Welcome to the Dr. Friday Radio Show! In this episode, Dr. Friday takes on the latest tax updates, answers the caller’s questions, and talks over the following topics:
- Dr. Friday’s Tax Tips For the Tax Season
- File Your Tax Extensions Before It’s Too Late
- What Is A Mega Backdoor Roth IRA?
- How To Report Your Capital Loss on Taxes
- The Changes in Tax Laws
- How To Get Your Tax Details In Order
- Can I Take My IRA Out Without Penalty?
- Don’t Leave Tax Money On the Table
- How To Get Back on Track With the IRS
- Taxes For Individuals Are Due April 18
and much more!
Transcript
Announcer 0:00
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or financial woes. She’s the How-To Girl. It’s the Dr. Friday show. If you have a question for Dr. Friday, call her now. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:27
Good day. I’m Dr. Friday and the doctor is in the house. And we’re going to go ahead and go right on to the phone since Brian has joined the show already. Brian, there you go, buddy. All right. Sorry about that.
Caller 0:47
We’ve spoken before. I sent you a Facebook message I didn’t know I wanted to be really super clear. I don’t know if you had time to read it or not. But anyway, I’ve got a friend from the family. He’s 20 years old, getting married, he and his fiancee make $15 an hour $60,000 household income. And they’re not married yet. And they’re going to build.
Caller 1:14
And I’m wondering if it is a good idea or just an idea to build a garage with an apartment and then use the garage as his shop’s slash office slash storage facility? And if so, how much of his mortgage? Could he write it off? What kind of expenses? How much could he do to depreciate the property, etc?
Dr. Friday 1:41
So well guess there are two catches on that one, in my opinion. First, what I may have missed Brian, was what did what does this person do for a living?
Caller 1:53
He works in a factory.
Dr. Friday 1:55
Okay. So there would be no home office if he’s working at a factory, right?
Caller 2:00
Well, no, he would be a lawn care, handyman.
Dr. Friday 2:06
Okay, so he’s gonna be taking care of the property that he’s staying on. Or the owners are going to give him room and board in exchange.
Caller 2:15
No, he’s being deeded this property as a wedding present. And he’s gonna have his own small business. He’s gonna do he’s going to mow yards. He’s going to do handyman things and he’s going to do tear-outs and Holloway’s on flip houses.
Dr. Friday 2:32
Okay. Okay. So he’s making a big change here.
Caller 2:37
He’s gonna be employed, and he’s going to be self-employed.
Dr. Friday 2:41
Right. Well, I mean, I guess the bottom line to that answer is if it is an actual buyable workspace, meaning a place where he is storing his lawn mower’s a space where he is working invoicing, doing something that’s legitimate, and the place that he can’t sleep.
Dr. Friday 2:59
Because you can’t have your bed in the same room that you’re working in and because home office? Um, so that would be because you were talking about possibly the target portion of the garage and making it into his office space is what I was kind of hearing, but I want to make sure I was on the same page. Yeah, he would be able that.
Caller 3:16
Offices storage. Yeah.
Dr. Friday 3:19
He’d be able to take a portion of it, it would all be based on square footage. Um, so the downside to anytime you use a home office, or you put a building on a home property is that there is a one time or every five out of two years exclusion, that when you sell that home, if he single sounds like he’s getting married, but if they’re married, there’s a $500,000 exclusion.
Dr. Friday 3:44
So if they’re inheriting or, or gifting this house to them at a certain dollar amount, and then 500,000 above that, and they sell it, they will still have to do what’s called a recapture of depreciation. So I’m not absolutely sure that I would I was handling his if you’re saving taxes today, but have to pay taxes later, especially when we know later is going to probably be at a higher rate than it is today. I don’t know if I would actually push depreciation on a pole property. You know, unless there’s awful, I mean, unless the profits are good, you know, I mean, there’s it’s not black and white answer, but for a startup company, you know, without knowing his income and his brackets, I don’t know if that’s an advantage.
Caller 4:29
So well, he’s been gifted the property, but he’s going to get a mortgage, he’s going to get a loan to build out the property.
Dr. Friday 4:37
So I mean, whoever’s gifting him the property, there should be a value other than $1 on the quitclaim. Yeah. I mean, because they would have at least preserved if you’re gifting it should be the value that the other person has into it just as a point of interest.
Caller 4:57
So. they’re gonna be in the 60s. $1,000 household income range, and he’s going to create, he’s going to be doing a self-employed like we as his own, we’ll just call it handyman, jack of all trades, probably going to grow between 16 and 20,000 gross, you know, receipt. Is that enough? Can they write off a significant portion of their life, like overnight meals?
Dr. Friday 5:27
They’re legitimate deductions? You know, I mean, again, home office, they could still qualify for the $5 per square foot up to 300 square foot, you know, home office, if they have legitimate space, meals, and entertainment, I would question I don’t know, a lot of lawn services that qualify, but if he is actually having to go out and meet people at restaurants or whatever, he would qualify if he’s signing contracts with these people through that sort of system.
