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With tax season in full swing and the March 17 deadline for multi-member LLCs and S-corporations just around the corner, Dr. Friday packed this episode with timely, practical guidance. From clarifying the real story on “no tax on tips and overtime” to walking callers through Social Security taxation, inherited assets, and IRS penalty rules, this show delivers answers when people need them most. Dr. Friday also made a compelling case for why estate planning — especially wills, trusts, and life insurance — matters at every age, not just for the wealthy.
Summary Points
- Business filing deadlines: Single-member LLCs file as sole proprietors on April 15 and do not need to file a March 17 extension; multi-member LLCs and S-corps (1120-S / 1065) do. Tennessee business owners should also register with TNTAP.tn.gov ahead of the April 1 business license deadline.
- Tips, overtime, and Social Security taxation: Despite popular assumptions, tips and overtime may still be taxable depending on overall income. Social Security must be reported on every return, and only qualifies for the new $6,000 per-person deduction (for those 65+) when filing jointly or as a single filer below the income threshold — not when filing married separately.
- Estimated tax payments and penalties: To avoid underpayment penalties, taxpayers must pay at least 100% of prior-year liability (110% for higher earners) in four equal, on-time installments. The IRS offers a one-time penalty waiver (the “get-out-of-jail-free card”) but it’s a limited resource.
- IRS debt resolution options: Taxpayers who haven’t filed or can’t pay have several paths: payment plans, partial payment plans, or an offer in compromise — but the IRS considers all assets (home equity, retirement accounts, etc.) before accepting reduced settlements.
- Inherited assets and home sales: Property and artwork inherited at death receive a stepped-up basis to fair market value at the date of death, often eliminating capital gains. Homeowners selling a primary residence can exclude up to $500,000 of gain (married) without needing to reinvest the proceeds.
- IRS going paperless: The IRS is no longer mailing refund checks — taxpayers must provide banking information for direct deposit or risk having their refund held. Electronic payments are also increasingly required for balances due.
Episode FAQ
Q: I’m 79 and file married separately. Why don’t I get the $6,000 Social Security deduction?
A: The new $6,000 per-person deduction for taxpayers 65 and older is not available to those who file married filing separately. Because the IRS can’t verify both spouses’ income on separate returns, the deduction is disallowed entirely for that filing status.
Q: My father-in-law recently passed away and we sold his artwork for $70,000. Do we owe capital gains tax?
A: Most likely not, or very little. Inherited property receives a “stepped-up” basis equal to its fair market value on the date of death. So unless the artwork appreciated significantly after he passed, any gain above that stepped-up value would be small — and the gain period would be short-term or long-term depending on how long the estate held it before selling.
Q: I’m required to take a one-time lump sum from a deferred pension plan. Is there any way to spread out the tax hit?
A: Possibly. Before signing anything, consult a financial planner — it may be possible to do a custodial (trustee-to-trustee) transfer to an IRA or another deferred account and then take withdrawals over time. A lump sum taken all at once will push you into a higher tax bracket and make up to 85% of your Social Security taxable, so it’s worth exploring every option first.
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. A question for Dr. Friday, call her now. 737-WWTN. That’s 737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday
G’day, I’m Dr. Friday, and the doctor is in the house. We are here live, so if you have some questions concerning maybe you’re working on your taxes. I do want to put a shout out for anyone that is a multi-member LLC or a sub-s corporation. Do remember that Monday is your tax day. So you should have filed an extension, just to make sure that everything is filed properly or file the return, whichever works for you. Either way, you need to make sure you’ve got it all filed so you don’t get hit with penalties. That’s the one thing we don’t like is penalties.
Dr. Friday
So if you’ve got questions and you want to join the show, you can do that. 615-737-9986. I am going to say that we are working hard on a lot of taxes ourselves. Finding that tax documents, people are having some problems getting all their documents together. We’ve already had a change, I believe it was with Charles Schwab, where a second set of documents have been sent out after the first.
