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Welcome to another episode of the Dr. Friday Radio Show! In this episode Dr. Friday Show emphasizes one key theme: planning ahead! Whether you’re considering selling stock, dealing with inherited property, or navigating retirement accounts, making decisions before the fact can save you thousands in taxes. Dr. Friday breaks down complex topics like capital gains, recapture of depreciation on real estate, and the rules around 1031 exchanges. Plus, she provides a critical update for all Tennessee residents regarding the federal disaster extension and what it means for your 2024 tax filing and 2025 estimated payments. Tune in to hear answers to listener questions on Roth conversions, overseas property, and IRA contributions.
Summary Points
- The Power of Planning Ahead: Dr. Friday shares a client story illustrating how planning a stock sale across two tax years (2025 and 2026) can keep you in a lower capital gains bracket and save thousands of dollars.
- Navigating Capital Gains: Learn the difference between short-term and long-term capital gains and how you might qualify for a 0% tax rate on long-term gains if your income is below certain thresholds.
- Understanding Real Estate Tax Implications: Dr. Friday discusses often-overlooked taxes like the “recapture of depreciation” on rental properties and how rezoning an inherited property after the owner’s passing can create a massive, unexpected tax bill.
- Big News for Tennesseans: Due to a federal disaster declaration, the deadline for filing 2024 taxes and making the first three 2025 quarterly estimated payments has been extended to November 3, 2025. This also extends the deadline for 2024 contributions to IRAs, SEPs, and HSAs.
- IRS Compliance is Key: You can’t make a deal or payment plan with the IRS unless you are in compliance. Dr. Friday explains how this applies to offers in compromise and what to do if you receive a CP-2100A notice about incorrect 1099 information.
- Listener Questions Answered: Can you do a 1031 exchange for an overseas property? Do you need to make estimated payments after a Roth conversion? Can you contribute to both a Traditional and a Roth IRA? Dr. Friday answers these and more.
- Common Pitfalls to Avoid: Are you and your spouse filling out your W-4 forms correctly? A simple mistake on the “spouse also works” checkbox is a common reason W-2 employees end up owing taxes.
Episode FAQ
Q: If I do a Roth IRA conversion this year that will cause me to owe taxes, do I need to make a quarterly estimated payment to avoid a penalty?
A: Not necessarily. The IRS requires you to pay in either 90% of the current year’s tax or 100% of the prior year’s tax liability. If your regular income and withholdings already meet 100% of what you owed last year, you can typically pay the extra tax from the conversion when you file without a penalty.
Q: Can I sell a property in the U.S. and use a 1031 “like-kind” exchange to buy a property overseas and defer the tax?
A: No. A 1031 exchange is only permitted for properties located within the United States. You would have to pay capital gains tax on the sale of the U.S. property.
Q: Do I need to report large vacation expenses to the IRS, like if I take my whole family on a trip?
A: No. Spending your own money on a family vacation is not a taxable or reportable event. It is considered a personal expense, not a gift or income.
Q: I contribute to a traditional IRA for the tax break. Can I also start and contribute to a Roth IRA?
A: Yes, you can contribute to both a traditional IRA and a Roth IRA, subject to income limitations for the Roth. However, only the traditional IRA contribution will give you an immediate tax deduction. The Roth IRA contribution uses after-tax money but grows tax-free for retirement.
Full Transcription
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or your financial woes.
She’s the how-to girl. It’s the Dr. Friday Show.
If you have a question for Dr. Friday, call her now, 737-WWTN. That’s 737-9986.
So here’s your host, financial counselor and tax consultant, Dr. Friday.
G’day, I’m Dr. Friday and the doctor is in the house.
We are here live, so if you want to join the show, you can.
615-737-9986. 615-737-9986.
Taking your calls so that we can make sure that we can hopefully answer any questions.
I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation.
And so if you’ve got questions about taxes, maybe you’ve got a situation where you might have received some sort of inheritance, or maybe you’re thinking about selling something and you’re not sure what is the best way to go about it.
Do you even owe any taxes on it?
Those are the kinds of questions that we often get, and those are good ones, because if I can help someone before they go and sell stock or sell a house or do anything like that, then it makes it a lot easier for us to be able to save tax dollars.
Unfortunately, sometimes people will, you know, join after they’ve already sold something or after they’ve had a couple people where they sold their primary homes, and they were under the impression that the tax law was still the prior tax law, which is as long as in two years they reinvested it into another house, which is not the current tax law that we’re operating under.
So just making sure that, you know, you understand what the current tax laws are, how they’re going to affect you, and what you’re going to do to make sure that you have the best information.
Because sometimes you’ve got to do what you’ve got to do, but other times we’ve got some windows.
Like I had one of my regular clients, tax clients come in, and she basically just called and she’s like, I need to sell some stock.
