Alrighty! The Doctor is in the house yet again with another exciting episode! In this episode, Dr. Friday singlehandedly answered interesting questions from callers and discussed the topics listed below. Also, don’t forget to listen to Dr. Friday’s Tax Tips – One Minute Moment that can be found on this website by clicking on the link.
- Deduction for the Cost of Modification for Senior Proofing a Home
- Medical Expense and Deduction
- Filing Taxes for Someone Who’s in Assisted Living
- Taking Taxes out of Social Security or Pension While Working
- Are There Any Tax Deduction If You Pay Your Children or Grandchildren’s Bills?
- How to Start Having a Filing Relationship with the IRS for a Self-Employed Individual?
- Filing Taxes with No Permanent Address
- Recent Glitch in the Electronic Federal Tax Payment System (EFTPS)
- Child Care Credit
- Taxing a Crowdfunding Situation
- The Problem with Preparing Taxes Too Early
- Mistake for Not Filing Your Taxes Electronically
- Issues with Not Paying Your Taxes Quarterly
- Penalties on Required Minimum Distribution
- Deducting Musical Instruments and Tutoring – Is It Possible?
- Getting a Rmd Late in the Year
No, no, no! She’s not a medical doctor, but she can cure your tax problems or your financial woes. She’s the how-to girl. It’s the Dr. Friday Show. If you have a question for Dr. Friday, call her now. 737 WWTN that’s 737-9986. So here’s your host financial counselor and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day! I’m Dr. Friday and the doctor is in the house! We are live here in studio so if you’ve got questions pick up the phone (615) 737-9986. (615) 737-9986. A big hi out to all those that did the hike for the homeless this morning down in Nashville. For Safehaven. It was a lot of fun. My two Great Danes and my big sister and I did that this morning and it had a wonderful turnout. So it was a great day outside. News Channel Five was out there and many others representing it and so it was a wonderful morning for that kind of walk. I will tell you, my big boys are, well, most you guys know I have Great Danes, and one of them’s about 185. The other ones closer to about 145. But the 185 was thinking two miles may have been just about a little too long, apparently. My sister got them home and their sound asleep. So if you’re out there enjoying this Saturday, I hope you well. It’s a beautiful day. I know a lot of people think it’s a little nippy, especially you guys coming from California. But after a few years, guys, trust me you will start loving with the weather when turns like this. If you do want to have some questions, may we’re talking about taxes.
Dr. Friday 1:39
I’m an enrolled agent license with the Internal Revenue Service to do taxes and representation. So if you have questions about tax preparation, maybe you haven’t filed taxes for a number of years, maybe you have an issue maybe you’ve received some love letters from the IRS and you’re really just not sure what they’re wanting or you know, do I open that can of worms, do I even start the conversation. So you want to get some answers, this is the show you want to join (615) 737-9986. (615) 737-9986. Taking your calls talking my favorite subject, all things taxes. So let’s talk about few things that people will get close in the year may so we’ll put you guys thinking caps on and deduction for the cost of modification for senior proofing a home. I think sometimes we have to think a little outside the box. Medical expense, in my opinion, is a very, very hard thing to qualify for. You know, and what really qualifies under medical other than paying your doctor, your dentist, your chiropractor and your, you know, basic doctor expenses. Well, one of it would be medical. Like if you have to put a ramp or a piece of equipment in the home, maybe even buying a special kind of bed.
Dr. Friday 2:53
My dad got sick, we got a bed that he could lift himself with. Those kind of things could become a medical deduction. Now keep in mind, there’s a fine line, because I know I used to want to do so my speaking engagements sometimes when people say, Well, I, I purchased a swimming pool because my doctor said, I have to do physical therapy every single day. And the only way I could do it was with a swimming pool. So there’s a tax deduction. And in all honesty, I would say no, because adding a swimming pool to most homes assuming that a nice swimming pool would increase the value of that home. Therefore, it is not it is a home improvement, not a medical improvement. Now, adding a ramp to the front of the house could actually decrease or not add any value to the home, it may just be a different entrance, and therefore that could be a legitimate tax deduction. But you do have to understand if it adds value to the home, doing something to the house that adds value, the government says wait a second, that’s not a tax deduction because this is your primary home and you just added value to the house. So if you want to join the show, you can. (615) 737-9986. (615) 737-9986.
Dr. Friday 4:05
We’ll get to your calls here. I see the phones ringing. So if you have some questions, you can deal with it. But that’s a way of dealing with the, you know, adding possible tax deductions to your house. And that would hopefully increase, you know, your write-off. Because you have to have more than 10% of your adjusted gross to even qualify for any medical. And then once you do that, you have to meet the itemizing. So, you know, it really does take some planning, in my opinion, unless, you know, gosh, forbid, you have a situation where you have a huge medical bill. But you really do hope that most of it’s covered either through your insurance, that you’re not having a ton of out of pocket, but if that’s the year it’s going to happen, you might want to consider, you know, some of the other. Also for seniors, the other thing you want to consider is nursing homes. Sometimes it is just the therapy and it’s covered, but other times it may be a little bit further than that. It may have to do with memory loss or dementia. In those kinds, you may actually have a complete deduction. Talking about that. Let’s go to the phone see what Judy has to say. Hey, sweetheart, this is Dr. Friday.