Dr. Friday
As well as we have the issue with all the tips and mainly tips, I have to say, overtime. The definition of tips, especially on the self-employed Uber drivers — individuals that are reporting the information based on what they have. The biggest question is, if you’re reporting tips and you are an Uber driver or somebody that is getting tips through a 1099, make sure that those tips are reflected in the income side because a lot of people are just using what Uber is providing. But we all know that if some of the tips are cash that did not run through the Uber 1099, therefore you may be overstating the tips based on the income. So if you’re going to report all of your tips, you need to make sure that you’re also deducting those from the right amount.
Dr. Friday
And remember, tips for a self-employed individual — you do still have to pay the self-employment tax. They just give you a deduction against ordinary income tax. So the savings is good. A lot of times there’s still a misconception a little bit on: is Social Security taxable? Because everyone’s like, no tax on tips, no tax on overtime, no tax on Social Security. Well, there is tax on tips for a lot of people. You won’t get as much depending on your income. There is definitely tax on overtime for a lot of individuals, depending on your overall income.
Dr. Friday
And then same thing with Social Security. Social Security in itself is tax-free, unless you have other earnings. If your other earnings exceed the $75,000 or $150,000 threshold, you start losing that $6,000 or $12,000 if married — the deduction that they are giving you to help pay for your Social Security. But Social Security still has to be reported on your tax return. That was one of the bigger misconceptions — sometimes people didn’t bring in their statements because they were under the impression that they no longer had to report Social Security as part of their income.
Dr. Friday
So again, it’s confusing. Taxes are always confusing, which is partly the fun and partly the other side of it. We do our best to try to make sure that we’re giving everybody all the answers they need. But if you’re working on your taxes, maybe you’ve gotten something with inheritance, or you’re selling a piece of property that maybe at one point was inheritance and then you had to sell it or whatever — then that’s something you need to consider: what the basis is.
Dr. Friday
Sometimes that can be a bit confusing. I’m going to suggest for a lot of people that if you have a piece of property that is going to be left to children or the next generation, look at a trust. I’m not an attorney — put that caveat out there — but there are a lot of good features of a trust. Part of it is there are ways of making sure that the basis is preserved and different things like that, especially for a husband and wife. I heard recently, and again this is what I heard, but an attorney said that if a home goes into a trust, and especially an A-B trust, that preserves the step-up for the wife.
Dr. Friday
So there are different questions and different ways of doing some of this and making sure that the documentation is the easiest for those that are left behind is really the question. I got into a bit of a conversation with one of my clients — a young couple — and we were talking about how they had just had their first child and I’m like, have you set up a will? And they’re like, well, no, it’s on our list but we haven’t got there yet. And I’m like, well, you know, hopefully you’ll live to a nice old age. But we all know that things happen every day. And do you have things set up for what happens to that child if you’re not there to raise it?
Dr. Friday
And of course that made them start thinking. These are the kinds of questions no one likes to answer or ask. But if you are a young person — because a lot of times people listening are people that are maybe closer to my age, in their late 50s or older, but some are younger — the average age listening to the station is probably around 40. Many of you have already had children or are at that point. Young people need to put some thought to not so much that you have an estate — you haven’t built all your wealth yet — but what will happen to your children, to the things you do have?
Dr. Friday
Even though it doesn’t seem like it, I know most people think estate planning is really for people that have an estate. But think a little outside of that box. Think about estate planning especially when it comes to your children — maybe having life insurance to help them to the next level and learning more about how all that’s going to work, because that’s really the more important thing in my personal opinion. More important — estates can be settled in court. Not the ideal situation, but they can be. But if we had to make a choice, I think we’d rather settle an estate in court than decide who we want to have our child raised by if we can’t raise them ourselves.