Dr. Friday 5:54
Obviously, anytime form of advertising, the biggest thing for most of my handyman or lawn service, of course, is the wear and tear on the vehicles, gas, petrol, you know, all the things for the tractors and everything else, they use lawn mowers tracking all of those different types of expenses. That’s usually where your expenses are more than the miles on your vehicle and the wear and tear on the equipment. Yeah, you know, and that’s where he would, he would most likely get his best advantage.
Dr. Friday 6:22
If he does do handyman, then he’ll have receipts, but some of my handymen, really all they do is do the labor and the people will supply the actual material, you know, um, so it really just comes down to whatever he’s going to figure out what’s his niche. But you know, there is some part of the life but I will be quite honest with you, it really depends on how large a business he gets, and how you know, what type I mean, most lawn services won’t be heavy, a lot of meals and entertainment, but you know, but now handyman.
Dr. Friday 6:52
Or especially, you know, I won’t call them contractors, but people you know, that are doing work, they sometimes will be meeting people at restaurants or things like that. But yeah, I would, I would just be careful on trying to write off every lunch because in all honesty, your lunch is not a tax deduction, in any sense of the word if you’re just doing local lawn service.
Caller 7:15
Right. So is this gonna make a good wood? With what I’ve laid out? Is it would this make a significant difference in the amount of tax savings? Or is it just?
Dr. Friday 7:31
I don’t think so. I mean, I’ll be honest with you, I think any person I mean, the only way you can have tax savings, I mean, sure, you might get to put 1500 towards the household per year, on a home office, I don’t know how much of a dent that makes, in some people’s we may that’s one-month free mortgage or something, you know, but all in all, it’s going to mean any self-employed person, if they’re really making a life that they’re going to be making profits, and therefore they’re going to have to pay self-employment tax plus ordinary income tax.
Dr. Friday 8:00
So um, you know, there may be some things that you could use that would legitimately be like your vehicle where normally an employee can’t write off anything for their home or their vehicles, he will have his vehicle, his petro, depending on if he uses actual or miles. And probably, as I said, a portion of the house, but most of the home office expenses are, you know, $1500-$2,000. 1500 is the maximum on the simplified method. And, you know, so I mean, I don’t think it’s going to make and he’s going to have to start setting aside 20% of his gross pretty much to offset the taxes he’s going to owe if he’s actually going out to try to make a successful business.
Caller 8:39
Right. Okay. So, um, so it would take a few years to make it worthwhile is kind of what I’m gathering.
Dr. Friday 8:47
I mean, I mean, I have guys that start lawn services, and by the end of the year, they’ve actually made money, you know, I mean, they’re not taking losses. Now, sometimes we don’t have a lot of profit, because they went out and upgraded their equipment. And so that equipment is then section 179. And we’re able to reduce their taxes based on a new law more that now cost them 10 grand, but, you know, but the equipment is, you know, all in all, that’s just made their job easier. Or they now have to do two lawnmowers, one they ride and one they can, you know, drive or whatever, you know, but that’s the industry.
Dr. Friday 9:21
So in answer to your question, I mean, I don’t think anyone is going to have a man. I’m not too sure if I’m totally understanding, but I don’t think they’re going to have a huge advantage by him being self-employed, it could actually backfire where they’re going to owe taxes every year unless you’re organized. You’re going to still pay taxes every year as a self-employed person unless you’re losing money and no one goes out to lose money in a small business. I mean, they do sometimes you and I both know that, but it’s not intentional.
Caller 9:51
Yes, of course. All right.
Dr. Friday 9:52
Well, thanks, buddy. I appreciate that question. Seriously, thank you very much. All right. We got Donna on a rental house. Hey, Donna.
Caller 10:02
Hey, Dr. Friday. Thanks for taking my call. I have a question. I have a rental house. I’ve been fixing it up for a couple of years actually. What am I able, I’ve been told that I’m not able to deduct anything that I’ve done to the house. I’ve basically read on it completely. But that I could only deduct, like the electric the water, the grass cutting the?
Dr. Friday 10:30
Um, I mean. No, I mean, anything that goes into a rental we can deduct. Now the question, is it instant gratification? Meaning that you get to take 100% of it today? Or is it something that has to be depreciated, and if it’s depreciating, if it’s less than $2,500 per invoice, you can take most cases, you can take a section 179 and accelerated anyway.
Dr. Friday 10:53
So, I mean, anything one way or the other, everything in anything should be documented. Because when you eventually sell that home, you would like to have all that information in the system. You know, some of it will cause recapture of depreciation, but you still want to have it in there so that you’re getting the best advantage if that makes sense.
Caller 11:12
Right. Oh, that’s great. Thank you, Dr. Friday. I appreciate it.
Dr. Friday 11:16
No problem. Thank you very much for calling. I appreciate it, too. All right. We’re going to Darryl in Colombia. Hey, Darryl, what is happening?
Caller 11:25
Oh, it’s just beautiful weather.