She had a fairly healthy capital gain per share, and she wanted to try to figure out what was going to keep her in the 15% tax bracket.
She still works and she still has other, but she needed the additional capital.
And so we were calculating what the capital gains that keep her as a single individual, her total income, including the sale of her stock, needed to stay under $200,000.
And that way, if she, and she was thinking that she could sell more of it, but she wasn’t able to, but she can sell some now and then some come January 1st to meet her goals.
And it wasn’t so much in this particular scenario is an individual wanting to have so much money to go do something or pay off something actually.
But sometimes that’s the way it works.
But if you can do it in advance, she actually didn’t need the money for nearly eight months or a year, I think she said.
And so she was thinking way in advance.
So gave us the window to have 25 and 26 at our fingertips to be able to say, okay, here’s what we have.
Here’s what our options are.
Here’s how much we’re going to pay in taxes.
Because if she had done what she initially thought she was going to pay another 3.8% tax on more than 50% of her stock sale, which would have added up to, you know, at least $10,000.
So, you know, by just making sure she does a far enough advance, defers and makes it happen, then there is ways of making that work.
So, again, putting some thought in advance of when you need something can be a good idea.
Sometimes I have people that, you know, kids going off to college, cars breaking down and needing to buy new ones.
These are all, I don’t want to say unexpected, but it is one of those things that we have with our investments, right?
Sometimes the money’s in the investment or sometimes.
And I would definitely suggest speaking to your financial planner.
Don’t just go and self-do.
I mean, at least talk to them because they may actually have options, suggestions that would be a way of you actually either borrowing, which would be less expensive than paying the capital gains tax or spreading the tax again.
I mean, in some cases, we’re able to do a 0% capital gains tax, which is awesome because, you know, as long as they’re a single person and you keep yourself in the 12 to 15, well, 12% tax bracket, which basically is $55,000 and a married couple about 110, then you don’t have to worry about paying any tax on long-term capital gains.
I want to make sure I’m saying that because short-term capital gains is taxed at ordinary income rates and there is no exclusion on that.
So, again, if you’ve got questions, maybe you’ve got a situation where you’re thinking about doing some purchasing or selling of something.
If you’ve bought real estate, keep in mind that besides the capital gains tax, we also have what’s called recapture of depreciation.
I have had a number of clients that do not think about that aspect.
Sometimes when they’re doing the math, they’re thinking, okay, well, I’ve sold the, I brought the house for this and I’m selling it for this.
So I’m going to pay this much tax, but they’ve had it as a rental for 10 years.
And now they have recapture depreciation for another 20 or $30,000.
And so it’s just one of those situations where you definitely don’t want to have to worry about, excuse me, that kind of situation coming up.
So, sorry, I’ve got a tickle in my face.
There we go.
So anyway, so if you’re working on that kind of situation, you want to make sure that you are thinking about all the moving parts.
So if you’ve got real estate, maybe even inherited real estate, you might be able to get zero tax on many times.
But I have had one that came up recently.
The family inherited a piece of property.
It was a primary home for the person that passed away.
And so the house appraised at the time of their passing for a said dollar amount, let’s just say $200,000.
But the property actually during this lifetime or the parent, anyways, they were able to get it rezoned to commercial, which then changed the whole value of the property.
And it was done after the person passed away.
So it was zoned residential when the person was living there.
And when they passed away, one of the beneficiaries or someone suggested they could get it zoned and they got rezoned.
And they were able to sell it for three times what they would have gotten for the house had it been just residential.
But now they have a much larger capital gain situation because you can’t go backwards and say, well, you know, when she died, it was still it was still commercial.
It wasn’t because it hadn’t been zoned that even if it was allowed to be commercial, it still hadn’t changed.
So sometimes reempting that kind of thing, thinking, hey, you know what?
Mom and dad live right off this main road.
Is this actually everything around them is almost commercial now?
We have a lot of that, like in Franklin and some of those areas.
And if it’s commercial, then you’re sitting there thinking, wait, maybe while they’re living there, maybe we should take a look and see if we need to rezone.
Anything because if it’s done during their lifetime and then we inherit at that zoning, then we’re allowed to be able to not have to worry about capital gains.
And these people, this would have saved, you know, tens of thousands of dollars in tax.
But, you know, no one really thought about it.
And it wasn’t.
But I’m putting in your head now to think about think about what options you might have had, what you were thinking about doing and then being able to move forward with that, because it’s very important to be able to, you know, save every tax dollar you can.
So we’re dealing with that.
There is, I had someone ask me, June 15th is the second estimated payment.
But keep in mind, in Tennessee, you can, so let me discourage you, you can make your second estimated payment.
You may have already made your first.
You can make it.
There’s nothing saying you cannot make it.
But we are under a federal disaster extension.