Dr. Friday
So just putting that out there — I know it’s a little dark — but it made me think that maybe we don’t talk enough about some of that. Estate planning is essential for every single person. And you may sit there and say I don’t have an estate. Most people have something. I had a gentleman that lost his son not that long ago, and he didn’t have a will or anything, and he didn’t have a wife or anything like that. So it came down to him having to settle. But he had a 401k and he had a bank account. He had to settle the debts, and since there wasn’t a will, it had to go to probate. It was just a lot of work at a time when, to be quite honest, Dad did not have a lot of willpower to do it. He just lost one of the most important people in his life, and it was very difficult to then go deal with all of the other things that sometimes life throws at us.
Dr. Friday
Yeah, he did an excellent job, but still it would have been simpler had there been something we could do to make that work. So anyhow, if you have questions, I would definitely say this is something for an attorney — something that you want to make sure is being dealt with by someone that really understands the difference in your case of an estate, a will, a trust, or what the next step is. But put it on the agenda. Something we need to look at once we’re done talking taxes.
Dr. Friday
Because we only have almost 30 days left of tax season. And at that point, you either have an extension filed or you have filed your returns. If you need to have taxes done at this point, my office can help with extensions and then we can help you after the tax season. Otherwise, we’ll do our best to send you to somebody that can help you. If you’re looking for a tax person this late in the season, it’s going to be probably difficult to find a qualified one because most of them have already booked up. But if you do need some help, you can call the show: 615-737-9986. We’ll take your call here live in studio.
Dr. Friday
We’ll try to help you, guide you in the right direction — at least tell you what we think you need to do, and then you can see what would be best for you when and if that was something that needed to move to the next level. But you can join the show. It is live: 615-737-9986. I’m receiving quite a few emails on different individuals, mostly businesses. So I’ll answer this first one. This is a business owner. They have an LLC, but it’s a single member LLC. They were wanting to know if they need to file an extension by tomorrow. And the answer is no.
Dr. Friday
If you are a single member LLC, the Internal Revenue Service considers you a sole proprietorship. Proprietorships are due April 15th — or usually this year it will be April 15th. So you don’t have to worry about filing that extension yet. You do need to make sure that when you file your personal tax return that even if it is a zero LLC — maybe you started it but didn’t have any activity — you still need to file a Schedule C with the EIN number, the name, any loss or gains or just zeros so that it’s documented. And then remember in Tennessee we have franchise and excise. There are a few companies that would have an exclusion, but that’s often the ones that get the love letters.
Dr. Friday
This week I’ve had three emails just looking at them today concerning business licenses that are due on April 1st. Apparently the state is sending out notices from TNTAP asking people to file their business license — just a reminder, not so much a bad thing. It’s actually a good thing because for a few years they used to send out postcards, people lost the postcards, and now they don’t have them. So this is a good thing. If you’re getting anything from TNTAP, it’s most likely a reminder to file your business license. And if you’re a brand new company and you haven’t set up your TNTAP, that’s TNTAP.tn.gov. You need to do that because it’s all the communication you’re going to get from the state — for your franchise excise, your liquor tax, your sales tax, your bonds. Pretty much any license or tax that you have, they’re going to communicate through that site, letting you know reminders as well as any balance dues, failure to file, or anything like that. Make sure you have that set up.
Dr. Friday
All right, we’re going to take a quick break here on the Dr. Friday show. When we get back, we’ll take your call: 615-737-9986. We’ll be right back.
Dr. Friday
Alrighty, we are back here live in studio. You can join the show: 615-737-9986. Taking calls, talking about my favorite subject — even though today is an absolutely gorgeous day. Most of you guys are probably outside enjoying it because I was under the impression we were supposed to have cold weather today. But I went out and visited my bees, have flowers coming up. That’s probably gonna be a bad sign because some of them are probably gonna need something put over them because we’re going to get some cold weather here, and it should be interesting to see how that all flies. But hey, we’ll take that one step at a time.