Dr. Friday 11:28
I would like to know, I haven’t been outside yet been sitting on my computer all day. No, I’m just joking.
Caller 11:33
Okay, well, make it look like you’re outside. I do that at work. I got a question is out of curiosity. I’ve always heard about the bank Regions, and I’ve heard about any ham $1,000 transaction has to be reported to the IRS. I did sell a little, a little camper earlier, or last year and one of the deposits was 10,000. So what does that actually translate to? I haven’t filed my taxes yet. I do TurboTax. I’m ready to pull the trigger. But do they report it to the IRS? You’re not hearing anything? I know they know their business. I mean, but if you know so.
Dr. Friday 12:16
Okay, so first, was it a check? Or was it cash?
Caller 12:20
It was deposited by an electronic transfer.
Dr. Friday 12:24
Okay, so that wasn’t reported. The rule is, is if someone walks in the bank with $10,000 of cash, or consistently, five days in a row with two or $3,000 of cash each day, the bank is regulated for money laundering to have to tell you to get the information. Where’d you get this money? What was its purpose of it? It doesn’t actually feedback in taxes. Because if you sold a trailer, I’m going to make a guess. And I can be wrong. And you can answer, however, but I’m just saying most of the time, we paid more money for that trailer than you’re selling it for.
Dr. Friday 12:55
If that’s not the case, and I have some guys that can fix up trailers, and they actually can sell them for more, then I will say that you need to show that just like an asset that appreciates. So you would do a Schedule D including what the cost of that vehicle was what the sale price was, and you pay capital gains long or short, depending on how long you owned it. But the IRS does not know about it, because it was a transfer in?
Caller 13:21
Well, you know, it actually, in today’s world, I bought the camper back in 2010. It’s as small as a fiberglass camper hard to get, and I did make money on it. Okay, just because of this crazy world right now. And I expected to lose but no, I made money on it. Maybe. But, you know, it was paid in two different amounts. They brought me cash money. I made a buck. And I’m well known and the bank is like that. So it wasn’t like, where’s this money coming from the people that bought the trailer, were at the bank with me. So they everything going on? And nothing was ever said.
Dr. Friday 14:00
Yeah. I mean, again, the bank was not obligated in that scenario. It again, it’s they’re looking for money laundering, where there’s a lot of cash in a business, probably the one that comes to mind is a lot of my car dealerships there. They seem to get a lot of cash, and therefore, once a month, or once a few weeks, they have to continuously put it into the bank, and it can create, you know, conflict, but, um, but in your case, I mean, that would mean there was nothing there and the bank wasn’t required, there is a form that the banker would have had you complete if they were going to need to, to complete that transaction in a different way.
Dr. Friday 14:35
So in answer to your question, no, the IRS does not know about it, per se unless they audit you, and then, of course, that’s a different conversation. But um, you know, other than that, it’s a personal item for a personal item, but theoretically, it should be reported because you made a gain on an investment. Wow. Yeah, I know. I put my two cents in there in case the IRS is listening. I don’t want to think that I didn’t say that right. I’d answer.
Caller 15:01
Well, I mean, in Turbo Tax, I tell you any income, it goes to be recorded. You know, I’ve got a couple of dividends on small investments and they don’t. And then they tell me, they said we didn’t report it. Because if your dividends are under $10, we don’t have to report it. Anyway. Yeah.
Dr. Friday 15:20
And that’s why that’s the person. I mean, that’s what everyone’s but I mean, again, I’m just saying that’s, and that’s true. I know, a lot of people will come in, and they’ll call every little bank and they’ll have two or $3 here or 50 cents there, you know, and it may add up to seven $8. I mean, right now, interest rates are horrible for all of us. But if it’s less than $10 per individual or location, like regents or any of them, then then you do not have to report it, but you are putting it in, you’re doing it the right way. You’re giving it the tax offer, saying it’s not important.
Caller 15:53
Okay, but never there was any paperwork that went into the bank, before what I paid for because I bought it in 2000. And had expenses on tires?
Dr. Friday 16:04
Well, that’s the thing. I mean, that’s what you’d have to take into account. In all honesty, if I was doing your taxes, I would say, So you brought in 2010. But did you have to keep the titles on it? Did you have to keep insurance, I mean, whatever, all of that would be added back, because you never wrote off any of that during the time a lifetime of that investment. So just putting that out there that, you know, in all honesty, it may not have actually been a profit, you’re just looking at. Okay, for from what I sold?
Caller 16:29
Yeah, I also had to pay taxes on it, and whatever zoning got put in it over here, but well, to pass what I made on it.
Dr. Friday 16:37
I’m not surprised. And that’s what you know, again, if I was doing your taxes, that would have been the first thing we would have had to go looking for was, you know, what did it take to maintain and keep this, you know, this investment as it is so, but sounds like he did you know, again, it’s it that part of it’s not a problem, and you can’t really take a loss on a personal investment like that. So it’s a catch 22 and all that. So anyway, I think it did the right thing, my friend, but no, the answer to your initial question Is it was not a cash transaction. Therefore, the bank would have asked you to fill out a form to justify.