And so everybody, most of us that file estimates will be waiting until November 3rd to make our first three estimates.
So, and we won’t be late.
And that way we can use the money to hopefully grow and deal with versus not being able to worry about.
So if you are an individual that lives in Tennessee, we do have the ability to extend our current estimates.
It also goes with, if you haven’t filed your 2024 yet, and many of my clients haven’t working on those, those will also go into play where a lot of times, if you haven’t made the payment, there is some extension there of making that payment.
So you’ll be able to pay your 2024 as well as your first three quarterly estimates all before November 3rd.
So some people just rather get the money out of the bank and go with it.
Totally hear you.
And I understand that.
But, you know, some people are like, wait, I don’t want to give the money any earlier than I have to.
I don’t want Uncle Sam to have a dollar more than they need to.
And I personally agree with that as well.
So personally, my theory is the second, but, you know, everyone, I understand that you don’t want to have the money where you’re afraid that if it gets spent, you won’t have the money when it comes time to making your estimated payment.
So you want to avoid that if you, if you can.
No penalties is what we’re trying to avoid.
No interest, no penalties.
So if you need help doing taxes, you can certainly give our office a call.
But today you can join the show 615-737-9986.
615-737-9986 number here in the studio.
We’re in a few seconds or a few minutes.
We’ll be taking our first break.
But if you want to join the show, you can ask questions about taxes.
Like I said, I’m an enrolled agent licensed by the Internal Revenue Service to do taxes and representation.
That’s what I’ve been doing for the last 30 years.
And if you have questions and you’re just not sure which direction, how do you get started?
Maybe you’re not in compliance or maybe you haven’t filed taxes for a while or a friend hasn’t filed taxes.
Doing back work and doing taxes is what the main thing that we really try to do to just try to get everything.
Because you can’t make it.
I don’t care what anyone tells you.
I know there’s a lot of organizations on the radio and stuff, but you cannot make a deal, even a payment plan with the IRS, unless you’re in compliance.
I was talking actually to a really nice revenue person the other day.
And the gentleman I was representing hadn’t paid office 2023 and hadn’t made proper estimates for 2024.
I’m sorry, hadn’t paid office 24 and hadn’t made 2025 estimates.
And so I was able to give her the fact that we were under the federal disaster extension.
She looked it up and realized this particular gentleman was still in compliance because of that extension.
But normally he wouldn’t know what have been right.
He would have had to be making his first estimate should have been made and he need to be on a payment plan, at least for the 2024 taxes.
So again, just making sure that you you stay in compliance because then the IRS is really more willing to work and to deal with things.
If you have that ability to stay and say, hey, wait, I’ve paid everything I’m supposed to.
Especially staying current.
I have an offer in compromise I did back in, I think it was 2019, 2020, and just received a letter from the IRS saying that person hadn’t filed their 2020, 2021 or 2022 tax returns.
Therefore, they’re pulling the offer in compromise.
Again, you got to play the rules.
Otherwise, I had a great deal.
And now she may end up having to go back and pay with additional penalties and interest.
We’re going to take our first break.
You can reach us here.
615-737-9986.
We’ll be right back with the Dr. Friday Show.
All righty.
We are back here.
Sorry.
We’re here to speak.
Leave it.
This is Dr. Friday.
We’re Dr. Friday Show.
We’re back here live in studio.
It looks like Dean’s on the line.
I’m not sure what he needs.
But let’s see if we can get Dean to join the show.
Hey, Dean.
What’s going on?
I want to ask a question about a Roth conversion in the current year.
Our tax situation, our math indicates that we’ll probably get a refund when we file next April.
But if we do the Roth conversion that we have on our mind, then we would be in an owing situation next April.
It’s a swing of a few thousand dollars.
And I’m curious if I do this right after, let’s say, the middle of June.
Does the IRS expect me to do some type of payment on the quarterly basis?
That kind of thing.
So they basically expect you to pay 100% of what you owed the year before.
So if your balance in 2024, let’s just say you owed them.
I mean, the total tax due was $5,000 total taxes.
And as long as you paid in $5,000 again in 2025, then there shouldn’t be a penalty.
But I don’t know if your income goes up and down, right?
So if 2024 was a big year.
It was.
It’s pretty much straight line from year to year.
Okay.
We’re retired.
And I just wanted to make sure we wound up with a refund for 2024.
And we would have one if we don’t do the Roth conversion again.
But I just wanted to make sure that they weren’t going to penalize us next April because we didn’t submit something in the current year.
Yeah.
You should be fine as long as you pay in what you normally would pay in.
This is an exception.
Now, 2026 will be more challenging only because you’ll have a higher year in 2025 with the conversion.
But if you go back to your normal straight line, you’re getting refunds anyways.
You know what I mean?
You’re leaving money on the table per se.
So it should not create any kind of conflict.