Dr. Friday
So if you have calls or you want to join the show, you can: 615-737-9986. Taking calls talking about taxes. Obviously that’s the important thing right this second. Because with taxes, you have to deal with all of the penalties, and I often have emails that follow up with, well I filed my estimates — why am I getting penalties? The answer is pretty easy, depending on if you made your estimates on time. That’s the problem with some people because sometimes people won’t make four equal payments. Sometimes they’ll do them sporadically and they won’t do them on time.
Dr. Friday
Just keep in mind that you do need to file your estimates based on the prior year — how much did you owe? You need to pay at least 100% of what you owed the year before, 110% to completely avoid penalties. And then you need to make them on time and equally. Sometimes people look at their situation and they’re like, I’m not going to make as much money this year, so I’m not going to pay as much in quarterlies. That can be a whole different conversation because if you made your proper estimates, you’ll see — I had a gentleman that owed over $200,000, but he had paid in almost 120% of what he owed the year before. So there was no penalty because the big event didn’t happen until that year when he made a sale. He was able to keep that money for a few months and do what he needed to do.
Dr. Friday
But again, this is the kind of thing you want to make sure you understand. If you have questions about penalties, you can request a waiver. But to be honest with you, sometimes that is not always an option because penalty waivers — the IRS really only gives you one time, what I always call the get-out-of-jail-free card. They allow you to ask for that and you usually get it, and sometimes you can get them up to every 31 months. But you have to make sure that they meet certain compliance. If you can show that the error was not something that was a mistake by your tax person, a mistake by the IRS, or somebody not giving you the proper documents, you might be able to get it waived for cause. Otherwise, they kind of only give you one form to use to do it that way.
Dr. Friday
So when you’re looking at why you’re getting hit with an additional penalty — the other question I hear a lot is, people come in and they’re like, well, I paid the IRS. Of course, you paid them late and they’re wanting more money. And you’re like, why are they asking for so much more money? It can be a fourth of what you owed. So if you owed $20,000, they’re still looking for $5,000 because you paid it in October, and you paid what you owed back in April, and they’ve already added penalties and interest and failure to file — possibly failure to pay penalties on top of that. There are all kinds of wonderful penalties that you can deal with.
Dr. Friday
So when you’re looking at extending your time, especially for 1120-S and 1065s, keep in mind they don’t actually owe taxes, right? These are pass-through companies. The money falls on the individual. So extending them really doesn’t have a financial situation, but for personal tax returns — if we haven’t filed or if you’re waiting because you haven’t received all your documents — the IRS wants you to be making an estimate either with your extension or your four equal estimates.
Dr. Friday
So I have clients every year that would rather pay the penalty than make the payment. That is totally a choice. It doesn’t have to be that way, but you have a choice. And the IRS says if you want to do that, we’ll be more than glad to be your loan officer, but we’re going to charge you 25% penalty, 12-13% interest, and from there we’ll take it and see what comes next. So you just have to be willing to pay that fine. But if you are behind and you need to make a deal, we do have what’s called offer in compromise.
Dr. Friday
This was an email that just came in — he’s like, well, I haven’t paid, I haven’t filed for 10 years. Don’t know how much I’m going to owe, but I’m unemployed and I’m not able to make the payments. And there are two sides to that. One, if you’re underemployed, the IRS may look at your history. Maybe not someone that hasn’t filed for 10 years, because they may know how much money he’s made if it’s been turned in. So if he’s self-employed and received a number of 1099s, or he works for one person every year and the 1099 has come in and he just hasn’t filed on it — those are the ones that end up with the highest tax issues. Because throughout the year, an individual with W-2s usually has paid something. Maybe they’ve chosen not to have enough come out of federal withholding, but they have paid the Social Security and Medicare. So they’re a head start on the self-employed individual.
Dr. Friday
If you don’t have the ability, or you are underemployed, or maybe you’ve had some health issues, you have the ability to make a payment plan, a partial payment plan, or you have the ability to make an offer in compromise. Now, this is what you hear a lot of times on the radio — people talking about how they can make a deal, 10 cents on the dollar. And I will be honest, my best deal ever was settling something for $25. Yes, $25. She owed $70,000. But she was completely unable to pay, and we were able to show both the state of New York and the IRS that she was unable to pay these debts.