Caller 17:12
Right, I thought if it hadn’t been if it had been experienced Raf, who could give me something back and Okay, shows here, blah, blah, blah. I hadn’t heard anything. And the bank said nothing about it. And of course, I didn’t question as I said, I knew what was going on, because they were there, you know, while we’re waiting on the wire to come in all that so and we he did give me cash, I went deposit just like any other thing. And I knew what that was about. So, okay, that’s alright, I thought I was okay. But I wanted to hear it from a professional. And you’re the man but you are the woman.
Dr. Friday 17:43
I appreciate it. Thank you very much. All right. Why don’t we take a quick break? And then we will come back to the faith and because we’re about five minutes late for that break. And we’re gonna be right back with the Dr. Friday show.
Dr. Friday 18:04
All righty, we are back here live in-studio and the phone lines are blowing up, which you guys know, I totally appreciate it. Let’s go ahead and hit faith. And we’ll go from there and see if I can help. Hey, faith, what’s happening?
Caller 18:17
Oh, I’m so glad to talk to you. There is a new tax law as of January 1 of this year, that it used to be that you could sell on eBay or wherever 200 items or $20,000 worth. And now it’s $600 flat. And I’m 72 years old, I live on my social security and I have a small pension. The only way I can make extra money is by selling my personal items and the things I buy at thrift stores on eBay.
Caller 18:52
And I have a PayPal account. And so far this year, I’ve already out of my PayPal account, I’ve spent $600 on shipping charges. So I know if I count what I paid for the items, and the boxes and the tape and the bubble wrap and all that I really don’t make very much money. So but it’s enough. It’s fun. I enjoy doing it. I’m right at this point before I’m talking to you. I’m thinking I’m going to have to close my eBay accounts and take a loss on all the items that I’ve purchased for resale. And that would be a terrible loss for me.
Dr. Friday 19:34
Let me know let’s talk a little bit about that faith. Because to be honest, it sounds like to me there are a couple of different things. I mean, yes, I know about what you’re talking about the 10 99k the new one where like you say it used to be up to $20,000 or 200 items. The new tax law came in and they thought they were really being fancy and they said oh wait, let’s go to $600 and find out everybody at spending.
Dr. Friday 19:58
Now, I was talking to Someone just the other day, over there Wednesday and Thursday. And we did actually pull up our Venmo accounts and PayPal accounts. And you can friend people, at least in Venmo, which is where I do a lot of my family transactions and things like that. And I was like you, I’m sitting there going, Wait a second. So every time we go to dinner, and everyone, just one person pays and everyone else just moves it over there, it’s going to change, um, you know, to now be taxable to me, because then no one’s gonna want to do that, right? I mean, that’s just gonna be crazy.
Dr. Friday 20:32
So first thing is, you know, you want to make sure that you are making sure that that it does sound like a little bit like you might have, even though it’s your own item. So I don’t know how you’re not. I mean, at this point, you’re not really showing this on a tax return? Or maybe you’re not even required, because you’re in retirement. Do you actually file taxes?
Caller 20:56
Well, yes. I didn’t know that I didn’t have to file in Texas.
Dr. Friday 21:00
Well, I mean, if you’re only on Social Security, and again, I don’t know you’re, you know, you and I know, I don’t know, your taxable situation. But if you have a pension or something, you may still have to file but Social Security.
Caller 21:12
And I have been filing taxes. But yeah, I just don’t know what I should do from this point on, because I’m afraid that I am already over the limit.
Dr. Friday 21:26
Right? Well, what you may end up having to do is file a Schedule C. I mean, you know, if you take off your home office, and all the costs of shipping, and the biggest part would be is coming up with your original cost for those items. Since they were personal items. Most people don’t save receipts for everything they’ve ever purchased. You know, and that’s, that’s going to be where the attempt to, to beat that threshold is.
Dr. Friday 21:51
There is a thing that Congress is going to quickly act that they’re talking about. I’m reading the Congress site here, because I know there’s been some action and moving that level up to $5,000. It’s something that is more reasonable, they’re trying to get pushed in, I can’t guarantee it’s going to get passed. But there is a bill right now requesting that.
Dr. Friday 22:13
So you know, we’re all hoping because $600 is I mean, to be honest with you, I personally think in some things like PayPal or Venmo, especially, there are a lot of personal uses it sees eBay, I mean, a lot of people do personal things, like you just said, I have more than one client that actually does sell personal items, or I’ve got kids that will go to grandma’s house, and they’ll pull out a bunch of stuff in the garage or attic, and they’ll sell them for their grandparents, you know, and right.
Dr. Friday 22:42
So it is definitely, you know, something that they but on the other hand, I think the IRS is truly looking for people that are in business, they’re thinking, I mean that if this person is selling more than 5000 a year, at least might be something. But still, my suggestion is one of two things. And it does sound like you are actually tracking some of this through your Pay Pal and things. But I would probably just start tracking your expenses. If you’re doing PayPal, there’s a fee that we pay when we use PayPal, or you receive payments through Paypal or whatever.
