Another episode of the Dr. Friday Radio Show is here! In this episode, Dr. Friday shares all the latest tax updates, and talks over the following topics:
- File An Extention With A 4868 Form
- Why You Should Be Paying Quarterly Taxes
- How Can I Find My Tax Refund?
- Who Does The Government Want To Audit
- Tax Extensions Expires October 15, 2021
- How To Find Your Stimulus Check
- What Can I Deduct From Charitable Contributions?
- How To E-File Your Tax Returns
- Do You Need Help With Tax Representation?
- Should I Rent or Rent to Own My Home?
and other caller’s questions!
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 at 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day, I’m Dr. Friday and the Dr. Friday show and we are here live today. So if you want to join us you can at 615-737-9986. We are talking about my absolute favorite subject which is taxes. Now a lot of you may already think that you know what taxes are done, we don’t need to worry about them anymore, which is completely wrong. Some of you have managed the file but many of you have still not received your refunds today, even though I was traveling and I’m on basic vacation thanks to Dr. Electric. I am here in sunny Florida and there are at least six people I spoke to on the way here and they all are asking me why they didn’t get their refund, and the answer is the same for everyone guys, the IRS is running slow. Now for some of you procrastinators you do have if you live in Campbell, Cannon, Clay, Davidson, Decatur, Henderson, Hickman Jackson, Madison, Murray, McNair, Moore, Overton, Scott, Smith, Wayne, Williamson, and Wilson counties. I’m not repeating all those. If you live in one of those counties, if you’re not too sure, you can certainly text me and I will let you know what those counties were, you have an automatic extension if your primary home and or businesses in those counties, you have an automatic extension to August 2, for a few of you that may not have been able to make the May 17 deadline for one reason or another, you may have a get out of jail card for free here because August 2 will automatically extend those people in those counties. Those are for anybody. It’s for victims of severe storm damage, wind damage, tornadoes, and floods. That happened back in March. But it’s anyone that lives in those counties, not necessarily you been directly affected by those storms.
Dr. Friday 2:31
So that may give a few of you a little bit of a way out. Louise, I cannot see the screen. So just text me if you can, if anyone’s calling that way, we can just do it that way. It’s no big deal. I appreciate it. So again, if you are an individual that is doing something with your taxes, and maybe you didn’t get a chance, or maybe we had to file extensions, it’s been a bit of a crazy year with not only dealing with 2020, and its issues, but the PPP loans, the EIDL, the SBA loans, all of those coming out in the 7500s for payroll, employee retention forms, I should say. All of those are on top of our normal tax season. So it’s been a crazy year, trying to help all of our small businesses try to stay open to take advantage of any of the funds available for them to keep their doors open and doing that.
Dr. Friday 3:25
So if you’ve got a question, you can join the show at 615-737-9986. We’ll take your calls. So again, that’s one of the big things I know a lot of people and I will tell you, I wasn’t really pushing the August 2 because I think almost if you have the ability to have filed by the May 17 deadline, it was trying to make that happen for most of our tax clients. Again, that also extended individuals that maybe live in those counties wanted to make an IRA contribution, but maybe didn’t because they couldn’t because it was too close to May 17, and not able to. It did extend the IRA contributions as well. So there are some tax possible tax advantages to that situation you might want to look into.
Dr. Friday 4:26
If I’m not your tax person, you might want to talk to those people to see what is happening with that so you can make sure that you’re doing whatever it is you need doing and haven’t happened. You can also join the show if you’ve got a question about any of those things, call 615-737-9986. We are taking your calls, doing all the exciting things we want to do. And of course, we are already five months into 2020 which also makes It’s a bit crazy because 2021 excuse me, we’re five months into 2021. So just filing taxes, if you make any changes, because a lot of times people come into my office, and one of the first questions that usually come up to be quite honest with you is, why do I owe money every single year, and these are individuals that are actually W2. They don’t always understand why it’s happening or what’s happening. And it’s pretty straightforward that you need to probably make some sort of adjustment. And I will tell you, I am not an advocate for the new W4, it may just be the fact that I have changed. But it may also be the fact that we have other issues. Alright, I have the screen. Awesome. And why don’t we go ahead and hit I believe it’s Teresa that’s on the phone. Let’s go to her. Hey, Teresa, what’s happening?
