: It doesn’t only to the extent that if you were taking money out of the IRA there would be no penalty, but hopefully you can pay the loan back without actually cashing out the IRA.
Caller: All right. Thank you.
Dr. Friday: Thank you. Appreciate it. All right, let’s hit David. David, my boy. Hey David.
Caller: Hey, how are ya?
Dr. Friday: I am awesome. Thanks for calling.
Caller: Thank you. I have a question for you. I started a company on March the first of this year. Okay. It’s a single, it’s an LLC. I’m the only owner, just me. And the bookkeeper who helped me set the company up, said that basically I don’t have to pay taxes throughout the year. At the end of the year I do my taxes like normal and my personal and the company is just all lumped together and then you pay the taxes then, and that just kind of worries me.
Dr. Friday: It worries me too David. I think, I understand somewhat what they are saying. The company is you, it’s almost like being a sole proprietorship but with a really cool umbrella protection over it. But that being said, you need to still pay quarterlies under you because the company’s still all you. It’s going to fall on your personal tax return and all taxes will be paid through your 10 40 but you need to be paying estimated taxes. So since you started on 3-1 theoretically if there was any profits, it’s a startup. So I don’t know where you stand at the moment, but the first estimate that would have been do would have been 6-15 which is coming up today. That theoretically would be the first, that’s a pretty short window to know if there’s a profit you may have had startup all that, that may not have allowed it. The next one would be 9-15 the last one would be 1-15 but I would definitely try to shoot for the 9-15 at least put in what you expect. If nothing else, how much have you been drawing out to make a living? Right? As long as you didn’t borrow money, take a line of credit, put it in the company, and then you’re paying yourself out of that line of credit because there’s not enough profits. Sometimes startups have to do some funky things, right? But if you’re making money, if the business is doing decent, you need to start considering what your tax liability is going to be.
Caller: Okay. That’s what I thought too. I thought, I don’t want to wait until next year and then deal with a lot of things.
Dr. Friday: They’re gonna hit you with a penalty for not paying estimated payments.
Caller: Okay, very good. So I’m gonna get a bookkeeper and let them take care of that. Thank you so much.
Dr. Friday: Thanks David. That was an awesome question because I will tell you, we deal with that a lot and this isn’t always just David’s an entrepreneur. Which of course I love entreprenuers because well, they’re unique or they find something fun and they tried to do it, and create a business. But individuals, if you’re retired and you make money from multiple sources and you say, well, you know what? I’m just going to write a check at the end of the year. It’s the same thing. The IRS expects four equal payments based on the year before you owed $4,000 in 2018 you need to be making $1,000 every quarter payments for 2019 you need to be paying 100% of the year before unless you are absolutely sure that you did not make as much money. Maybe you sold something in 2018 and you’re not selling anything in 2019 you then could adjust your estimates as long as you pay 110% of what our 100% of what you owe. Four equal payments coming close to that. They are usually pretty good. But the law basically says four equal payments based on the prior year. So it’s kind of important that we actually, you know. Make sure we do those, because the penalty it isn’t huge. It’s like 0.5%. A lot of times people will basically, say. I make more money than what it costs for me to pay this penalty? As long as your knowledge is there and you’re making that choice. Awesome. Alright, so we’re gonna take our last break. If you want to join the show, please do. (615) 737-9986 (615)737-9986 Taking your calls, talking about my favorite subjects, taxes, taxes, taxes. We’re going to be right back with the doctor Friday show.
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Dr. Friday: Hi, we are back. This is the final part guys. So if you’ve been holding your breath or you’ve got a question. You’re like maybe I should, maybe? Yes, you should give us a call. (615) 737-9986 here. Let’s get to frank. Hello Frankie. What can I do for you?
Caller: I’m in my last court and they a franchise and excise taxes on me. They’re killing me. Should I? We have a very unique business, anyway. What else do you suggest I do. What else I might do? Should I just getting over and then sole a part or whatever.
Dr. Friday : You have two options. You have the ability to opt out of franchise excise. It does eliminate the liability protection, but if you’re going to a sole proprietorship, be the same thing anyways. So that may be something to consider. A lot of my hotels, because most of the liability falls on them anyways. I’m not an attorney, so I’m not saying this is the best thing, frank. I’m just saying it is an option.
Caller: So, if I roll out, am I penalized?
Dr. Friday: No, I mean if you opted out, you’re not going to be penalized at all from the tax code. Then you would just have to do it every year. You opt out and it’s a pretty straightforward. It basically says you’re taking on the personal responsibility or liability in case something happens. Then I would make sure I had really, really good insurance liability, work comp, whatever it is. I don’t know what you do, but whatever it is that would help protect you. So if somebody were to sue you because something goes wrong, you know. Then you have the insurance that’s going to help cover. In my opinion insurance is always better than limited liability from the state because I still have to hire a lawyer anyways.
Caller: Okay.
Dr. Friday: I mean, the only other way is to basically make sure your company basically shows zero every year. Which means that you have to bonus out payroll to the shareholders.
Caller: Well, that is a little difficult. I’ll cross that bridge when it comes to it. But I can stop. I can just roll out of this and I won’t be penalized. Not much of a penalty.
Dr. Friday: Yeah. I mean can you close it, you could change the type of entity. You could go into an LLC, which you can opt out of. I mean, you’ve got options, frank. My suggestion is always to do that on top of a quarter, not just more of an accounting suggestion because it’s easier to close things, especially with payroll and different issues that you have. It’s easier to close everything on the top of a quarter.
Caller: We do everything on a quarter, the problem is that they hit us so hard on it.
Dr. Friday: No, I agree. I mean, I have people that are paying $18,000 – $22,000 a year to franchise excise.