But you should be good based on what you’re saying.
Great.
Thank you for your help.
No problem.
Thanks for calling.
All right.
You are listening to the Dr. Friday show.
We are live here in studio.
And so if you want to join us, you can at 615-737-9986.
615-737-9986.
And I would say that one of the things Dean brought up, and it’s a smart thing to do.
Again, I’m always trying to tell people the best thing about this show and what I hope to achieve is actually just making people think a little bit.
Before they do something.
Mainly just, you know, hey, if we want to do a conversion or want to do, we want to go on vacation and we need, or, you know, I have some clients that want to take their grandkids and their kids and they want to have these big family vacations.
And sometimes they have to move money around to accomplish that.
Nothing wrong with any of it.
You just have to make sure that whatever you choose to do, you do it with the idea that you understand how the tax dollars are going to work.
Right?
I mean, and if in this gentleman’s case, he’s already worked the math.
He knows that he’s going to owe the money.
He’s preempting that concept in his head, or at least on the table where he’s worked out the numbers.
And so when the tax time comes and he prepares his taxes, he knows he doesn’t have any kind of issue.
It’s not just something that is sitting there, but he also understands that, hey, I’m going to have to write a check for Uncle Sam.
Because the worst part about doing taxes usually is telling somebody that did not expect to have to pay is that they owe money.
You know, I know that some people probably think there’s a perfect ought to taxes.
And, I mean, numbers are numbers, but I won’t say there’s a perfect ought to it.
All right, let’s hit Sam before we hit the next break.
Hey, Sam in the borough, what’s happening, my friend?
Hey, Dr. Friday.
Thank you for taking my call.
Thanks for calling.
So my question is, I have property here.
If I sell this property and buy property overseas, can I do the exchange?
No, 1031 exchanges are only allowed in the United States is what I was told when that came up with another client.
Okay, so I cannot do it with a property overseas.
No, yeah, you’d have to buy something here with the 1031.
They don’t allow for the overseas purchase.
I guess that probably makes sense since you’re deferring taxes to buy something overseas.
But, yeah, great question, though, because I’ve had a couple people ask me that same thing over the last couple of years.
Okay, and for rental properties overseas, do we treat them like rentals here in the United States?
We do.
We have to report their income on our taxes.
We have to report their income on our taxes, and then you may get a foreign tax credit, depending on which countries they are.
And if you’re having a file in those countries, like in London and places like that, you know, you’re paying taxes in London, then you may get credit here in the United States for foreign tax credit.
Okay.
Okay.
Thank you so much.
Thank you for listening.
Thanks, Sam.
All right.
We’re going to, if you have a question, that’s great.
You can join the show.
615-737-9986.
615-737-9986.
For any of you guys that have not heard me before or understand what Sam and I was talking about, a 1031 exchange is what some people might also be referred to as a like-kind exchange.
So if you have a piece of real estate, be it residential or something other than your primary, maybe a rental.
It doesn’t have to be a rental.
It could be a second home.
But a piece of real estate that you want to sell, and maybe you have quite a bit of capital gains in that property if you sell it.
So by doing that, you can do what’s called an exchange.
And basically, you go buy another property for the same value of the property that you sold.
So if you’re selling a property for $500,000, you have to go spend another $500,000.
And that’s where it gets a little bit more complicated for some clients because they’re really wanting to not have to go spend that much money if the house is appreciated.
But you do have the ability to spend it on multiple properties.
So I think it’s up to three properties.
And you do want to touch base with an attorney that handles, usually it’s real estate attorneys that will handle 1031 exchanges.
And then that way you have a way.
But it is a way of keeping your tax dollars working for you, not always just feel like you’re paying the tax in advance.
I know that that was at one point back when Biden was in office.
It was one of them.
He was trying to take off the tax books.
He felt it was only useful for people that were wealthy.
But I mean, I would say most of us working people, if you have a way of taking your rental and upgrading it or not having to pay tax and keep growing it, just makes sense.
You know, I mean, if you want to stay in the rental or land business.
I mean, again, I have some people that basically are like, I’ve been doing it for 30 years.
I’m done.
I don’t want to be doing it anymore.
I don’t need to keep investing into real estate because it’s a little crazy sometimes.
I’ll be honest.
I know myself, I have a number of pieces of property and only one of them is out of state.
Thank goodness.
And would probably love to get rid of that property.
But the rest are in state.
But there’s not, you know, they’re good investments.
It’s another source.
I look at it as anything else.
And like I say, talk to your financial advisors because, you know, I will say many financial advisors will tell you that rental real estate does not usually produce as well as an investment.
I don’t know if I agree with that.
But I’ve always been a big person in diversifying.
Okay.
I’ve got so much money in stocks and bonds.
I need to have some money in dirt.
All of it will come back and play, you know, in the right direction.