So I helped my son do his tax return this year. And we filed it by paper, and we sent it probably on April 9th. We sent it in, and we keep going to check my refund things. And it says that there are no updates.
Dr. Friday 6:15
Okay, so paper yet paper baling is going to take you six to eight weeks for it to get on the computer. To electronically file, they give us 21 days, but if you do it by paper, it’s six to eight weeks. So you’re looking at if you did it first of April, April to May, and May to June, probably I would wait till around the middle of June to see if there’s a refund request in the system.
Okay, well, then I just have another real quick question if I could. So he is in the middle of a divorce. And when we went on to the IRS website, it instructed him to file as a head of household because he was doing like 50% more of the income type thing. And anyway, we answer all the questions and it said that you should file Head of Household would that be something that maybe would be holding it up? What do you think?
Dr. Friday 7:13
I mean, he’s head of household. Does he have a child?
Yes, he has two children.
Dr. Friday 7:20
Have they lived with him for more than six months?
Oh, yeah. Yeah.
Dr. Friday 7:24
Okay, well, here’s the outside of that conversation. Is it possible that his ex filed for the children?
As far as I know, she hadn’t filed at the time, because that was one of the things that I was worried about. But as far as I know, she still hasn’t filed.
Dr. Friday 7:45
That would be something else that could hold up his return. If she e-files and you paper file, the possibility that she could beat him in could happen. Again, I know you’re already dealing with your son. And as long as he’s the one that had permission to take it mailing is smart. And we’ve done this a lot of times, because sometimes someone will beat us with taking the child, but they didn’t have the right to take the child. And so we can document that we are the primary and that we should be claiming them and all that. So I’m not saying he did anything wrong, but it’s just going to take a bit longer. And there may come a time where there’s a letter that sent to you saying you need to document that you have proof that you’re allowed to claim these children, if for some reason, and again, I’m working with probably the bad side of things sometimes. But if for some reason the mother ends up beating him to claim them in sometimes that happens.
Dr. Friday 8:45
I would say just give it a little bit more time, if you did first I mean, obviously it’s only been a little over four weeks, getting closer to longer than 20. So maybe closer to six weeks. So I would say anytime soon a paper form if it was mailed out in April, by the first of June, you should see at least the status that they’ve received his return it may not yet say that he has the refund ready yet but it should say at least it’s been received if I don’t see it. If I were you and I didn’t see it by the eight-week mark, which would be like the ninth of June, I’d probably certify another copy or even consider e-filing at that time.
Okay, okay. Thank you!
Dr. Friday 9:27
Thank you so much for your call. Appreciate it. All righty. You are listening to the Dr. Friday show. I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. So pretty much all I do guys is deal with tax issues. So if you’ve gotten love letters or you have issues with the IRS or the state on the person, you’ll probably want to call and see if we can make a resolution to these problems. Make sure that you are getting the best resolution. Probably one of the biggest things I do differently than most other companies that do resolution work is I don’t start out with this is going to cost you this much money. First, we find out if we can even do anything, what can we do, what kind of expectation, then we talk about what it might cost to actually do the service.
Dr. Friday 10:15
Most of the time you call up these companies, and the first thing, they say, “Oh, we can do this, but it’s $500 a month, it’s gonna cost you $5,000. And we’re gonna need this, this and this.” I have clients that call me the other day, and nothing had been moving. And they’ve been doing this for months with this other company. I think they’re waiting until they get enough money from them before they do something. So you need to have someone in your side that’s going to be there someone you can talk to, and hopefully reach. Now tech season’s over, hopefully, the phone lines will be busy. So if again, you want to join the show, it’s really easy to call 615-737-9986.
Dr. Friday 10:57
So one of the biggest things we’ve had in the last couple of weeks coming through, of course dealing with taxes. But you know, a lot of times or many times people have a couple of different issues. One of the big issues is that even though you file your taxes, you can’t afford to pay them, what are your options? How can you deal with the IRS? And when should you be dealing with the IRS on this kind of issue. I mean, if you owe less than $10,000. If it’s multiple years, you can easily go to irs.gov, click on “payment,” and then click on “payment plan.” And you can set up one electronically right there on the IRS website. If you owe more than $25,000, you’re going to need to start filling out forms there are financial forms called 433 A or 433 F. And that’s going to give the IRS the ability to understand your finances. Is there a hardship? Is there a reason you’re not able to make these payments?