Dr. Friday
Yes, you can do those kind of deals, but you have to have nothing to do it. So most of us have homes, many of us have 401ks, have IRAs, have equity or stocks — and the IRS takes that all into account. For example, the equity in your home is an asset. Therefore, the IRS says, wait a second, if you only owe us $50,000 and you have equity in your home of $200,000, there is no reason we’re going to accept an offer in compromise because you have the ability to pay. In fact, you’ve been making mortgage payments and not paying us. So therefore that equity is ours.
Dr. Friday
Now, there have been a few court cases for older individuals where the only retirement they have is the equity in their home, and it has been proven, at least in those cases, where they were able to preserve and make the deal. But that is far between. Many other people still have retirement, they have jobs, they have Social Security or disability. I have people right now that have money being taken out of their disability check because they haven’t filed what they should file and they’re not able to make the payment — but now the IRS is seizing or taking partial payments of their retirement. Because you can become non-collectible — there are ways of doing that if the situation applies. But it would still be better if we’re able to do something with the IRS versus allowing them to levy or lien a bank account or a paycheck, because that’s not really the best way to handle it. We want to be a little more in control personally.
Dr. Friday
All right, let’s see if we can hit Howard before we take our second break. Hey Howard, what can I do for ya?
Caller
Yes, thank you for taking the call. I’m needing a little clarification on this no tax on Social Security. I’m retired and I have other income. I have a pension and then a small amount of taxable income and then Social Security. My taxes have already been completed and filed by a lady that does my taxes here in Lewisburg. But I keep hearing no tax on Social Security, and when I look at my 1040 — I’m going down to 6A, Social Security benefit which is $30,972, and then I have an amount in 6B that’s carried over into income of $6,762.
Dr. Friday
That’s okay. Go to page two and see if you see $6,000 sitting in 13B. Do you see $6,000 there? So Social Security — anyone over the age of 65 is getting an additional $6,000 to deduct as a deduction to help pay for tax on Social Security. Okay, so it’s not like Social Security is tax-free, but you should have that deduction. Now the only other reason that might not be there, sir, would be if your AGI on line 11 is over a certain threshold. Are you single or married, sir?
Caller
I’m married filing separate. I’ve got an amount in 11B of $27,937.
Dr. Friday
You’re losing the deduction, Howard, because married filing separately does not qualify for the deduction. Since they’re not able to see what each spouse makes, they’re not allowing it at all. So your return is probably correct because of that feature. You’re not getting the benefit of it.
Caller
Is married filing separately not going to allow for the $6,000?
Dr. Friday
That’s correct, yes.
Caller
Years ago I did taxes for a firm for three or four or five years and of course we had classes we went to. And I remember just talking about married filing separately — people in the tax world call it married filing stupid.
Dr. Friday
Well, I will tell you, I do a number of married filing separately, and there are reasons to do it sometimes. Not always financial reasons, but other reasons — for one, sometimes the spouse is self-employed or they don’t want to know each other’s tax situation. They’re willing to pay that little bit extra to have that separation. Sometimes — I have individuals that have student loans, for example, or if they owe money and the other one doesn’t, if their name’s not on the tax return, they can’t come after the spouse. So there are good reasons to be married filing separately, but unfortunately under this situation, you do lose a tax deduction by doing it.
Caller
So the $6,000 not coming off of the adjusted gross income — that’s the answer, yes, married filing separately?
Dr. Friday
You got it, my love. Thanks, good question. I appreciate it, Howard. All right, we’re gonna take a quick break here. When we get back, we can take some more of your phone calls: 615-737-9986. We’ll be right back.
Dr. Friday
Okay, back to the studio. Sorry, I stepped away. So if you have questions or you need help, you can give us a call: 615-737-9986. So that was Howard on the line — he did a great job explaining the married filing separately situation. That is a caveat I should have explained earlier. But let’s hit Emily. Hey Emily, what can I do for you?