Dr. Friday 23:15
I would track the eBay cost if there is I don’t do much on eBay anymore. But I think there was cost back in the day. And then you know, postage, storage, whatever it is, I would start including those situations in you know, in a package or notepad, whatever, I would start tracking it because I mean, it’s a part of your lifestyle. And it sounds like it’s something you could use. Now. I don’t know if there’s any cash app, they’re saying here, PayPal Venmo Cash App, even, even the third parties that Uber, Lyft, and TaskRabbit.
Dr. Friday 23:50
All of those are tackle all of those that are used, they’re going to be considering those all the 10 99k. So I don’t know how, unless you start going back to the street grudge sale, I don’t know how we’re going to avoid that information, to be honest with your faith. But you know, I do think, like I said, our hope is is that they’re going to override the requirements that were reported to go into effect. Initially, in 2021. They extended it out to 2022 on the annual 1099 ks and then that way people can $600 just extremely low. It’s ridiculous.
Dr. Friday 24:26
Yeah, it’s really I mean, I always thought the number of transactions was smarter, and then having like, 20,000 Because if someone only does one or two transactions, even like the gentleman called earlier, I mean, you know, selling one thing a year and maybe you make a few dollars on it. You know, this is just a lot of extra paperwork that’s being mandated from businesses to have to put out there and more paperwork for the IRS to have to deal with them.
Dr. Friday 24:50
They’re already like 17 million copies or million. Something 17 million letters and tax returns are still sitting at the IRS from the last year. So Oh my, yeah, who knows what the next one is, but again, the threshold they’re trying to do as a more reasonable level of 5000. And then they don’t even have a number of transactions, I don’t know if that will totally help you. But it’ll probably get you a little closer to what you normally have. But, you know, I would probably just consider if this year, whatever happens, just think about doing a Schedule C, you might find that you’re actually not making a lot of money on it, it may be creating cash flow, but it may not be actually creating profit.
Caller 25:29
That’s exactly what it is. I don’t even I don’t know what a Schedule C is, but I will look that up. But do I pay myself for time?
Dr. Friday 25:40
No, unfortunately, we can’t, your time is paid through profits. And then we just mentioned that there may not be such thing as profit in yours. But you would track like your miles going back and forth to the post office, if you have to take things to the post office and packaging, you had to you know, anything it takes to get that package from your closet to the other person. So just put a little thought into all the little extra steps of things that you’re doing to make that happen for you. So you don’t have to worry about, you know, hopefully paying tax. That’s the whole point. We don’t want you to have to pay tax on something that’s very purchased and paid tax on in the first place.
Caller 26:15
Okay, real quick, one last thing. Yes, I heard a long time ago that you got to be a certain age and it didn’t matter how much you made, you could make any amount of money. And it was I don’t know how that works. But what is that?
Dr. Friday 26:31
Okay, the only thing I can think of is security early. So security versus full, full security age, a lot of times people say you can make all the money you want because they can’t take any if you’re an early so security, for anyone that’s listening, if they’re like 6162, they can get on so security, but they have a limitation of like 19 $20,000 that they can earn, or you have to pay back $1 For every $2 you earn over that. So that’s I think where that saying came from, but there is, unfortunately, I’ve got people in their late 90s still coming in every year because they have to file taxes. So there, I wish there would be a nice little thing and say, “Hey, I’ve made it to this age,” whatever that age be, but not going to happen in your my lifetime, sweetie.
Caller 27:14
Okay, thank you so much. God bless you.
Dr. Friday 27:17
You too. Bye, bye. All right, and we are going here. And you know what? Why don’t we let you know what let’s hit Anne because she helped do the last break? If we can do that, can we hit Anne real quick? Thanks. Hey Anne. What can I do for you?
Caller 27:32
Hi, there, I had a rental house that was destroyed in the tornadoes that we’ve had. And I’m trying to figure out how to report that on my taxes?
Dr. Friday 27:44
It’s gonna be on your capital loss. So you’re gonna have to go through and you can take anything that was a federally claimed loss, meaning that the federal government came in and said, oh, wait, this is going to be a federal disaster, that’s what I was looking for. You’re just going to need to have they have a number assigned to each federal disaster, you’ll need to have that information, and then you’re going to put it on… trying to find the form, because I don’t do a lot of them anymore.
Dr. Friday 28:13
We used to be able to do this anytime people had, you know, any kind of loss. But we don’t have a lot. And I’ve been fairly blessed. What, you know, for having those particular situations. So let’s see, and you will need to have what the value of the home was before the loss. Did you get insurance money?
Caller 28:37
Yes, but not enough to cover it. So I had to pay extra.
Dr. Friday 28:44
Now, did you improve it? Or did you I mean, did you like make the house bigger? or do anything like that?