Dr. Friday 11:52
The third is in my case, most of my people or many of my people are entrepreneurs, self-employed people. So they either on their own Corporation LLC or sole proprietorship. So making those quarterly payments, understanding how important it is to make quarterly payments is the secret to getting yourself eventually out of IRS that it’s always easy to sit there and say, “Oh, I’m going to make this much money” and you bring it in. But remember, the IRS is about 25% partner in your partnership. So we need to make sure we resolve that. All right. Why don’t we take a quick break, we come back, we’ll get to your phone calls. Again, you can join us at 615-737-9986. We’ll be right back with the Dr. Friday show.
Dr. Friday 12:47
We are back live here in the studio. If you want to join us, all you have to do is pick up the phone at 615-737-9986. All right, let’s go to Tim. Then we’ll work our way to Rodney. Hey, Tim.
Hi, how are you, Dr. Friday?
Dr. Friday 13:06
I am awesome, sweetheart. What can I do for you?
For the last three years, I have claimed my grandchildren. They’re all under four, three of them. This year, I expected their father who is my son to claim them. I heard they’re supposed to be money coming from the federal government starting in August. My question, is there going to be a problem If I get that money before the end of the year? Or do I need to let it just a crew and have him file?
Dr. Friday 13:40
Yes, it’s gonna be challenging what you’re talking about for the listeners, Tim’s talking about as the advance payment for the child credit that they’re going to start sending out, which will change the $3,000. They’re going to try to send out that over the next six months or something to the parents to help them support their children. And this is what’s going to get extremely complicated. Is Tim in great question is, how is the IRS going to reconcile? So in 20, let’s just say in 2019, you claimed the grandchildren because they were there in the house and you were taking care of them. But in 2020 your son hopefully claimed them on my guests will be is that the if he has filed and claim them already, then each should be on the list that he would be the beneficiary or the person claiming the children for 2021. The problem with that is sometimes it’s every other year in some situations. You know, in your case, it could be somewhat the same way if he keeps his job and he does well that’s great. But otherwise, you may be the main breadwinner, taking care of the children. I’m just saying hopefully that’s not the case.
Dr. Friday 14:49
In answer to your question, my suggestion would be is if you do start seeing the money coming in, then I would set it aside in a separate account that you guys can then reconcile because he’s going to, it’s going to become a credit that he’s already received this money in theory on the 2021 tax return. He’s going to say that he hasn’t received it, obviously, but you’re going to have it. So it’s going to be, it’s a lot like this stimulus money, which parent received it and the parent is supposed to receive, it isn’t always the same situation.
That’s what I assumed. I did claim everyone in 2020. But he was going to claim them for at the end of this year. 2020 is all already done.
Dr. Friday 15:40
You’re going to get the advance and you’re going to be theoretically, you’re going to need to reconcile that with him, because he’s not going to get the credit because you got it for that year. So it’s gonna be interesting to see how we reconcile that because it sounds like the two of you, I’ve got situations where the husband and wife or the grandparents and the biological parents don’t talk. I mean, no one’s going to share anything, at least in this case, you’d be willing to share with your son and understand where the money came from. But the IRS doesn’t seem to be thinking in advance of that situation every year it could be different for who claims the children. Right now, Tim, you will be the person receiving that advanced payment, I guarantee you that.
Well, the whole situation is very amicable. I’m very fortunate with that. So that’s what I assumed I should just put it on the side, but I didn’t want to wind up him claiming something that I got, which I would have given him anyway, and then turn around we both said penalized.
Dr. Friday 16:43
Right. At the end of the year, somehow there’s going to be some sort of reconciliation, which they haven’t released to us on how we’re going to do this. But it would be that you are going to actually probably give him the money and he won’t get it from the IRS would be the simple answer, Tim. Would be he won’t get the money as a refund or applied against his credits. You will then just give him that money sitting in the account. That would be the perfect day. Awesome. All right. That’s a great question. Appreciate you.
Thank you. Alright, let’s hit Rodney. Hey, Rodney, what can I do for you?