Hi, nice to speak to you. I am the conservator for my father. He’s in assisted living. He’s had like five strokes and I am depleting his resources. And my attorney said, maybe I should speak to an accountant because I may have to file taxes for him this year. He’s 92, and he hasn’t had to file taxes in a number of years.
Dr. Friday 5:40
Right. But if you’re taking money from retirement and having to pay for his care, possibly, you know, if that’s the case, it may trigger. It may be a zero tax effect, because the fact is, he’s probably in a nursing home, as I was just speaking, his cost maybe because he can’t feed himself, because he can’t dress himself. As long as you meet the four essential rules, then it’s not really nursing, it’s anymore. It’s now it’s care just like any other care, you know someone has. So if they’re not able to really take care of themselves, and he has to be someplace where they’ll make sure he takes his medicine and make sure that he, you know, I don’t know what 92 hopefully he’s, he’s able to get around, but who knows at that age, my aunt wasn’t. But, you know, bottom line with Judy, is you might want to consider if you’re having to take money from a 401k or an IRA, and most of its probably going back into his care, it may fall under medical. And therefore, there may be a wash situation that you’ll be able to work with.
Yes, I’m using all of it on his care.
Dr. Friday 6:45
So as long as it’s all for the qualified medical not, you know, and there’s the fine line. Is he able to take care of himself at all because I have some clients that are 92 that actually still live on their own. I know you said he’s in a home but is he able to bathe themselves, take care of his own medicine, dress himself?
No. No, he can’t do none of the things that you just spoke of. He can’t feed himself and he can’t get up and walk with the help of a walker.
Dr. Friday 7:13
Right, but he could cook and prepare his own food?
Dr. Friday 7:17
So all the money, you’re paying to half his care that would fall under medical on his personal. So you’re going to get most likely what’s called the 1099-R from the retirement, you would then pretty much take all that money and put it onto the Schedule A and it would pretty much be a wash. So they wouldn’t be paying any taxes, physically do.
So then I just report the income and then put down what I’ve paid out to the home?
Dr. Friday 7:44
That is correct. And you can usually get a year in statement. A lot of my clients will get me a year in a statement from the home just to get the total dollar amount for the same amount of years because of the way the timing is. But yes, you do. That’s exactly correct.
All right. Thank you so much.
Dr. Friday 7:57
No worries. Thank you. Bye-bye. Alright, and that’s the way you have to think sometimes because, you know, I mean, gosh forbid, we’re all going to get older and it’s all going to happen to probably some of us and you want to make sure that. In his case, now, if you are in an assisted living, and you’re able to maybe prepare your own food, or you’re able to get around, dress yourself, you know, do do some of the things but not all of them, then you might not be able to take 100%. So really just depends on the test of what is true total care, but the bottom line and what is assisted care. And if you’re in assisted care, you may not be able to qualify. And I think the main rules is, can you bathe? Can you cook and prepare your food? Can you remember to do your medicine, you know, take your own prescriptions, and can you dress yourself? I think are for the main ones that are required. And if it’s all or none, you know, there could be a part in there and we take a percentage of the care that’s used for medical assistance. So keep that in mind, especially if you’re taking care of a parent or an aunt or an uncle or someone that’s older. You know, when we get to a certain point, you may have to start drawing money from retirement accounts, even if they’re on Medicare and you want to be able to justify those monies, not to lose any of those monies towards taxes if that’s at all possible. So again, you want to join us here on the show you can 615-737-9986 615-737-9986. And as I opened the show is talking about changing the house for seniors. I have several clients that have either built wings or you know, a room and it has its own entrance and exit on the house, or they actually have them living with them and sometimes you have to adjust your home to that, right? You sometimes have to make the home so you have a bigger entrance or maybe wider door frames or you know, install railings or modify kitchen cabinets or equipment. And if that is what’s happening in your house because you have an older relative living with you and you’ve had to add these things. Just keep in mind, those could help you meet some tax deductions, you still have to meet the itemizing, which is 24 for this year, as well as, or 12,200. If you’re single with a dependent. And if you’re over the age of 65, the combined dollar amount would be like $27,000. So it’s not as easy. It totally is not as easy. But if you sit down and plan some of these things, you might be able to put it all in one year where you have higher deductibles and then maybe pay your property taxes twice and possibly do all of your charity for the two years because that’s what we do bunching and we we have every other year where we actually hit the itemizing. So that would be the year you really want to try because it’s really hard to meet 10% of your adjusted gross in those situations. All right, let’s take Gary real quick. Hey, Gary.