And that’s the important part because I think, at least from my personal opinion, now this is not tax advice or definitely not financial advice.
Again, anytime you’re making these kind of decisions, you definitely want to do those with the help of a financial planner because they basically take in much more than just a one-time situation.
They’re looking at a five-year plan, when do you want to retire?
You know, what’s your lifestyle like?
How do you plan to do things with your lifestyle, et cetera, et cetera.
So you definitely want to talk.
Hopefully that person will understand some of the taxes, but who knows?
Let’s get Bertha on real quick and see if we can’t get her before the break.
That way she doesn’t have to wait through.
Hey, Bertha, this is Dr. Friday.
How can I help?
Is it Bertha?
Bertha.
I’m sorry.
Maybe I’m saying it wrong.
This is Dr.
Friday.
Can you hear my voice?
All right.
I’m not too sure.
We’ll come back to her after the break, I guess, because I don’t hear her.
And maybe I’m not saying.
Hey, this is Friday.
Can you hear me?
Yes, ma’am.
I had a question.
I heard you speaking of vacations a while ago.
Do you have to report to the IRS if you take your whole family on vacation and spend a lot of money or anything like that?
No, you do not.
You do not.
Normally, when I get involved, it’s usually when my clients have to find a way of paying for that vacation, be it selling stocks or moving money around.
But no, that is not a tax.
I mean, if you go on vacation with someone that’s not gifting, it is nothing.
It’s just a family getting together and enjoying themselves.
So no, it’s not a tax situation.
Thank you so much for your time.
Enjoy your show.
Thank you, sweetie.
Hey, you too.
Thanks.
Okay.
Thank you.
I’m glad we got her on and off before because that was a simple question.
And I don’t mean to confuse you.
Sometimes, you know, I get talking and sometimes I just obviously confuse people.
All right.
We’re going to take our second break here in about a minute.
And so if you want to join the show, you can 615-737-9986.
615-737-9986 is here in the studio.
I did have someone text me between the first and second break here.
And they had gotten a letter from the IRS and it had to do with 1099s.
They had issued 1099s for their business and they had submitted the information to the IRS and they have gotten a letter coming back that basically it’s a CP-210A, 2100A.
And it basically says that the information you provided is not correct.
The people you 1099 and their name and or number, social security number or EIN number does not match their records.
And they were concerned that they need to do something.
There is something you need to do.
You need, if you’re still using those vendors, you need to go back to them and have them correct their W-9 or if the information on the W-9 is correct, then you have to start taking withholdings.
The IRS says the best person is not in compliance and we have to start taking 25%.
And this is out of a vendor.
This is not your employees.
So if you’re listening and you have someone, two options, one, make sure everything’s right.
Two, make sure that you, if they’re not right or they’re not willing to give you the information, if they’re still working with you as a subcontractor, you need to start withholding money.
All right, we’re going to take our next break.
If you want to join the show, 615-737-9986.
We’ll be right back with the Dr. Friday show.
If you want to join the show, 615-737-9986.
615-737-9986.
Had someone call, I guess they had not heard that we were under a federal disaster.
The Federal Emergency Management Agency issued a disaster declaration for your area.
This means the IRS has automatically granted you disaster relief, which includes postponements of deadlines for you to file returns and make payments.
This means that you have additional time to pay beyond the due date listed in your information.
So, and our due date now is November 3rd.
So if I haven’t already done that enough, there is one more time where we are under this because I do know this is such a unique situation.
I always tell my clients, this is probably once in a lifetime that you’ll have this kind, at least I hope so.
I’m hoping that most people, I will say in Spring Hill and in Williamson County that I deal with, most of them have not had major damage due to the storms.
Thank goodness.
But we do know there’s some major areas, especially Asheville and things.
I have some clients up that way that have completely lost their entire businesses.
So that’s being reestablished and they’re, they’re working hard, but I’m just saying it’s not straight and forward.
But if you have had damage or a national disaster hits your property, keep in mind that, you know, there is losses that you can claim on your tax return, assuming that you didn’t get fully reimbursed for your tax output.
So if your home was fully damaged and you paid your insurance deductible and everything else was covered by the insurance, great.
But sometimes people aren’t insured for as much as what it costs to get everything fixed.
Or sometimes, you know, I mean, the insurance companies, I mean, again, just don’t, always, you don’t have the proper documentation.
Therefore you don’t have what they need.
And that makes it even harder for them to give you what you need.
So if that happens, make sure you document everything, document what money you did receive from FEMA and any other organizations.
And then we can possibly see if there’s a tax advantage or at least a, I don’t want to call it an advantage because you had to lose something to get it, but a way of getting some of your losses back on your tax return.
But documentation is essential in these situations.
They want to know how much things were worth before.
They want to know how much things were worth after.