Hello Dr. Friday, thank you for taking my call. On March 16 of this year, I went and had my local tax preparer lady. She submitted my application for the COVID-19 relief tax I understand there’s been like three, and she gave me a card it said that it would be active within 3-21 days, which it was, but I have yet to receive it said “in process” when I went to the irs.gov site, whenever it works. And it says it’s been process. But that’s been you know, coming up on two months or a little over two months now and I have yet to receive any of it. I know a lot of people have gotten all three. I was wondering if you had any advice or it might be a side that I could go to or someone I could call the number?
Dr. Friday 18:12
Okay, the IRS is overwhelmed with so many people trying to get stimulus money on top of the usual refunds and sounds like maybe you were a non filer normally and you file because that was the only way and you really would have only received the first two.
I always do. Yes. 2017 was my file the last time this time she filed It is something to the effect that I think it’s a W4 is the same thing as the tax. The same way she prepares the taxes but she just submitted my application for the stimulus COVID-19. Knowing I didn;t earn it, but I mean it since everyone else has gotten three I just wondered why was it I haven’t?
Dr. Friday 19:06
It has nothing to do with you earning it or not. I mean, it is if your income is a certain thing, you will get it and it’s the first two is the only one she could have gotten for you, which would be $1800 total 12 and six, the $1400 didn’t come out till March that one will not be reconciled until we do the 2021 tax returns. Back to the main prior that question is no I can tell you I have at least 60-70 people that have not received their refunds that we have failed in the first weeks of last weeks of March 1 weeks of April at least are we’re still waiting. We see them in there usually says it’s been processed. So we know the IRS has received the return. But we have no idea why they’re not releasing it and the IRS has not released any kind of news release that says hey, here’s what we need to do.
Dr. Friday 19:53
Here’s the problem. I have had about 10 people that have managed to get through and found out that they had identity the situation was holding it up. And so they had to prove their identity to get the tax return released. I don’t know if that’s your case, and the only way to do that would be to call 1-800-829-1040. Again, 1-800-829-1040 number. I believe they’re open Monday-Saturday, and see if they can’t help you. give you more information on if there’s a reason. Because this seems like there’s not been a lot of letters Rodney, not a lot of communication, at least tell us, hey, there’s a holdup on your return because at least that we give people a reason behind what the problem is. We’re not getting that. We’re just looking at the IRS website. Like you said, sometimes it works. Sometimes it doesn’t. When it does, it just basically says we’re “processing your return.” It’s very frustrating. But you can you try to call that number and see if it helps.
Thank you very much. Have a blessed day.
Dr. Friday 21:02
Thank you, you too. I had I know guys, it is frustrating, I can’t tell you. Again, I know just driving here on a Saturday, he had at least six clients call me and tried to find out if I could help them locate their their refunds and in the fact that I have no more once and no tax person, once they’ve left our machines in all honesty, technology has taken over it now goes into the week, all we know is that it’s been received, we have no notification coming back telling us that it’s being held because of this, or anything. So I’m a suggest try. You’re going to have to be patient with that phone number, because I’m sure quite a few people are calling it but it is the individual tax line for the IRS. Hopefully, they can tell you the status of your refund is or your tax return. So I think one of the questions they’re going to ask, Is this COVID refund? I would not say yes, on that question. If it’s something I would say you’re looking for your 2020 refund or the status of your 2020 return. Because you need to get to a human being that can open up the computer and then look at it until you say “Hey, this is why you have or this is why you haven’t received something” because, at this point, we don’t know what’s going on. There’s no magical mirror for anyone. If there is somebody on the tax professional side of things that has a better suggestion, I would love for you to call in. You don’t have to use your name, if you don’t want doesn’t make a difference. If there is something like we did last week, someone actually did call in I appreciate her calling in and talking about the subject we have.
Dr. Friday 22:41
If someone has a better way of these people finding out where their refunds are, or a different phone number to call, please share it or you can text me whatever. Because that’s the only one I have that I have found that at least is still working where human being will answer the phone. Alright, so if you’ve got questions, we’re about halfway through the show guy. So if you’ve been holding your breath, and you’re trying to figure out what you’re going to do on he have to do is pick up the phone 615-737-9986. We are taking your calls. Remember, there are no bad questions. There are no stupid questions. I mean, if you don’t ask the question, none of us will learn from it. Sometimes it takes a little bravery to call a radio show. I totally relate to that. So you know, if you’ve got a question, I bet there are other people listening that might want to know the answer. And if I know the answer, that would actually be totally awesome.