Caller
I have a question. My husband is not 65 yet, so I’ll be able to do the $6,000 deduction. What does that actually equate to at the end of the day? Like is there an average that people are going to get back? I’m sure it’s a good thing.
Dr. Friday
So it’s not refundable, but it will reduce your taxes and it’s based on your income bracket. So if you’re in the 10% income bracket, it will save you $600. 20%, $1,200. But it’s basically based on the percentage of your income bracket, Emily. Whatever your combined income is, whatever bracket that puts you into, it would then give you a tax deduction of whatever your tax bracket percentage is against the $6,000. It will reduce your income by $6,000.
Caller
Oh, it reduces the income. So you could effectively get a small return.
Dr. Friday
Yeah, you could. We probably make about $70,000 between the two of us in retirement. So that is in the 12% tax bracket. So again, it could give you $600-$700 theoretically as a refund, assuming you paid in some money.
Caller
Okay. All right then. That’s all I needed. Thank you.
Dr. Friday
Thanks for calling. Appreciate it. All right, let’s go to John. Hey John, what can I do for ya?
Caller
Yeah, my question is whether I ought to try to file my taxes on my own. I’m 67 years old and I’ve got two 1099s, my pension and my Social Security. I haven’t sold any stocks, I have no other income, and I have no debt.
Dr. Friday
Can I ask if the 1099 from your pension — you know, is it $20,000? Give me a ballpark, John. I’m not asking you to give me the exact dollar amount, but I’m curious if you have to file.
Caller
Well, I’m looking at it right now. It’s $53,000.
Dr. Friday
Okay, so yeah, you make plenty. All right, so you could do it easily. It’s not a complicated return if you’re comfortable on computers. The IRS will not take paper returns any longer. There is also the AARP — they have a lot of free services. You’re not complicated, you’re not looking at having to have someone that has a ton of experience to do it. And AARP — if you go to their website — they usually have different places that they’re holding free tax events. Either option is certainly viable.
Caller
Okay. Yeah, between the pension and the Social Security it’s around $90,000.
Dr. Friday
Yeah, Social Security will be taxed at 85% for you, and then all $53,000 in pension — and then you will qualify for that $6,000 deduction. So that will help. If you get a tax software or anything, that will automatically work for you as soon as you put your date of birth in. But if you prefer someone to help you, then I would definitely say try to go to one of the simpler services. Thanks, John. Appreciate ya.
Dr. Friday
All right. Let’s go to Kaylin. Hey Kaylin, how can I help you?
Caller
I’m doing good. How are you? I am awesome. My husband and I own four long-term rental homes and one short-term. We just file normally, married filing jointly, like personal. We haven’t yet ventured to make it like a business. But we are contemplating a trust this year. Is that smarter for taxes or what?
Dr. Friday
That’s a wonderful question. So the trust isn’t really going to do a whole bunch for the aspect of taxes. It’s basically going to only protect you if something were to happen to one or both of you. So not a bad idea. But you probably also want to look into the potential of setting up either a single member LLC or a multi-member LLC, depending on how the houses are titled and all that. I would definitely suggest looking at that as one of your options because there’s an extra liability protection. We all know I also have a lot of rentals and we carry insurance for it, but there’s always that extra fear that if something were to happen, they could do something to our personal assets. So having a separate LLC holding these properties — or at least having them as management companies protecting those assets — it’s never a bad idea.
Dr. Friday
And then of course the LLC would theoretically — if you set up a trust — the LLC would then be the beneficiary after both of you have passed, to leave it to the next generation. And that way you still have full control if you want to sell a property, whatever. I do like the idea of an LLC for your rental properties.
Caller
Awesome. That was the question I had — if we do the LLC prior to the trust, are the taxes going to be a little bit harder on us?
Dr. Friday
Most likely the trust will be a revocable trust, which basically means that it doesn’t come into play until you die. So it’s really just a shield like a little umbrella over you, but it’s never really going to get in your way. It does make things easier when you’re not here to help out. All right, well, thank you so much. Thank you very much.