Hey, how you doing?
Dr. Friday 10:50
Good. Listen, my question is, I am still working. I’m receiving Social Security. I’m receiving a pension. And I’m trying to dump as much money each year into the 401k where I work at. But then I’ve also got a IRA from another company that I’m having to take. So is that the best thing not to take any taxes out or security or pension or anything like that? Or is it better to take some out?
Dr. Friday 11:25
So two sides to that. So you’re asking about should you have taxes come out of your RMDs or Required Minimum Distributions and pension and social security because you also have a W-2because you’re still working. So I would have to say, you could either really take out a lot from the W-2 that would compensate for the others. I don’t know how much you’re making on your W-2. Or I would just have like 10% come out of everything. So that way you’re, I’m sure you’re in the 12% to 22% tax bracket anyway or higher. But that way at least you would meet the basics. And then after the first year, you would know, hey, if I need a little bit more, it’s easier to adjust the wage, you know, the withholdings on the W-2 to be honest, Gary, than it is to go to Social Security. It’s not as simple as you think to get them. But I would probably have 10% come out of everything, at least.
Okay, well, I’m taking extra I think it’s an extra $200 check out of my payroll check. And then like I said, I’m dumping as much as I can the $25,000 or whatever it is a year into the 401k.
Dr. Friday 12:32
Is this your first year of actually doing all of it at one time?
Oh, no, no. I’ve been doing it for a couple of years.
Dr. Friday 12:38
Okay. So I mean, you probably know. I mean, obviously, the tax law changed in 2018. So you would have had a slight adjustment should have been in your favor. You know, got a little bit more. But have you do you usually end up writing a check every year?
Yes. In the last few years, yes. But they’re not as big because I’m dumping as much in my 401k.
Dr. Friday 12:59
That’s the smartest thing to do. Defer it. Why manage at least until you decide to retire. And hopefully, if you’re like me, hopefully that will never happen. But you know, take more time for yourself. I get it. But while you can, still defer it, because when you retire, those still require that requirement on distribution than on that one as well.
Yeah. One more quick question. If you’re paying, like children and grandchildren bills, is there any tax deduction for any of that?
Dr. Friday 13:28
There isn’t. It really falls more under the gifting as long as it’s less than $15,000 each or if you’re married $30,000, then it’s really just gifting. You’ve already paid the tax. They don’t have to pay any tax, but there’s no advantage even if they’re older over the age of 17. You know, there’s a it’s a minimal amount that you really get if they could even be your dependent. But yes, no major advantage to be honest, and definitely no tax advantage.
Dr. Friday 13:54
No worries. Thanks, Gary. Appreciate it. Alright, we’re going to take our first break. If you want to join us. It’s really easy. Pick up the phone (615) 737-9986. I know you’re having an awesome time outside. But you know we got to make it through this hour so I need some phone calls (615) 737-9986. We’ll be right back.
Dr. Friday 14:23
Live in the studio! I’m Dr. Friday, an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. And we’re going to go right to the phones because Jack’s waiting for us. Hey Jack!
Yeah, can you hear me?
Dr. Friday 14:37
I can hear you now. Yes, sir.
Yeah, I’ll give you a scenario. Say a young man that working some of his own self home improvement, things like that, never filed. But now he’s becoming successful and he probably needs to the primary income in his own. How would you go about starting a filing relationship with the IRS?
Dr. Friday 15:01
So he would either just start with the current year if he doesn’t have or hasn’t had any reportable income prior and be just, you know, start with a year in which he’s working 2020 or 2019 and file a tax return. You might want to if you’re dealing with an enrolled agent or CPA or somebody, you might want to see if they can pull transcripts and make sure there’s no prior history issue. If this person is past the age of 20, there may have been some earning years there that got reported, but just never had taxes filed on. You don’t want to come back and bite you later. You know, but if there’s any issues once you file I will tell you the IRS will be more than glad to send you any love letters that may have existed and they didn’t know about you where you were at.
Yeah, perfect. Yeah, I didn’t know if there was a particular form or I’ve heard of short forms, or…
Dr. Friday 15:50
No, this person would actually have to file a long form because it sounds like they’re self-employed. So they have to file a Schedule C along with the 1040 at least.
Okay. I think a CPA can help with that, too. I’ll send him one that way.