Dr. Friday 23:14
All right, so we’re going to take the next break. But if you have to or want to join the show, call 615-737-9986. I’m an enrolled agent, licensed with the Internal Revenue Service to do taxes and representation. So basically, guys, I’m kind of like a shield between you and the IRS. I do not and have never worked for the IRS. Just to put that out there. Sometimes people think that I have worked for them. I have never worked for the IRS, but I am licensed by them to do representation and taxation, which basically means I’m here to help you guys make it through the maze of what we call the IRS. Alright, so join us. Call 615-737-9986 We’ll be right back.
Dr. Friday 24:28
We are back here live in studio. This is the Dr. Friday show where we talk about taxes on money issues, things that we need to start preparing for, and things that we maybe should know already. So we’re going to go through a little bit of a checkoff list of a few things that are kind of coming up. Obviously, some people because of the late date on the May 17 extensions just remember they did they did not extend the estimated payment so your first estimate was due on April the 15th.
Dr. Friday 25:01
So that would mean that your next one needs to be due on June 15. If you miss the first one, my suggestion is to pay it as soon as possible. Then try to make obviously or any other payments. It is always best guys, instead of always looking backward with the IRS, it’s a big tendency, a lot of people get so overwhelmed with the fact that they owe the IRS 20,000. I owe the IRS for four years, you’re never really going to get out of that unless you’re fortunate enough to I don’t know sell a house or come into some money. You really need to start thinking how can I stop owing the IRS as far as by the end of the year? How can I pay my share? And do it in a way that they’re not keeping large refunds because that will go backwards. Sometimes that’s not the agenda we’re looking for. But you’re mainly paying forward. So right now the IRS has got it set up pretty cool, where you could go to irs.gov, click on “pay” and you can make a bank or credit card payment every month to the future. So you would choose 2021, you would choose the month of May and you would break down whatever you owed in 2020 divided by 12 or possibly divided by the number of months left If you haven’t paid any quarters and make that payment every single month. At least if you pay in 100% of what you owe the year before, you’re going to be darn close to being able to settle now if you already know that this year for several businesses.
Dr. Friday 26:37
2021 is going to be awesome guys. Compared to what happened in 2020. For some of these businesses, this is great news. But if you have to be one of those construction guys, I mean, let’s be honest, 2020 was great for you guys. 2021 is not slowing down one bit. So if that’s the case, then you’re going to need to go and you’re going to need to pre-empt every time you take out a check, you want to take 25% senate over in a tax account and you want to live off 75%. If you are in a single-member LLC, or Sub S corporation, or a multi-member LLC, or partnership, all of those are pass-throughs, which basically means even if you only took $50,000 to live on, but the company made $100,000, you’re paying tax on all $100,000.
Dr. Friday 27:34
The hope is on the other 50 at least the taxes that are due on it is sitting in the account and you can take it out and pay that portion. And then that way you have their tax dollars, but the money that you took off to live on, you did actually set that money aside, paid it already to the IRS in a perfect world. So and some people want to go on payroll, there’s nothing wrong with payroll. But the problem here on payroll is guys, when you’re talking about a small business owner and money sometimes can be tight. And then you get yourself in trouble with fiduciary tax or trust fund tax I should say. Where that’s money that you withheld for Social Security medicare for the employee, even if you are the employee.
Dr. Friday 28:19
Now you’re talking about higher penalties, higher interest in things, and shorter periods of negotiating power as far as paying that back. You could get yourself in more trouble than just treating and to be quite honest, single member LLC, multi member LLCs partnerships, none of you as the owners should really be on the payroll. Payroll is actually designed for employees, and since you are the owner, it doesn’t happen. Now that does change for people with Sub S or C corporations. If you are a corporation, you can be an employee of your company. There are some advantages to being a Sub S corporation. If you’re paying yourself the maximum salary of your job and there’s still more profits, you wouldn’t have to pay Social Security or Medicare tax on those profits, unlike pass-throughs LLC or partnerships in most cases.