Caller 28:51
Well, I made it bigger. But even if I had not, it would the insurance wasn’t a full replacement coverage. So it was probably 50,000 under the value.
Dr. Friday 29:04
So the form you’re going to want to send in as a 3911.
Caller 29:09
Okay.
Dr. Friday 29:10
And then you’ll need to have just the forms of what it took to reconstruct the home and then you’ll take out whatever insurance and then you’ll be able to claim those additional losses.
Caller 29:23
Okay, because, like the 50,000, I put into it, to make it like if it had sold for a certain amount, it was like the insurance was like 50,000 Under what the value at the time was. Do I need comps from the area of the value?
Dr. Friday 29:42
I usually suggest that yes, because obviously, you know, so she recently it used to be you could use property taxes and get a rough idea. But let’s be honest property taxes right now are actually lower than what most of the comps would have been at that time. Yeah, so comps actually better than property taxes in this particular situation?
Caller 30:04
So I don’t do any. Well, there’s nothing to depreciate because it’s gone.
Dr. Friday 30:09
No, yeah, there’s no, I mean, they’re just basically on the forum, it’s gonna ask you what the value was before the disaster. And what would the value be after if it was completely wiped out the value after was zero, right? So we just need the comps of what it was worth prior to the disaster. So that way, then you have the ability to recreate and a lot of that is in the insurance papers, some of it at least where they valued, what the, you know, sure, they paid you back, they didn’t have the full replacement, but still, the values will be there, a lot of them.
Caller 30:39
And then going forward. Do I just do a new cost basis for the property?
Dr. Friday 30:46
Yes. It’s a brand new home.
Caller 30:49
Okay. All right. I’ll give this a try. So thank you very much.
Dr. Friday 30:55
No problem. Thank you. All right. Let’s go ahead and take our second break. Since I’m running a little bit behind. We’ll hit Brian Rose. And, Ron, when we get back from this commercial break, this is the Dr. Friday show.
Dr. Friday 31:12
Right, we are living here in the studio, I am Dr. Friday, an enrolled agent licensed with the Internal Revenue Service to new taxes and representation, which I’ve been doing for just about 20 plus years. So we’re gonna go right to the phone lines, and it looks like Brian’s been online for a while. Hey, Brian.
Caller 31:31
Hey, Dr. Friday, how are you?
Dr. Friday 31:33
I’m good.
Caller 31:35
Good. So working with a company that we recently got acquired. And looking at the retirement benefits. This new company offers something called a mega backdoor Roth. And so I’ve already missed the max one for 2022. calendar year. And reading a little bit more about the mega backdoor. The Max, I think that we can put in that a year is $20,000. Is that correct? That’s right. Okay, so I’ve already added, I guess I’ve contributed $10,000 so far. Now, to my understanding, I have to fill out a piece of paperwork and do a Roth conversion.
Dr. Friday 32:24
Let me back up, they’ve changed the rate. So I’m a double check that I so in 2022, which is what we’re talking about now, the mega backdoor allows this to be and this is a Roth conversion, right? You have to contribute to an IRA, then you convert your IRA into a Roth, right? It’s $40,50 right now.
Caller 32:47
That’s the total for the mega and the 401. Is that correct? It just says the 401 was 20,500 plus the mega.
Dr. Friday 32:58
Yeah, you’re right. You’re right. Yes. Sorry. Yes. I’m not a financial planner. So I have to cheat a little bit. So yes, you are correct reading this that exactly right.
Caller 33:06
But after I make the conversion on the mega backdoor, I would just pay tax on the gains that I’ve made. Is that correct?
Dr. Friday 33:14
Right, once you make the conversion, then it’s in a Roth and then the Roth obviously grows tax-free. But if you do when you do the conversion of that 20 You have to pay ordinary income tax at the time of the conversion.
Caller 33:27
Correct. Okay. So it makes sense that once I say I put in 3000-$4,000, a check, to immediately convert it over so that I’m not paying taxes on market gains. Would that make sense?
Dr. Friday 33:41
It would make sense. It would. And I would say you might want to double-check some of the things I’m reading here. I mean, I’m just being honest. But you’re under 50. It sounds like you’re young. But it’s saying that night and 95 is what you can contribute to you know, the regular 401k that you have, and then it’s saying another 20,500 for people that are under the age of 50. So that’s what you were looking at, I think.
Caller 34:06
Okay. Well, I thought this year, the 401k moved up to 20,520.
Dr. Friday 34:18
I’ll take your word, but I believe it’s saying 20,500 and 20,000 Because the total is still adding up to 40,500. Let’s go with that. Yeah,
Caller 34:28
So let’s say I meet this 40,500 next month total. Can I still in my other retirement counts that I have? Can I still contribute $6,000 to a traditional IRA and then convert it to a Roth?
Dr. Friday 34:44
No, you’ll get bit. You’re going to get fined. They’ll hit you with a penalty or require you to take it out and charge you a penalty which will reduce the whole purpose of the whole situation.