And you have to have a very detailed list.
So usually whatever you’ve turned into the insurance company will do a very good job of getting us a start on what it is that you’re looking for.
But, you know, just again, just making sure everything is just the way you need it.
And, you know, that you’ve got the documentation.
Hopefully most people have been re reinvested for most of their losses because that would be the best way to have it.
But if you’ve got questions, maybe you have suffered a loss or if you have now keep in mind, it has to be a loss situated with a natural disaster.
You have to be within the federal natural disaster area.
So if you, you know, you lost some, your car got damaged and you lost it and you didn’t have insurance or, you know, any other kind of losses, those are no longer on the tax books.
We used to be able to take losses, but those are completely gone.
So just, again, making sure you understand that this is only federal disaster losses that we can talk about as far as for tax purposes.
So if you’ve had other kind of loss, a fire, or I had one person at their home actually did have fire damage.
But again, there’s nothing I can do for tax purposes unless it’s a federal disaster.
So hopefully, hopefully you don’t need it, but just keep that in mind.
So if you’re thinking many of you haven’t filed your taxes yet, many people are waiting for me to finish their taxes, which I’m working on.
But if you haven’t filed your taxes, the advantage is that we now can make sure that we can still pay into your IRA, which normally you could not do after April 15th.
But because of this disaster extension, we are able to pay into our IRAs.
So this may be a year to maximum your IRA contribution.
Also, SEPs, which usually expire on 10-15, will be good till 11-3.
But again, that’s a self-employment plan for my entrepreneurs.
So both of those.
Also your HSA.
So maybe you didn’t quite get enough money paid in in 2024, but you want to maximize it.
Now you can still do that in the year of 2025.
Again, normally this would not be, normally you’d have to wait till, I mean, April 15th or you couldn’t do any more of it.
And if your health savings account is through your employer, I, you know, I don’t think you can do anything about it.
This would be individuals like myself who actually have health savings accounts outside of that situation.
But if you have any of those types of contributions, you, you have an extended time to make them.
So, you know, this is the year to think about all those little extra things you might be able to do or might be able to extend out and, and get straight.
Because this would be the year where maybe you could pay off your 2024 and pay your estimates on time, which would all be November 3rd, instead of maybe getting penalized.
I mean, I can’t tell you how many times I’ve had people ask me, you know, making estimated payments is a, is a choice.
I don’t have to do that.
And I’m not too sure where that rumor started, but it’s not a choice.
You, you don’t have a choice.
I mean, theoretically, if you owe more than $500 last year, you should be making estimated payments this year.
If you normally get refunds, this doesn’t apply to you.
But if you actually owe money every single year, then it does apply to you.
And even if you’re an employee or you’re retired, I mean, it doesn’t make a difference.
If your money, if you owe money every single year, there is, should be vouchers, 1040 ESs that are being prepared.
If you do your own taxes or your tax person’s doing it, they should be issuing those forms to you.
So that way you can be paying your estimates because there is a penalty 0.5% per month for not making estimated payments, plus interest on the money you did not pay.
Some people will say, well, I can earn more money than what it’s costing me to give Uncle Sam their money on time.
That is a personal choice.
But to say that estimated payments are a choice?
No, they’re not.
This is part of the tax code.
It is a mandate.
You may choose to ignore that mandate and pay the penalties that come along with that.
But again, those are personal choices, not true tax law.
So if you are, and a lot of times people think it’s only for entrepreneurs.
I have a large number of retirees that basically have two options.
They either make quarterlies or they make sure enough is coming out of distributions like IRA distributions and Social Security.
Because a lot of times people say, well, Social Security is not taxable.
Yes, it is.
If you have other income that makes it taxable.
If you’re living solely off Social Security or you’re living off, you know, $250 a month plus Social Security or some small pension.
No, you probably don’t have to worry about it.
There’s probably not even a mandate for you to file taxes.
But in most cases, people have retirement income, be that 401ks, IRAs, and they are taking that money to live.
And by doing that, some of that, that then turns their Social Security into taxable.
Up to 85% of what you get in Social Security can be taxed.
Now, we know that the big, beautiful bill has some of this in here where they’re going to hopefully correct that.
I don’t know if that’s going to happen.
I really don’t.
I’m trying to figure out how they’re going to finance it all if it does happen because, you know, they’ve already means tested Medicare.
And so this is just one of those situations where, you know, it just gets more and more going that direction.
So I’m just saying that you don’t know for sure.
But if you’re planning or doing something with your finances and just making sure that you’re not going to be taxed on the money or do your taxes and then you turn around and you’re like, oh, my gosh.
Why am I, why do I owe money?
I mean, I can tell you.
After 30 years of doing taxes, that’s usually one of the top lines that’s used.
And normally it often comes with change.
Like sometimes they’ve changed jobs.