Dr. Friday 29:14
So again, these are the kinds of things you want to consider think about when you’re setting up business think about what we have coming down the line and really sit back and get the business in a healthy place. I’ve been an entrepreneur for 25 years been blessed to have people that are listening to this show and others that have come and use my services. But it’s always a mean there’s always that finagle to understand how to make the business better how to to do what we need to do and to pay yes as little amount of taxes as possible and still accomplish what we want to accomplish. These are the kinds of things if your tax person or bookkeeper is not giving you those kinds of answers. If you’re not getting that kind of evaluation on your business, then you need to call on I will tell you guys, I’m playing hooky for the next week or so. So my phone lines will probably be really busy.
Dr. Friday 30:05
If you want to call after June 7, I will then set up an appointment for you guys. And we will be able to go through we can look at your QuickBooks files, or if you’re using some other source of tracking, we can evaluate what some of the things you could be doing to save tax dollars. Debt, I will tell you right now, I am not a firm believer in debt. Prime example, if you are going to go spend $10,000, and you’re in the 12% tax bracket, you’re going to save $1200 on $10,000 doesn’t really seem to be a good plan, in my opinion, to have to spend all that money to save that little amount of money. Now it does get better and better if the higher income brackets right, the 30% tax bracket, well, I spent $10,000, I’ll save $3,000 still seems like an awful lot of wasted money. I rather pay the $3000 and not have to spend the other seven. That is just common sense. You need that when you’re building a business because normally cash flow is the hardest thing that most of us have to deal with.
Dr. Friday 31:06
Nowadays, we’re going to have quite a few people that have loans that maybe haven’t had loans, because SBA has helped a lot of small businesses get back on their feet. But now they have loans and things that they have to put into their number system. That’s an important thing to be able to do. So if you haven’t got someone that actually gives you a second opinion and how or maybe you do have a great person, keep them if you do. If you don’t, give us a holler. We’ll be more than glad to give you a second opinion on what maybe you should be doing how you’re being distracted. Also, you know, protecting yourself from the fact of an audit. It’s going to be one of those situations, especially under the current administration. He’s talking about giving billions of dollars to the IRS for the purpose of auditing,
Dr. Friday 31:50
Most self-employed, people are pretty high on that list of people they want to audit. A lot of people always think the rich are going to get audit, well, the rich are one of the 10, where most people that make less than a million dollars have a 1% chance I will make any more than a million dollars has a 10% chance. So their odds are already high. Under the old administration. These is additional audits he’s talking about. So that’s something you want to put on your agenda as well. You want to make sure that you know where your money is how you’re coming up to that number and how you need to justify it because I’ve been doing tax long time. Then doing those taxes. I also know sometimes when I ask someone what their miles are, and they go, “Well…” you know, that’s not the answer. We really want. We’d love to see a mileage log, we’d love to see mileage IQ or something tracking it. So it’s not too late for this year is what I’m telling you. 2021 they get a new resolution, you’re going to do these things and make it work.
Dr. Friday 32:43
So if you want to join the show, if you’ve got a question on that or any kind of tax or financial question, I’ll do my best to help you out. Call 615-737-9986, we’re going to take your calls. Again, if you’re a new business, sometimes one of the questions that come in my office is “Should I be an LLC? Should I be a partnership? Should I be a sole proprietorship? Should I be a corporation?” And I’ll be honest, like that’s not something I can just help you with on the phone, it really depends on what your big goals are, what your small goals are, are you going to take on partners? If you are in a partnership or an LLC, do you have a partnership agreement, a members agreement? Because most people choose to be in partnership with the person they’re in partnership with. But if that person is married or has significant other? What happens if that person, something happens to him? Are you going to be in business with that significant other? Or is there a buyout clause is their ability to do things and how you’re going to make that work is very important, because one of my older brothers have always like to say you should always have an exit plan, you know? It is true. I mean, if you’re starting a business, you should always know, especially if you’re dealing with multiple personalities, there should always be that ability, who’s going to be doing this, who’s going to do that and have it.