Dr. Friday
All right, let’s see if we can hit Scott really quick before this break. Hey Scott.
Caller
Hi, hello. I’m doing well, thanks. Beautiful day out today. My question is, my father-in-law passed away a couple months ago and we sold — he had a lot of expensive artwork and we managed to sell it, we’re gonna get maybe $70,000 for it. What’s the law in reference to paying taxes on that?
Dr. Friday
So the good news is most of those things would have had a step-up in value. At the time of his passing, whatever the value of that artwork was, we would not have to worry about gains on that. So you should be in good shape as far as that goes. But if you’ve held it for a few years — I don’t know when he passed — then we would have the appreciated value that you would need to add in. So whatever it was worth at dad’s death would be your basis, and then whatever you have after that would be gains if there is a difference.
Caller
Okay, I appreciate that, ma’am.
Dr. Friday
No problem. Thank you. All right, we’re going to take a quick break here. When we get back, we’ll hit Joe and Ray. 615-737-9986. We’ll take a little bit of an early break so we can get back to the phone lines. This is the Doctor Friday show.
Dr. Friday
Alrighty, we are back here with the last bit of the show and we’re going to go right to the phones. We have Ray that’s been holding the longest. Hey Ray, what can I do for ya?
Caller
Yeah, thanks for taking my call and I enjoy your show. You mentioned one time before — if you’re on Social Security, both my wife and I are on Social Security, and you sell your home, you could take the home sale and buy another home, but you don’t have to pay taxes on that.
Dr. Friday
Actually, it would be that you get an additional deduction. So whatever you paid for the home plus $500,000 — you do not have to reinvest the money, to be quite honest with you. So it really comes down to: you can sell the home and get an additional $500,000 plus whatever you have as an original basis. Hopefully that will cover the house no matter what, and therefore you don’t have to pay any taxes. You don’t have to buy anything, Ray. You could put it in the bank and rent for the rest of your life and you’ll never have to pay any taxes.
Caller
Okay, so you don’t have to do any tax forms at all showing that, or just the tax form — the answer is yes?
Dr. Friday
There is a form that I usually file that shows that the sale was your primary home to get that exclusion, but there’s nothing on the form that says you have to reinvest the money.
Caller
Yeah, but you have to fill out a form though. I mean, you can’t just skip it.
Dr. Friday
Yes, there is a form for home sales. It’s going to ask you about your basis and it’s going to have that $500,000 exclusion. It’s all on that form. Yes, you would do a 1040-SR or 1040 depending on your age.
Caller
Yeah, one more question — if you sell your home like that and you’ve got a part-time job, just working part time, would you have to start using that Social Security as part of your income?
Dr. Friday
So Social Security will be taxable to you if you have to file, if you have other income — just like that gentleman Howard or John that called. So yeah, you may have to pay tax on your Social Security, but if you’re over the age of 65, you’ll each qualify for the $6,000 deduction that’s on the tax code.
Caller
But if you’re working part-time it automatically puts you back to that other bracket where it’d be a good thing, right?
Dr. Friday
Would be yes. If you’re only making two or three thousand, no. Okay, I appreciate your help on that. All right, and thank you. Thank you very much.
Dr. Friday
Let’s see if we can get Joe from Gallatin. He was nice enough to hold. Hey Joe.
Caller
Hey Dr. Friday, how you doing? Thank you for taking my call. I appreciate it. I’m required to take a one-time lump sum distribution of a pension — a deferred pension plan. I have to take it now that I’m over 65. Can’t get out of it, can’t do installments. So is there any way to avoid all the taxes at one time?
Dr. Friday
Joe, I understand the one-time distribution. It seems to me that I have an awful lot of people that are able to transfer that to another deferred plan through like Fidelity or something, and then take payments out of it instead of having to take the one-time lump sum. The company may request it because they don’t want to have it after a certain period, but they should be able to do a custodial transfer to another account that would still preserve that fund, and then you could take it out in smaller increments.