Caller 34:57
Well, I think that the mega backdoor was through my cup. But I didn’t know if I could still do my individual backdoor Roth, which is?
Dr. Friday 35:05
No, they’re, they’re taking that into account because you can do it. You know, in all honesty, anyone can do the mega backdoor, either through their own or through a company just to let you know, I mean, it doesn’t have to be done through your business. But you can only that’s the maximum that can be put, if you put anything above that in, you’re going to end up getting penalized, and they’ll charge you a penalty for over-contribution.
Caller 35:29
Okay, great.
Dr. Friday 35:31
All right. Thanks, buddy. I appreciate it. That’s a good question. Thanks. All right, we got Rosie.
Caller 35:37
Hi, Dr. Friday fan girl here, I added obviously was in the wrong business if your caller right before me has already maxed out 40,500. Anyway, that’s not why I’m calling. So the question is kind of related to face calls. My husband and I have had wonderful front row seats to the sounds games front row aisle of the ballpark. And there are 72 games, so we can’t possibly go to 72 games. So I guess we could but we don’t. And I’m so I sell tickets to friends and family. I mean that family to friends and co-workers at cost and then post them post the tickets that don’t we don’t use and we don’t sell to them on the sounds resale site. And this year, I have had to complete a 10 a 9k. For transactions more than $600. And so I’m just trying to cover the costs of the tickets. And so am I going to have to do a Schedule C?
Dr. Friday 36:53
In theory, the answer is going to be yes, because anyone that receives a 10 99k, it’s going to have to roll is either going to be other income, which means you just basically say and I’m paying tax on it, which would be the absolutely ridiculous. Or, in your case, as long as you’re paying it for cost, you’re going to have a wash, right, you’re going to have a 10 99k It says this is how much in and per that number of tickets, this was my cost. It’s a zero transaction.
Dr. Friday 37:19
But it is a form that you’re going to want to do. Because otherwise, they’re going to come back and say you didn’t pay tax on the 10 99k if you just ignore that the 10 99k exists is what my fear is a lot of people because none of you guys are in business, we’re used to it on our site has many of us have merchant services that we’ve been using for years and we get these forms, right. But individuals never received these forms in the past. And I think it just going to cause a lot more confusion. But you know, that’s the game I think they’re playing.
Dr. Friday 37:49
But that being said, Rosie, your thought is fine. As long as there’s no profit being made, you’ll not pay tax on it. If you’re selling them for more than what you have to pay for them. In theory, that’s what the IRS is looking for. I think they’re trying to find people that don’t think they’re in business, but theoretically, they’re selling things for more than what they originally paid for them. So therefore you are making a profit, therefore, it’s a business.
Caller 38:15
And actually, that did happen last year, because everybody was so stir crazy with COVID. And they were just busted out. And so, you know, if somebody wanted to pay some $5 for again, that my husband and I wanted to go to we said, you know, sure, I’ll take that thing. $5. And so theoretically, I probably didn’t make you know, more than the cost of the ticket last year. But that’s not my intent.
Dr. Friday 38:41
But right. It’s not your intent to make profits on most of those. I get that. But I mean, again, I think it’s going to come back down to where you’re going to have to now and 2021 You did not reach or did you receive a 10 99k in 2021. Okay, so this is only going to happen next year, but I would say anyone that’s listening in you know, I think this is gonna be quite a few people, make sure you start to save the information on whatever you’re selling. In your case, at least you have, you know, season ticket price and you know, how many tickets that come to you back out the ones you didn’t sell and the difference is your cost basis?
Dr. Friday 39:15
But you know, that would be you know, the answer and you may end up with some profit. I mean, that’s the point is, you know, then then the IRS is saying you’re in the business of selling tickets and you made money and you need to pay us our for our fair share definition of fair share is not on this radio show. But anyways.
Caller 39:35
Okay, thank you, and um, along with K I cannot claim any, any time for posting the tickets on the resale side or anything.
Dr. Friday 39:43
I mean, your time, no. Again, if there I mean, in theory, if you have a computer a little bit of Internet can be used. There’s, you know, there is some home office possibly that could be if you have a legitimate space in which you’re doing it. If it’s just your laptop, and it happens three times a year might not be enough to actually go chasing
Caller 40:01
Okay, great. And, um, thank you so much for your help. And you have a great horse.
Dr. Friday 40:05
You too. Thanks. All right, let’s hit Ron. Ron in Manchester.
Caller 40:11
Hello.
Dr. Friday 40:12
Hey, Ron. What can I do for you?
Caller 40:14
Oh, it’s me again. And this has to do with this 10 99k stuff. And it won’t matter how many deductions you have. But how are the states going to be aggressive on sales tax for this?
Dr. Friday 40:34
Well, that’s a great, great point, I am going to hope that as a small business owner, you know, there isn’t a business license unless you have more than, you know, three or $6,000. But I mean, there is a business license. In theory, the state has a business license that all of us businesses have to pay sales tax that could be faded. Those are directions in which you’re thinking good. I mean, you’re thinking outside the box. I’m hoping that that’s not going to come down. But you know, this is, this is why they’re looking. I think they’re digging, they’re trying to find where people may or may not be reporting all reportable income?