Dr. Friday 34:10
I can’t tell you in 25 years, how many partnerships and LLCs I have seen broken up. And for people that started out as the absolute best of friends and ended up with basically sometimes not even talking to each other for years afterwards. So it’s not worth it. Money is not worth it, not for a good friendship and certainly starting a business out the way you want it and then go in that direction. Always risky, but there are ways that we can put up you know, help our boundaries so that way you’re able to do something to make it work for you versus taking that risk and then going, “Oh, no, this isn’t working. I do all the work and all you did is put money in” or those kinds of questions come up. That’s the kind of thing you really need to have a good setup and a good situation so that you know what you’re going to do and how you’re going to do it because you don’t want that to get between a good friendship or not. It just isn’t worth it to make it happen. All right, let’s say Randy before the break, let’s hit Randy in there. Hey, Randy, what’s happening?
Hey, I’m doing okay. How are you today?
Dr. Friday 35:16
I’m great, thank you.
I was wondering about the, I’d like to rent a home setup for me as the landlord when I have somebody that’s going to do a rental home, say $200 debit or some portion of that goes towards the building equity for the home and say another 200 goes toward the rent. How is that taxed? Is that equity taxed at a capital gains rate and the other tax at a standard tax rate? How does that work?
Dr. Friday 35:55
Well, it kind of depends on how it’s going to write up. If it is really a rent to own, and then five years, they have to have a mortgage, and they buy it out from you at that time, or are you really self-financing, and they’re buying the house from you. Because really, if it’s a rent to own, it basically means that all the money is rental until the contract has been either enough equity for them to go get a mortgage. Then at that time, you write up the contract on how much money you’re selling the property for. If it is a tote, the note where I told you not to, but you know, where you’re basically going to be the finance see of them buying the house, then you do a 6252, which basically is where you would show interest in the principal being paid against an amount that they’ve agreed to buy the house for. Because otherwise, you’re really just keeping money in escrow for them to build up equity to buy the house, which is no guarantee that’s ever going to really happen. In all honesty, I’ve seen more of those deals throughout fall through than I care to really say but So in my opinion, you’re not really selling the house, there’s no house contract when they are rent to own. Because the contract basically says, Well, at least some of the contracts, maybe yours does say that they are buying a house, but if they’re buying the house and renting the house at the same time, you are going to either have an agreement that they’re going to buy the house at $150,200 of each of those payments are going to go to this. Is there going to be interest on the money that you’re holding? Or is it going to be straight Capital Gains? Because that would be your options? And normally, the law requires you to charge interest if you have a loan. Does that make sense? Hopefully, Randy.
Well, the thing about it is it’s like a property that you don’t really want to, somebody can’t get along typically does that. I mean, typically not always. And so it’s a way to hold a property without getting it all kind of the deed of trust and this and that in the foreclosure. That was what I was looking at.
Dr. Friday 38:15
Personally, I would probably treat the whole thing as a rental until the day that they’re ready to buy. If they make it to the point where they’ve built up $30,000 equity and you say, “I’m going to turn this into instead of a rent to own, they’ve turned out to be reliable people” and you may actually take the note on it, the house has no mortgage, it may be a viable concept because you still can continue to do pretty much what you were doing, it would just become them buying the house versus renting the house. But a most like you say. The problem is most people that rent to own in most cases, it’s very difficult to really get to the point of ownership. They really can never really find the ability to get the money from the bank, you know? They just don’t have that ability to buy. So, you know, so and so they’re never going to really own because they could rent from you for 50 years and probably never buy the house at that rate. That’s my guess I don’t know how much this house is worth. Are you gonna want to hold it that long?
We just sold a house for a very cheap rate. Because of repairs needed. Because of things of that nature, where somebody has been a help to the family over years? Is that something dangerous to look out for when it gets into a tax state?
Dr. Friday 39:40
Well, if it’s not a family member, the answer is no. If it is a family member there is a specific tax law that basically makes that very difficult thing to do. But if it’s not a family member, then you could sell it at I mean, I would probably if it’s someone that you know a family friend and you’re selling it at a low price, I would probably at least try to find it. Some other property in the area that sold or would have sold for something like that, because like you just said, if it’s an older home and requires $40,000 of repair, to get it up to, to spec and you sell for $40,000 less to let that person have it, then that’s a fair assumption. So as long as you’re not giving it away. I mean, in theory, you can give somebody $15,000 a year for a house. I mean, you can eventually gift the house to somebody.
Dr. Friday 40:30
I mean, those things are possible.
Yeah. Right. T that’s all right. I appreciate the information.
Dr. Friday 40:39
No problem. Thanks for the phone call. I appreciate it. Alright, guys, let’s take a quick break. Before I missed the last one here. We’ll be right back with a Dr. Friday show.