Caller
I looked at charitable gifting and so forth like that, but they said no, no, you can’t do that. You’ve got to take it out. Period.
Dr. Friday
Do you have any required minimum distributions or anything that you have to take, Joe? Or is this your main retirement?
Caller
This would be my main retirement.
Dr. Friday
I was trying to see if you had to take RMDs — you could have deferred some of that through charity. But honestly, I would before I did anything, contact like Hank Parrot or whoever you might have that does financial planning. They may know something that you and I don’t know, Joe, because I would hate to have to take a one-time lump sum if you didn’t have to pay all the taxes at once. Because it’s going to make your Social Security fully taxed or at least 85%. It’s going to put you in a higher tax bracket, no question.
Caller
Sure, sure. And who’s this Hank Parrot?
Dr. Friday
Hank Parrot — he’s an estate and financial planner. He’s been around forever. I’m going to give you his cell phone number because that’s the only number I have memorized for him. Are you ready? It’s 615-202-9009. Give him a call before you sign anything, and I bet he might have a better suggestion. All right. Thank you very much. No problem. Thanks, Joe. Appreciate you listening.
Dr. Friday
All right. Those were great questions, guys. I was a little worried the sunshine was going to make it too much fun for all of you to make calls to me. So we’re winding down the show here, we only have a few more minutes. Let’s go through and talk a little bit about making sure that when you get ready to file your taxes — because we’re still in the 2025 tax season and 2026 we’re filing, but tax year is 2025 — we do want to make sure that everyone has all your documents.
Dr. Friday
You need to make sure you have everything organized or taken care of so that way when you get ready to do your taxes, it is simpler. Life needs to be as simple as possible. And many times, maybe you changed your information — let’s say you had Fidelity and then you went to Vanguard or vice versa. Make sure you look at both of those statements because sometimes, depending on when you did these changes, you might have had dividends, interest, stock, capital gains, whatever that you need to report from both companies. Because a lot of times people will come in and then we find out that there was something missing and then we have to amend. Amendments take forever right now.
Dr. Friday
We still have a handful of people and I will tell you, the IRS is doing a lot of identity checking. So if you’ve received a letter that says you need to call the IRS to verify the information because a tax return had been filed in your name, it’s probably true. Because we’ve got a number of my clients having to do that. It’s not a big deal — they’re doing a great job. Now, if you do have an ID.me account where you might use it to get onto your Social Security account, there are some ways you can get in and look at your tax records. That is an important thing.
Dr. Friday
Also, the IRS will not mail back a check this year. We had a couple people that really did not want to put their banking information in. So we filed them just to see, and sure enough, they got a letter back saying we received your return but we could not give you your funds because there was no banking information attached to your tax return. So if you have a refund, you will need to make sure that you’re putting your routing number and account number. Now, if you’re a person that doesn’t really want the IRS to have your main accounts, you can open a separate account and do this. But you need to do something with it because otherwise Uncle Sam’s going to keep your money — that is the new rule. And my understanding is by next year, they’re not going to want to receive any checks.
Dr. Friday
We try to make at least 95% of our taxes that have balances due pay electronically. But there are times when that’s not always possible. As far as I know, in 2026 they’re going to penalize unless you have cause to use a check. So again, we’re trying to go electronic here, people — that’s the only way it’s going to work. So if you’ve got a refund and you didn’t put the account number in there, you may want to follow up because they’re probably holding your refund. You can go to irs.gov/refund and look at the status — have they received the return, are they processing, is there a hold. At least it gives you some detail.
Dr. Friday
All right, so if you need to reach me, my office is open Monday at 615-367-0819. You can also email friday@drfriday.com. I will tell you we’re running a little behind on both messages and emails. I’m doing my best to catch up this weekend. But if you want to email friday@drfriday.com or call 615-367-0819, cop ya later.