Dr. Friday 16:02
No worries. Thanks, mate. All right, great question because you know what, you know, everyone can sit back and always say oh, this would never happen to me, whatever. But in true life, life happens. And so sometimes in my office most of the time it comes down to a couple different things. One divorce, often very difficult. People are so busy trying to get back on their feet, they just get overwhelmed and they get so busy, they just kind of taxes just aren’t on the agenda at that time. Two is that they tried to do something with the IRS, it became overwhelming. So it was easier to just kind of not do anything than it was to keep moving. Because those are the you know when you just you’re just so busy you just you really just have it in. The thing with the IRS especially with some of my clients. I do quite a few truck drivers. Some of them live permanently in their trucks pretty much they have places they say. They travel, they have, you know different things, but they don’t really have a permanent address. And in that scenario, you have a situation where you basically have mail going to an address. And if the IRS I will tell you right now does not forward mail. So even though you may have put a mail forwarding address, whatever else in there, the IRS requires you to file a form, tell them your new address, and then they’ll mail you the letters.
Dr. Friday 17:25
So if you’ve basically moved, relocated, whatever, you know, it’s very difficult. So you have to start someplace. It’s that simple. That you know, going backward, it’s all I wish I did this, I would, you know, that doesn’t change anything. And it really sometimes more detrimental than it is helpful. So really, what you have to do is where are you today. Right now, where are you? And then what do you want to accomplish? Is it to get 2019 filed and then deal with whatever the government needs. Had a gentleman call me, we’ve been working on it. But you know, the fact is, we can’t finances and things sometimes lock you into how fast you can file things. And he’s like the IRS me a letter of 2015 needs to be done. Okay, let’s do 15 even if we were really thinking of trying to get 16, or 17. 2015 will be the next one we do in this case because what we don’t want is they’ve assessed them already. They’re sending a thing saying, hey, you owe $25,000. He doesn’t owe that kind of money. But he is a self-employed individual that receives 1099. So the government only knows about the hundred thousand or whatever that he earned that year, doesn’t know about all of his expenses, doesn’t know about his overhead costs. So and they think he’s single is, they don’t know he has a couple of children and a wife. So they just do the highest deductible and the highest thing. Our job is to correct it. So there is no perfect answer. And each one of you listening, if you have this kind of situation will be probably treated slightly different.
Dr. Friday 18:48
It isn’t as easy as you think, you know. I mean, I’ve got two cases where the IRS had kicked out some of our offering compromises. I am lucky to the extent that I’m working with some revenue officers that are actually still willing to work with people, not just say, hey, forget it, that’s it. You know, because then you have to go through a reconsideration. And there’s a lot of extra work that’s entailed. It’s not as easy as you like to think. And so, you know, you have to do what you have to do. So if you’re lucky, you get a good revenue officer. But I’ll tell you, both of them said, Wait, you know what, the week before Thanksgiving, we’ve got classes, then we’re here and we’re off the week of Thanksgiving. That’s one of their vacation weeks that these particular agents not all of the IRS are off, but these agents were off. So there’s two weeks that’s going to be gone in the next couple weeks that we’re not going to have a lot of movement. And I’m going to guess that that’s not going to be unpredictable in the IRS. And it’s so hard. I know you guys are listening, it is hard to get ahold of the IRS right now. I can’t tell you how many days I have to set aside. I don’t know if any of you guys are listening had to deal with the EF TPS situation where that’s the electronic federal tax payment system.
Dr. Friday 19:59
They changed it an require all of us to do updates to passwords. Doesn’t sound like it should be that difficult. But I’m a badge provider, which basically just means that we do a couple hundred clients that we have access to them. And they updated the badge provider. Well, there was a glitch in it. So then, you know, three days later, they do it again, five hours. Well, I should have straight three and a half hours one day, four and a half hours the other day, neither day did I get it worked and fixing. The third time I called in I actually ended up with the nicest person, she had no idea how to fix computers, I will tell you. We were both cracking up, but she was able to make the tax payments for me. So that knowing had got hit with late because I was stressed. And then she just said why don’t you just, you know, just back off and try. The funny thing is it worked, her advice worked. So all I’m trying to say here is is that there’s a lot of crazy things happening with the IRS and sometimes you just have to step back, call again, make it work. And I know other people that are in my profession, if you’re listening I know you’ve been dealing with the IRS or the EF TPS all last couple of weeks.
Dr. Friday 21:05
And it was, let’s just say it added a bit of fun for all of us to deal with things. So if you’ve got any comments about dealing with the IRS always love to hear it, it’s going to show nothing is perfect. And trust me, I have experienced a lot of the different things that we have to deal with. So another email I had received this week or the first one I’m all reaching about is daycare, a childcare credit, and then one person was asking me, does it still exist? And it does and I have found that a couple of people may have thought that it’s somehow it fell off, it did not. You are still able to write off the you have to have first both parents have to work. That’s one of the things that a lot of times you know, maybe one parent works the other one is an at-home mom, but they still put the child in mommy day outs and things like that so the mom or dad can go shopping and things. Well, if both parents do not work, child credit, child daycare, credit doesn’t is not a tax deduction. They’re assuming both parents work, then you will be able to write off but it’s only up to $2,500. So anything above that is kind of just gravy, I mean, it doesn’t make a difference. So just keep in mind that even though you may be paying, I don’t know, you know, $6000 $12,000 $18,000 a year for your child to go to camp or daycare or whatever, it is not going to all fit and go and become a tax deduction for you.