Dr. Friday 40:58
All right, we are back here live in the studio. And if you want to join us live, it’s only a few minutes left. Call 615-737-9986. We are taking your calls talking about my favorite subject, as we all know, taxes, taxes, taxes. So if you haven’t filed your taxes, hopefully, you filed an extension. But for some reason, if you didn’t remember, most of the counties around us in the south Nashville area was still under an extension till August 2. So if you’re not too sure, you can certainly give us a call or text. I’ll let you know what counties but all the main ones Murray, Williamson, Davidson, all of the main ones around those areas is in were under victims of a severe storm. So if you missed it this year, you have the ability to still do it right. August 2, 2021, is the deadline for that. If you filed the extension, business extensions will go till September 15, individual extensions till October 15.
Dr. Friday 42:05
Again, I’m going to suggest getting in trying to get your taxes done earlier versus later. The August 2 deadline does apply to first quarter estimates that were supposed to be done on April 15. I don’t think I said that the last time. So if you’re in one of the counties that did have the disaster, and you did not make the April 15, you are good, because that one got pushed off. First and Second, theoretically, both got pushed till August 2. So again, there is some room here for people to be able to maybe get themselves on track this year, things work this year, make everything happen the way it’s supposed to happen, trying to waste time worrying about what you could have should have would have done, is it ever going to be a win-win, what you want to do is look and say okay, as of today, what can I do to make this a better situation? How can I change and sometimes it’s a budget, it’s time to start looking at what you have and what you’re doing. Then the other times, it’s a matter of just making sure that everything is done to the best of your ability.
Dr. Friday 43:14
But entrepreneurs especially you guys have to be making quarterly urine, you have to have a bank account, you have to start looking at setting aside money for the taxes. If you are not an entrepreneur and you owe money every year, you need to reconsider your W4, maybe to have an extra $100 a paycheck come out an extra $200, the one I just did, Friday night was an extra $250 a paycheck. But they’re gonna get it from you either way and in some cases with quite a bit of penalty. So why not just do it on the button, learn to live with a little less money. And that way the IRS is not on your back. Nothing worse than having to deal with the IRS or having to try to finagle how you’re going to pay them when you know the money isn’t there. And trust me, I have been there any entrepreneur that sits back and says they have never had to try to figure out how to pay their tax bill probably hasn’t had a lot of fast growth in one given year or a really slow year, the next year.
Dr. Friday 44:15
Either way, you have to look at what you’ve got and what you’re going to forward. It’s the only way you’re going to grow a business successfully because having the IRS as your partner is one thing, you don’t want them in your bank accounts. You don’t want to be calling Dr. Friday and saying “Oh, they’ve froze my bank or they’ve taken a levy or there’s a lien against an account.” You don’t want to have any of that that just makes it harder for you to balance. Also, it makes it more difficult for the IRS to be honest. I mean, sure they would love for you not to owe them money. If that’s the case, and you do there are so many tools. We’ve got Fresh Start programs where you can negotiate with the IRS doesn’t work for everybody. You’ve got partial payment plans, you have payment plans, you have non-collectible, you have hardship filings, all of these can be things that you can use to help reduce your taxes and make everything work for you. It’s not that difficult. So if you need help with any of that, you can call my office again. I will tell you guys I am out of the office until June 7.
Dr. Friday 45:12
So you can either call or write down the number but either waycall 615-367-0819. E-mail is always a faster response in some ways, then that’s firstname.lastname@example.org. If you have no idea who this crazy person on the radio is the first place you probably should go is to drfriday.com. It’ll give you a way of telling you what we’ve been doing for business over 20 plus years helping individuals and business owners to keep the IRS maybe not out of their business but at least in a place where we can control and understand how much do we owe the IRS? Why do we owe the IRS and how much are the penalties and interest?
Dr. Friday 46:07
I had gentlemen, he hadn’t filed taxes since 2014. He made the regular payments he went ahead and paid them and this was in 2021 and he now has about 40,000 in penalty and interest just for those two years alone, which is almost 100% of what he owed them in the first place. Penalties and interest are severe. Alright, I hope you guys have an awesome Saturday. Hope you get to enjoy it a little the weather. Call you later.