Dr. Friday 41:15
You know, that’s my answer to that. But yeah, it could come down to that, Ron. I mean, you know, you know, we know that sometimes what the IRS finds out, they share with the states, and once a couple of years of this is going on, I would say that you could find out that they would find out that you’re running a business from your home. I mean, that would be something that would be turned in because 1099 ks come to a bit mailing address. I mean, there are all kinds of things we could think of that might change situations that we don’t want to have.
Caller 41:45
Well, now the providers, eBay, use the pay pails, the old people, they could start charging sales tax and collecting it.
Dr. Friday 41:54
Amazon does that for some of my clients, I think.
Caller 41:58
Yeah, I mean, somebody can sell from Tennessee or somebody in Arizona has and not have any sales tax.
Dr. Friday 42:09
But you know, you’re telling me that people have to track what sales are in the state what sales are out of state. And then if there’s a warehouse involved, you know, I’m just saying there’s a lot of different things that come from that. But yes, I mean, who knows where this could lead from simple little home business, that somebody was cleaning out their house or their garage or their grandparent’s house into having to pay sales tax business tax, I mean, you know, it could turn into a lot worse.
Caller 42:35
Thank you.
Dr. Friday 42:36
Thanks. I appreciate your listening. Alright, let’s go ahead and take our last break. And we get back we’ll hit Alan in Dixon. This is the Dr. Friday show, and we’ll be right back.
Dr. Friday 42:48
We are live here in the studio for the last four or five minutes, and we’re gonna make this quick. So let’s get Jason on the line. I’m sorry, Alan on the line. Goodness, gracious. Hey, Alan.
Caller 42:58
Hey, thanks for taking my call. As a quick question. If my wife retires in six months, and I’m on disability, do we have to continue doing taxes?
Dr. Friday 43:09
Well, if she retires in six months, you might have a partial w two. But is she gonna go on Social Security at that time?
Caller 43:16
Yeah, so retirement, Social Security. But after we get that there will be no more taxes you have to file every year?
Dr. Friday 43:25
Well, if all you have is Social Security, but if she has a pension or a 401k, or IRA that may cause some of that to be taxed. I mean, if it’s more than 20,000
Caller 43:37
If you sell a house or something?
Dr. Friday 43:39
Well, so house or yes, any of that?
Caller 43:42
Or do you make money by hitting the lottery?
Dr. Friday 43:46
Yeah, that will definitely lead to it. Yes.
Caller 43:48
Okay. Well, thanks for your time. Appreciate your show. Thank you.
Dr. Friday 43:52
Thanks, Alan. I appreciate you. All right, guys. This was an awesome show. Boy, we just had Levidios, his little fingers are just tired from having to answer that phone. But he did a great job. Alright, so if you want to reach our office, the phone number is 615-367-0819. I will let you know unless you’re returning clients from last year.
Dr. Friday 44:14
We have no openings for tax preparation left. Love to tell you we do but unfortunately, you guys have just closed out our calendar. But if you need to call 615367819 You can check us out on the web at Dr. friday.com. And of course, you can always email but I will tell you we’re probably running a good three-four days behind and responding to emails. I know we should be but we’re in the peak of tax season guys. It’s a little crazy around here and the email is friday@drfriday.com.
Dr. Friday 44:48
So again, if you need help knowing to get something done for taxes or if you haven’t filed taxes in a number of years as an enrolled agent, we are licensed to represent you in front of the IRS so we’re there to help get your situation back in line. I’m not one of those companies that are going to turn around. And before you do anything, I’m going to say “Hey, give me $3,500 or paid $1,500.05 $100 a month.”
Dr. Friday 45:13
We’re going to first figure out if we can do something for you, and what it’s going to cost to get it done. Because let’s make you know me, I have a lot of people that walked into my office after 20 plus years, and many of them are turning around and saying, “Hey, I paid a lot of money to get my tax issue done. But I still have a tax issue.”
Dr. Friday 45:30
So this time, if you want a company that’s going to help you resolve your tax issues, all you have to do is give us a call at 615-367-0819. And again, the email is friday@drfriday.com. If you need to send me a message, you can always go to drfriday.com. And go to the website also tells you a little bit about who I am and what we do. So that way, you can make sure that you’re dealing with a company that you know is going to be here and stand behind you and move forward.
Dr. Friday 46:01
So I hope you guys are having an absolutely wonderful Saturday. And remember, you know, if you’re not going to get to your taxes on time, make sure you file an extension because that’s the only thing that’s going to stop some of the penalties even if you’re not going to file or pay at least file the extension. It’s the only way you’re going to keep some of your own money in your pocket.
Dr. Friday 46:24
And then we can look at the resolution and move forward with what you need. If you can file the extension and pay the taxes. That’s the perfect thing to do. As we always say in Australia, call you later.