People on W-2s should not owe money if that’s all the income they’re reporting is their W-2s.
It should be pretty straightforward unless you’ve changed jobs or maybe you don’t understand how withholdings.
I had a couple come in and they’re married and they both just work.
There’s no extra income.
But somehow she’s she’s only paying like $40 a year in withholdings.
So we had to review her W-4 form because finding out that she was claiming married in two, thinking that she was married and then her and her husband would be two.
I hear the words.
I can’t say I totally understand it.
But that’s where people get.
And then on the new W-4 form, it says, does your spouse work?
That’s a very important box to click because both of you claiming married and zero means that both of you are saying that you’re supporting another person with your income.
And if your spouse is working, you’re not really supporting that other person.
So this is why so many people get in trouble with tax questions or owing money on taxes, because when they fill out their W-4 forms and they’re sitting there filling out, OK, I’m married.
I have two kids under the age of 17.
And and that’s it.
You know, it’s all they basically fill in.
And both spouses are claiming the kids, both of them put in that they have two children, but yet there’s only two children.
So both of you can’t claim the children and you can’t both be claiming married unless you check the box that says my spouse is also working.
That way they’ll tax you at a higher bracket.
But, you know, I’m just saying you’ve got to understand.
And I can’t tell you again how many times people come into my office and they’re like, I don’t understand why I’m not taking my employer is not taking enough money out of my taxes.
And you have to look at that W-4 form.
And if nothing else, box four says, do you want additional withholdings?
And the answer should be yes, if you’re owing money every year, because you need to have that money coming out one way or the other.
All right. We’re going to take our last break.
If you want to join the show, you can 615-737-9986.
615-737-9986.
We’ll be right back with the Dr. Friday show.
If you have a question or you thought that might be an interesting one to ask, you can join the show.
615-737-9986.
615-737-9986.
Let’s see what Scott in Cumberland has to say about IRAs or what question I might be able to help him with.
Hey, Doc.
Thanks for taking my call.
Sure.
I work.
I have a pension.
I have a pension.
And I add $8,000 a year into a traditional IRA.
And I get the $224,000 break in the year on my taxes.
Can I add money or can I start a Roth also and still get the tax break?
No.
Roths will not give you the tax break instantly, but they will give you the tax break later in life because it grows tax-free.
So when you need tax-free money, you know, I’m just saying, you know, nice to have some tax-free money and some deferred tax and then some that’s just in the bank.
But, I mean, I’m a very big advocate for Roth IRAs, but they’re not going to help you on taxes.
And I don’t know, depending on your income, there are certain income limitations.
Like if you make too much money, you can’t always contribute.
Will it take away my tax break from traditional at the end of the year?
No, it won’t take away from it.
No, sir.
All right.
Well, thank you very much for the help here.
Sure.
Thanks.
Thanks for listening.
So that was a good question.
Yes, you can.
Some people can take and put $8,000 into a traditional IRA.
Others, and the same person might be able to put $8,000 into a Roth IRA.
Roth IRAs are, just for those that may or may not know for sure, Roth IRAs grow tax-free, but we pay taxes on the money going in.
Traditional IRAs, we defer them like Scott was mentioning.
It helps reduce his taxes instantly.
So he gets that instant gratification.
But when he hits retirement age, he will pay taxes on that money when it comes back out.
So again, really just a matter of, and sometimes it really just depends on your income.
Like I have some young nieces and nephews that are kind of just out there just getting started.
And they’re, you know, there’s a saver’s credit.
So I’ve always encouraged them to either put money into an IRA or put money into a 401k, depending on if there’s any retirement available at their jobs.
Obviously, I suggest putting them into Roths at their age because they’re at a low income bracket anyways.
So putting it into a traditional, they’re not saving very much money.
If you’re at the higher brackets, 22, 24, 26, you’re going to have a much better situation.
If you’re in the 12, in my opinion, 12 or even 22.
And again, I am not a financial advisor.
So you need to double check what’s going to work best for you on these situations.
But if you’re looking at a tax or saving money, putting an IRA, putting $8,000 and saving 12%.
So, you know, that’s only less than $200 you’re saving taxes or have growth.
Probably better to put that into a Roth IRA and let it grow tax-free for the next 10 or 20 or depending on your age, how long it will be before you actually need that money.
And Roth IRAs, theoretically, you can always take the principal out without penalty.
You know, so it’s the growth that you can’t touch until you’re 59 and a half, I believe.
And again, all this when it comes to retirement, I’m talking about the tax aspects.
But if, you know, I’m not going to say what’s going to be best for you because it really depends.
In my world, I put money into a traditional SEP because my income bracket, it just seems more practical.
But at some point, it would be nice to be able to do the Roth as well.
But, you know, again, there are income limitations in situations where you have to make sure you’re complying.