Dr. Friday 22:28
So it’s kind of important to understand what you have going. When we get back. I’m going to take a quick break here in just a few minutes. But I want to talk a little bit about crowdfunding. This has become obvious in the last five, six years very, very popular. It is a great way for sometimes people to be able to put money in and help change things. But there are some interesting sites and questions and taxability that could be coming from this particular source. And I think it’s important that people understand when they’re doing these things, how important it is to make sure that, you know, if you’re doing this to raise money, you know, go fund me a crowd or kickstart that there could be some tax implication. Up until now, I’ve heard a lot of people say, Well, I can just raise all the money I want because it’s tax-free money. Uncle Sam may have a different opinion on that.
Dr. Friday 23:22
So when we get back, we’re going to take a quick break. If you want to join the show. It’s not hard to do, all you have to do is pick up the phone at (615) 737-9986. We’re talking about taxes. I’m an enrolled agent licensed by the Internal Revenue Service, do your taxes and representation which is pretty straightforward, guys. If you need help with the IRS or you need help filing taxes, this is the type of situation I can excel in. If you need me to, you know work on your car, yeah, that’s not going to work. I’m not very good at working on cars. So I have one thing I’m good at. So if you want to join the show, (615) 737-9986. Okay, we’ll take a quick break. When we come back, we’re going to talk more about GoFundMe accounts and crowdfunding and just let you guys know how that might affect your tax return. We’ll be right back.
Dr. Friday 24:20
We are back live in the studio. We’re halfway through the show. So if you have a question, you better think about calling (615) 737-9986. Okay, let’s talk about crowdfunding. And if you’re doing it for business, so here’s the basic categories. We have, charity, right? So if you’re giving to something that’s a non-profit, such as a campaign that includes fundraising for personal medical bills requested for donations by a registered nonprofit organization, that is a true charitable donation. If somebody an individual is basically saying I’m trying to raise money for my child you know, or a local neighborhood has a child that’s in need, and you give money to it. Just keep in mind that that in itself is not a tax deduction. There’s absolutely nothing wrong, but that really falls under gifting. You are gifting those people the money. And it’s not a tax deduction, it is straight out just a situation. Again, that’s individuals are raising money. A lot of times we’ll all go online, you hear about a story about an individual that needs something will go online. If it is not by a true non-profit, then it is going to be considered gifting and there are certain exclusions, obviously the $15,000 a year to an individual that would fall under that.
Dr. Friday 25:36
The more important conversation is what is taxable. So under a lot of crowdfunding, you know, especially kickstart is one that I know of at least, where you’re contributing to someone’s dream of a business. So again, nothing wrong with that. And if you get nothing in return, you just turn around and say, Hey, I believe in your concept here some money. That is it. But most the time, they’re going to turn around and they give you a certificate of some sort. So the first time the product gets off the line the first time something hits the market, you’re going to have first dibs or you’re going to get a free sample of it. It was not really according to the IRS. They’re saying wait a second, if you’re giving money and at some point years even down the line, that money becomes a product that they give to you for investing in their company, it is not gifting any longer. That is the actual taxable income to the business owner. It is not a part of the person giving not really a problem because you are giving it. It’s not to a non-profit, therefore you won’t be writing it off your tax return. Therefore when they give you that money, that product back it just as if you went and brought the product at the store anywhere else.
Dr. Friday 26:48
But the IRS is saying to the companies that are raising this money, that if a product a certificate of some sort or product of some sort is given, guess what? Now that’s taxable income that you got through crowdfunding, not a gift from those people to start your business. So the other side of that is the state turns around and says, Wait a second. If you basically say, I’m going to take the money and when soon as our T-shirt business gets started off the ring, we’re going to give you guys each t-shirt. And again, you’re not a legitimate non-profit. So not like me, when I give money to certain organizations like this morning hike for the homeless, there was a T-shirt involved, that is not a taxable situation, because that was a nonprofit giving away a product. This is a business that says hey, we’re going to start a T-shirt business. And once the T-shirt business, we’re going to give you a T-shirt now that product should have sales tax collected on it according to the state of Tennessee. So you need to be very, very careful because you will say well, how’s the government know? I mean, really how they gonna find out what’s happening.