Caller: I pay 20. I’m paying $20,000 now.
Dr. Friday: Well, just think about all the insurance you could buy in that franchise excise isn’t really protecting you. I mean, my opinion, again. I’m not an attorney, but my opinion is you need to look at other options unless you’re in a very high lawsuit type business. And
Caller: I got your phone number. I’ll be ready. I am to give you a call. You have a good night.
Dr. Friday: Thanks, Frank. I appreciate it. Thanks. Bye. All right, let’s hit Rick. Hello Rick.
Caller: Hey Doc. I got a question that refers to a couple of calls back about quarterly payment. I’ve been doing self employed quarterly payments for 25 years. But the way I’ve been doing it was getting my gross for that quarter and paying a percentage and I usually hit it pretty close. Am I doing it wrong?
Dr. Friday: You’re probably still paying 100% of what you owe, so therefore you’re probably still not getting any love letters because You’ve got a decent calculation. Most people though, they don’t know how much they’ve made. I mean, to be quite honest. A lot of times these guys don’t really have those kind of books, so they’re not being able to. But the law, basically the IRS specifically. If you read the tax law, it says four equal payments based on the prior year. Doesn’t always work if you’re in like real estate, some of these guys will have one great year and the next thing in the first quarter nothing, the second quarter twice. You know, I’m just saying not every business. But they do want four equal payments based on the prior year, as long as you’re doing it. It sounds like you’ve got quite a few years behind you, Rick. You’ve got a good calculation. I mean, you’re obviously doing a very good job in getting close to the bottom line. Come January 15th.
Caller: Usually plus or minus a thousand dollars a year. So that’s perfect. I Make sure I’m not doing it wrong.
Dr. Friday: No. again, you know. I have a few people that do that, but you know, theoretically it isn’t the way the law is written, but as long as the government’s getting their money every quarter. I’m pretty sure they’re not unhappy with you, Rick. They’re looking at those people that are paying once a year, you know. On April 15th, not even by January 15th.
Caller: All right. Well, thank you.
Dr. Friday: Thanks Rick. Appreciate it. That was a great question because, again, you know. I can stand by the laws, but I also have people that have done exactly as Rick does every year because of the fact that their businesses are not consecutive or the same every year. Sometimes they have big quarters and sometimes they have lower quarters. But I have found that the IRS isn’t as specific on that unless Rick makes a huge mistake and therefore they’ll be more than glad to send him a love letter saying, you didn’t pay your quarterlies properly. So here is an additional penalty but that can come with anyone, as long as they’re making some changes. So if you want to and you’ve got questions. I know sometimes dealing on the radio is not for everybody, but it is something that we enjoyed doing for I think almost 19 years, which is pretty darn amazing. You can reach me on Monday really easy. My office number is (615) 367-0819. I do work by appointments, so my office is in Brentwood. So if you’d like, you can give me a call. We’ll set up an appointment and my first meeting with any client is always free. We need to make sure we’re all on the same page. Right? I mean, basically, to be quite honest. It’s never been official to myself or to my clients to worry about that. I mean, we need to make sure that I can do what you need or that you’re going to be able to provide me what I need to do, what I need. So no sense in getting involved in something and then turning around and finding out that it isn’t going to be a good working relationship. So if you’d like to have a second opinion on your taxes, maybe you need some help with your accounting for your small business, or maybe you’re looking to change tax people and you’d like to get an idea of what it might cost or how I work on doing taxes. This is a perfect time of the year, all in all to do that people because it’s a little quieter than the crazy time when we get ready to really think about taxes come, you know. September, October, November and moving on from there. Not much of a break after that. So if do you want, all you have to do is pick up the phone (615) 737-9986 (615) 737-9986 I will say we’re going to have a brand new website coming out in the next couple weeks, probably by next month at the least or at the most. So if you’d like to check me out on the web drfriday.com is the website drfriday.com It’s a great site. It’s a user friendly and that way then you can also find out who this crazy person is on the radio and find out more about who enrolled agents. If you are a listener and you also do taxes. I’m always pleased to know that other people in my profession listen. But as you guys might know, there is a big Tennessee society of enrolled agents we are having at the holiday inn come next Thursday. We have a conference so if you haven’t seen anything on it or you want more information, you can certainly call me at my number (615) 367-0819 there are still some availabilities. So if you’re looking to get CE credits, if you’re looking just to find out what’s coming up or what’s expected to be coming up all the new, or maybe you know what this year you did taxes and you were like more than one sitting there scratching your head saying, I don’t know how this is supposed to work. Is this really for this person? Am I checking the right answer? Am I doing the right thing? That’s a great question. I don’t know. And so you might want to come and find out a little bit more about what was really expected of us. Do you need to amend a couple tax returns goes, there’s possibility that you actually did something that maybe you shouldn’t have or you weren’t sure of. So you know, if you want to know more about that or how that’s gonna work. Go ahead and feel free to either go to again, call me at (615) 367-0819 You can reach me and I can tell you more about the convention or you can go right on to the website which is tnsea.org and sign up today for that conference. Either way, hopefully you’re learning as much as I am about these taxes because it has been a fun roller coaster of tax changes for 2018 and now we’re going to 2019. So one more time, phone number for the office. (615) 367-0819 the website drfriday.com Again, drfriday.com and if you want, the easiest way probably to reach me is by email friday@drfriday.com. Again, friday@drfriday.com is one of the easiest ways. If you have tax problems, enrolled agent licensed with the Internal Revenue Service, did you taxes and representation. You need to have help making sure you get caught up. Maybe you’ve got a friend that hasn’t filed taxes or keep saying that they need more help. They do not where to start, because they have not, they’ve moved, they’ve lost documents. We can help. It’s that simple. So again, call me (615) 367-0819.