Now, there are some backdoor IRAs.
You can do a traditional IRA and then do an instant conversion.
And therefore, basically, they call it a backdoor IRA, but basically, it’s conversion.
Because people that can put money into IRAs, their income can be higher than sometimes people being able to put money into a Roth IRA.
And again, double check that.
Talk to your financial advisor.
See if any of that is a good plan.
It is a way of putting money into a Roth IRA or putting money into an after-tax IRA that you don’t have to worry about meeting the criteria because you can do a conversion even if your income is higher.
But you are going to pay tax at a higher rate, right?
So, you know, it’s a catch-22.
You just have to figure out what’s going to be your big picture.
I have a number of clients, especially as they get closer and closer to retirement, that they really want to have all of their retirement or as much as possible their retirement into the Roths.
It’s a wonderful thing to inherit.
I will say that if you’re at a lower income bracket that you think your children are, and normally in retirement, we are at a lower income bracket or we may be.
I mean, I have clients that haven’t really changed much at all, but theoretically, many of my clients will be at a lower tax bracket.
And then that way, them paying tax on the converted money and leaving that money basically tax-free to their children is a gift that just keeps on giving, right?
I think that’s a traditional IRA where they’ve basically said, you have 10 years, you have to take the money out or you’re not going to be able to, they’re going to penalize you or basically just do a distribution.
And now you’re getting hit with a high tax bracket.
So that does take some organizing.
And if the money is left, I would definitely say you want to talk to your estate planners, your attorneys.
I don’t think traditional IRAs should be left to trust, especially with the law that basically says they have to convert it within five years.
Now, it can be left that the idea is to distribute it and then do K-1s to the beneficiaries.
But again, sometimes people aren’t thinking about that when they set up trust.
And I think a trust is best left directly to the beneficiaries.
I think it’s easier for that to be managed.
But I mean, I have a couple trusts that we help manage.
And at this point, you’re talking 15, 20 beneficiaries.
It’s not so straightforward.
You’re really looking at what’s going to be the least tax efficient.
In many cases, even if it’s not the least tax efficient, I have one that they don’t care if it’s efficient.
They just don’t want the beneficiaries to have to pay any tax.
So trust their tax that in many cases higher than the beneficiaries.
Now, that’s not straight across the board true.
But if you are in the 24, 26, 28 tax bracket, 30, you are going to be better off having the trust probably pay your taxes.
But if you’re in the lower 12, 15 or 12, 22 percent, not the same situation again.
So you really do want to think about taxes when you’re setting up your estate.
Many state of planners are attorneys or financial planners.
But you might want to make sure that whatever you’ve set up is going to be a benefit to the beneficiaries.
You know what I’m saying?
That’s the whole thing.
We want to put more money in the pockets of your beneficiaries and not more money in Uncle Sam’s pocket.
So doing a little advanced tax planning is probably a good idea.
Talk to whoever is going to be handling the taxes.
Most of the time, it’s your tax person.
So whoever your tax person is will be the ones that will usually step up and handle all of the estate plan trust and all the taxes that go along with it.
And so just, again, making sure that you’ve got that.
All right.
So we’re getting ready to wind up the show.
If you want, you can give us a call Monday morning, 615-367-0819.
615-367-0819.
You can also email Friday at drfriday.com.
Again, Friday at drfriday.com.
Or you can just check us out on the web at drfriday.com.
D-R-F-R-I-D-A-Y.com.
I am an enrolled agent licensed by the Internal Revenue Service to do taxes and representation.
I have never worked for the Internal Revenue Service.
So sometimes people translate that as if I’m actually working for them.
I do not.
I only do what I need to do.
And then from that point, just educate.
Basically, it’s all about representation.
It’s all about trying to protect my clients from what could become or is a problem for them, be it back tax issues, IRS, you know, payroll tax issues, you know, could be civil penalties.
There are a number of things that could be coming up.
It doesn’t always just black and white.
IRS did.
So if you have questions or maybe you know someone that is needing to at least, our initial consultations are always free so we can make sure that we can actually help you.
If we can’t, then, you know, you need to go to the person that may be a court attorney or, you know, someone else.
So if you need help with doing what we do and how we’re going to do it, all you need to do is give us a call again at 615-367-0819.
Or you can check us out on the web at drfriday.com or just send me an email, friday at drfriday.com.
We can help you figure out where to get started.
So if you haven’t filed taxes in the last 5, 10, 20, in 30 years, we don’t have to go back that far.
We have certain amount of numbers that we have to deal with for compliance as long as the IRS has not already assessed.
And then we can help you get together your tax documents, right?
Because that’s the important part.
If we can get the numbers, we can then prepare the numbers and then get Uncle Sam on the right page.
I hope you guys are staying dry, nasty weather.
But, you know, as we always say in Australia, cop you later.