Dr. Friday 27:54
Because when you use any of these GoFundMe, Kickstarter, Indiegogo… all of them have 1099 case. That’s right, they file a form directly to the Internal Revenue Service under your name, individual name, however, the account set up. And they tell them that you receive this. And unless you can show that you’re a legitimate non-profit or if you’re a startup business and there’s nothing tied to it, well, then you can prove that to the government that this was true. investors and the investors don’t expect anything later back, paid back, nothing else, then it’s not a big deal. It’s not like it’s penny stock, right? So if you’re buying a stock, that’s a whole different conversation. But in these cases, it’s usually somebody that is actually believing in your dream and giving you money. So all I’m trying to do is I have a lot of startups. You know, I love my entrepreneurs and I love these sites. For many, I’ve had several people that have started their business with this type of funding. But I just want to make sure you understand that this funding may not come to you free. So it’s important to understand that. If you’ve got questions you can reach us here live in-studio not too much longer, but the next 20 minutes or so (615) 737-9986. (615) 737-9986.
Dr. Friday 29:15
So let’s talk about three common personal tax problems and how to respond to these different problems. They are pretty simple problems actually. the first problem is a lot of times people are preparing their taxes so early that the government says, you know, people are rushing even though you know, the date for filing has really pushed backward quite a bit. It used to be the first week of January. Now you’re looking at the first week of February, basically almost before you can file at the end of January, I think. So don’t rush to the finish line. You know, because a lot of times the last stipulates, for example, brokerage statements have to be put out by certain periods and they can get extensions. So they may have something on your website that you’re downloading and filing your taxes based on but it may not be the one that’s gonna be your final statement. They may not have made the proper adjustments yet. So they don’t have to have it to you by the 31st of January. But most people have until January 31st to have your W-2, your 1099, your 1099 B, your 109-K unless they filed an extension. In those cases, they can actually have until March to actually get you those.
Dr. Friday 30:22
Besides the fact that sometimes in some of your brokerage accounts, you might actually have K1s that are coming in those don’t have to be out till March 15. So one of the big mistakes is people are rushing to getting their taxes done because people don’t want to be late. I’m not saying you know, don’t be late, and you don’t want to not file or pay your taxes on time because there are fines and fees for that. But just make sure you’re not rushing to the finish line to get that done. There are still, believe it or not, a number of people that still do their own personal tax returns by hand. And I’m not even talking about I’m talking about the people that just want to mail in their tax returns. The IRS is going to basically be CCNet pretty soon. So just a heads up, those same individuals are probably the ones that used to get the tax forms every year at the library. Heck, I did that when I first started my business. But you know, or pick them up at the State Building, you’ll find that that now there are not very many printed forms any longer. You can’t really bring. There used to be a book that you could order and it would come right to you and you had all the forms you needed and instructions and everything.
Dr. Friday 31:26
But the way that the IRS was trying to save money was not to print anything. So again, mistake not filing your taxes electronically, and then obviously just not paying quarterly. Those are not just for the self-employed. It’s very important for you to understand that when I say quarterly or estimated tax payments, you should have already paid three April 15th, June 15th, September 15th, on our about sometimes those days fall onto one a 16th or whatever. And then our last one is January 15th. So if you owe money I don’t care if every year you have to write a check for a couple thousand dollars according to the Internal Revenue Service. And this is a consistent thing that’s just a one time Oh, I sold something I ended up with this but every year you have that kind of shortfall, unlike the gentleman that called earlier that said that he basically had extra money coming out of his paycheck. So he was kind of compensating for the other income, you should be paying quarterlies. That or you should have more money coming out of your existing tax situations, pension, Social Security, you know, RMDs requirement on distributions.
Dr. Friday 32:36
And while I say those words really quick for my next break, require a minimum distribution, many of you, 70 and a half, you have to be 70 and a half or older, the IRS now, we’ve known that for a while but requires you. And if you don’t penalty on that, let’s say that your required minimum distribution is $10,000 a year. So if you don’t take it, you don’t file it, you’re been, you know, that you forget, it’s not something you remembered, the IRS says you owe them $5,000, 50%. That’s a 50% penalty. So right, there is a reason to make sure that you’re taking them. But here’s a better concept. We keep talking about itemizing, and to be honest, it is something that’s harder and harder, especially people in their 70s. Because hopefully you’re not sitting on a huge mortgage and you’re not dealing with a huge medical, I’m hoping, but if you do, you might try to be able to do but if you’re required minimum distribution is $10,000. And you always give you know 5, 6, 10, 12, whatever, to a charity. You haven’t you know, every year you give this much to your church, tithing or whatever. Your best and smartest thing to do is to have it come from the executor of your IRA.
Dr. Friday 33:54
So the person that writes the checks, make it out directly to that church or non-profit. And then they’ll most likely mail you the check and you’ll hand the check to the non-profit. Guess what, just made that money completely tax free to you completely. You don’t have to itemize, nothing else. If you have required minimum distributions and you have charitable contributions that you usually give some money to definitely talk to your people because it’s really important. This is basically free money. And in some cases, you know, it may be kicking you into a little bit of a higher tax bracket, but if you give it to charity, it becomes a direct deduction off of that 1099-R which may kick you into a lower tax bracket. So something to think about little food for thought there when you’re dealing with those different things but making sure that you don’t miss or make mistakes with filing those taxes. Take the time, think about it, work on it. Don’t just rush to the finish line. I will tell you how many times People do that all the time. As far as making sure that you, you know, we got file our taxes and I mean a lot of people are pushing it back because it’s harder and harder to get the information.
Dr. Friday 35:13
For example, I have to prepare a business tax return. If that business tax return is waiting for another business to complete their taxes, I’m almost set on the fact that I’m going to have to file an extension. All tax, all business tax returns are due March 15th. But if I file an extension, then I’m going to push it out, which also means anyone that’s going to receive a K-1 from that company, assuming that’s a partnership or sub S corp, then they’re going to have to file extensions because I haven’t been able to get the taxes done. So it’s a pure, it just piles up – domino effect. So you just want to make sure that you have what you need and how you’re going to do it and you know, move everything forward in that situation. So don’t just get everything done. Because what happens if you forget something then you get that love letter from the Internal Revenue Services saying wait, wait, wait, wait… we’ve changed your tax return. And you’re saying what do you mean you’ve changed your tax return? And I will tell you we see those quite often in my office because a lot of times people even if you file your own taxes, something happened.
Dr. Friday 36:14
Oh yeah, forgot that we sold stock this year or I forgot that a home was sold because it happened in January and now we’re filing our taxes almost a year later, and you forgot about it, it happens. But you do want to make sure you sit down just put that little extra time into making sure that you know and right now’s a great time to do that, to be honest. Get yourself a binder, a Manila envelope something and just start writing down some of the things you know you’re going to need. I need my W-2, I’m going to need my mortgage interest, my property taxes, my charitable contributions, I’m going to need any interest I might have earned that the bank I’m going to need any 1099-Rs if you have a pension or if you have some sort of distribution or required minimum distributions all of those are going to happen. Why don’t we take a quick break and we can get to the phone lines. If you want to join (615) 737-9986 We’ll be right back.
Dr. Friday 37:17
Alrighty! We are back live in the studio. I like it when I see the phone lines lighten up. You can reach me here at (615) 737-9986. We’ve got Esther on the line. I think it’s Esther is that correct? Hello sweetheart.
So, two quick questions. I have a daughter in high school and I purchased a musical instrument for her. Could I deduct that? And also I have a younger son and he early in the year I sent him to tutoring for a medical diagnosis but he needed some extra tutoring Can I deduct that?
Dr. Friday 37:59
So neither, unfortunately. So the music instrument is what they would probably consider more of a personal. I mean, it’s a choice, it’s not something it was because of disability, you know, or something like that. Even though it may be great for the mind, eyes, hand coordination, all those good things that go with it, but neither of those would actually qualify as necessities.
Dr. Friday 38:24
No problem. Thank you, sweetie. Buh-bye
Thanks. Okay, bye.
Dr. Friday 38:28
This is Friday. Hello, Marianne.
Yes. Thank you for taking this call. We’re elderly and we get the minimum distribution, but we get it only once a year and late in the year. We get it in October. We already got that sweet little letter from the IRS for last year, because we didn’t do a quarterly and we had never heard of that. So we had to pay over $100 in penalty although we paid all our taxes every bit that we owed.
Dr. Friday 39:03
You filed your taxes not in advance by the 15th of January. Yes, ma’am.
Okay. So we’re having that withdrawal taken out of the minimum distribution this year because we got that nasty little letter. We took, we had them withhold 20% to make sure it really takes the hunk of what we owe. No, we didn’t file quarterly this year either cuz we just heard about this about August.
Dr. Friday 39:35
Right when you got the first love letter from the year before because of the change in your thing.
So will that 20% take care of this year so they won’t write us another love letter or do we still need to do it quarterly?
Dr. Friday 39:49
Well, the fact is, you can’t go backward. Life is over. You can’t move backward. So in the future, since you’re getting it at one time and you’re paying it at that time, I would say that you should be somewhat safe. But the law does basically stipulate you need to make four equal payments based on the prior year. So whatever you owed, it needs to be paid in four payments, even though you’re paying it in one big lump sum on or before January 15th. You could actually put in a request for a waiver, because you only get lump-sum income, meaning you only get one time a year income versus it’s out throughout the whole year. So that is something that you could request and I would have probably even the year before putting in a request for a waiver because, in all honesty, you didn’t do it with the idea of trying to avoid tax you did pay it was the first year it happened. And normally in the first year that they have something like this, they will automatically waive it. But either way, yeah, I would. I mean, I would definitely say if they send you a love letter this time, and I would put in the request for them to waive it in my tax return or whoever does your taxes make sure they put the request in their marketing the box that basically shows that you received the money in taxes were paid at the time of receiving. Because that’s really your big sounds like the distribution or the requirement on the distribution you’re doing is actually just once a year.
But that, you know, we are getting Social Security besides and some pension besides and the pension does have a withdrawal.
Dr. Friday 41:20
Okay, so you’re paying tax on the pension. Social Security, well, only 85% of it would be taxable at the max. Maybe not all of that being taxable. And then you have your requirements for distribution. So it should keep you in the right area. But I will tell you, theoretically, you’d be better off possibly having some come out of your Social Security every single month and have less come out of your required minimum distribution to balance it out. That way, you wouldn’t have to worry about it. Is it going to come in only once a year? It would be something that’s coming out every month anyways.
Okay, thank you.
Dr. Friday 41:54
Thank you, Dr. Friday.
Dr. Friday 41:55
No problem. Sorry. Thanks. Hopefully, I did not confuse poor Marianne because the law doesn’t stipulate how you get the money. There is a waiver out there that she could file but it’s not as simple as you like. And you’d have to make sure you follow that every single year to meet that. So something important to remember, and Social Security will take out taxes, so might be a better deal or even take out your required minimum distributions possibly quarterly. That would actually come, you know, fix the problem as well. So hopefully that helps. If you’ve got questions, it’s easier for each individual is completely different. So if you need help actually sitting down and calculating out since I don’t know, Marianne, this point, you know, how much money is she earning? What portion of it’s taxable and 20% you know, if you only have a fairly small pension and Social Security, it’s only 20% might be too high. But I don’t know how much of that is pension. So you know, you don’t want to give the IRS more money. They’re not going to pay you interest. They’re not going to give you anything for overpaying them, so ideally, we just want to break even with them. That’s the perfect world.
Dr. Friday 43:00
We don’t want to give them more and we don’t want to be getting huge refunds. It’s not something that’s going to benefit us one way or the other. So if you have questions, maybe you’re dealing with the Internal Revenue Service or this year, you need a little help with doing your taxes, and you’re not too sure where to really get started. I am the person you’re going to want to call and it’s really easy. So my direct line is going to be (615) 367-0819. That is my office number. Again, (615) 367-0819. You can always just google Dr. Friday, like the day of the week, F-R-I-D-A-Y, Dr. Friday, I should be most likely right there. Visit my website, it’s just Dr. Friday calm. Again, pretty easy to remember. Brand new website. So if you’re one of my returning people, or maybe you’ve been hearing me but you haven’t had a chance you should check out the website. It’s all-new. We actually have the same shows that you can hear again. We have them blogged and we have my one minute tax moment being blogged. So you have some There’s something you want to hear again or refer somebody to something I might have said or whatever you can go right there on the Internet and deal with that.
Dr. Friday 44:08
I do want to make sure that everyone understands any advice or anything we do on the radio is really generic. You need to get tax professional help or financial help. If it comes down to financial planning, you want to make sure that you’re getting the right advice for you as an individual. There’s no way of me tailoring that on the radio. But I do want to make you think, I want you to take anything you can from this show or my future shows whatever. And I want you to ask if you have another tax person if you have another financial whatever. Ask those people these questions. If they’ve got the answers and you know what the answer is most likely should be or if you’re not sure, then get a second opinion. I mean, most financial or especially tax people, you’re going to be able to take the time and it’s worth the extra money to get a second opinion. Am I getting everything I should on my tax return have I taken all my deductions, especially entrepreneurs, my renters, people that have rental properties or, or small businesses or LLC, you want to make sure that you have a good tax person. Because really what it comes down to, there’s just, there’s always going to be a time when the love letters are going to come from the Internal Revenue.
Dr. Friday 45:12
If you’ve got payroll, I’m sure sooner or later there’s going to be a letter about 941 tax deposits, making your 940 state unemployment. There’s always some sort of question and you need somebody that you can contact and say, hey, what am I supposed to do with this? Do I really owe it? What is a business tax receipt? I mean, I don’t know anything about a business tax I thought you filed on my taxes doctor Friday? Well, we don’t we follow the income tax. This is your business tax through the Tennessee Department of Revenue in the county and in this. And the same thing when it comes to you know, other other licenses and things that you may have bonds and if you have liquor tax at your business, these are things that you can have our bookkeeping firm can help you with, but it’s more important for you to understand exactly what it is that you you have to file as a business owner because you don’t want penalties and interest.
Dr. Friday 45:58
So if you need help, all you have to do is pick up the phone (615) 367-0819. (615) 367-0819 check outwww.drfriday.com or you can email me anytime firstname.lastname@example.org. That’s like the day of the week. That’s my first name, email@example.com. It’s a great way for you to get a hold of me and if you have any questions dealing with taxes, or back taxes, I’m an enrolled agent license with the Internal Revenue Service to help represent you in front of the IRS. So again, hope you guys have an awesome Saturday. Call you later.