Welcome to another episode of the Dr. Friday Radio Show! In this episode, Dr. Friday answers all the caller’s questions concerning taxes, including the following topics:
- Is There A Minimum Distribution From An IRA?
- Charitable Deductions on 2020 Tax Returns
- Why You Need Help With Tax Representation
- Tax Advantages
- Will There Be A Second Stimulus Check?
- What Do I Do If I Didn’t Recieve My Stimulus Check?
- Is Life Insurance Taxable?
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 0:30
Good day, I’m Dr. Friday and the doctor in the house, and this is an awesome Saturday, come on, you have to admit the weather’s perfect. It’s a beautiful day outside. It’s that time of the year where we’re wanting to get ready. I mean, we have a family may be coming into town who knows? Thanksgiving this year, I think is going to be a completely unique situation. I have a friend that’s basically planning this whole huge Skype meeting, that is going to be all of her family. Everyone’s gonna is sitting with their own family or their own meals or whatever. They’re going to be taking it and doing their thing. So I think that’s interesting. They’ll have monitors, I guess on the table, and everyone’s gonna be able to look and watch and eat dinner together in a unique way. So if you’re doing some sort of celebration like that, and you want to kind of share it, I think it’d be really a lot of fun. I know, this year is going to be a lot harder for a lot of people. Maybe if we could show some unique ways that people could still be with their families, maybe not face to face, but still include them in the holidays, Christmas and Thanksgiving are going to be a lot different, I think it’d be a great idea.
Dr. Friday 1:38
So you can always share those on the radio by calling 615-737-9986. All right, we have a deadline today, November 21, by 3 pm Eastern Time, which of course is already passed because eastern time would be only 2 pm here. So hopefully you have already done this. The deadline for filing economic impact payments based on the file. If you’re a non-filer, you don’t have to file 2019. I had two people calling me yesterday, both of them were required to file tax returns, but they thought they could just file this nonfiler and still get their stimulus check. This is not for you. This was for individuals that may be live solely off social security and they never got their stimulus check, then this would have worked for you. Hopefully, you’ve already addressed this situation. We’ve had now about six months of being able to make sure your information has been filed with them to get your $1200 dollars. And a lot of people are preparing just in case another stimulus is on the way. I will tell you at this moment, there is no movement or anything else happening with that situation, but one never knows. So you want to make sure you have the current address again. So that was something that did end as of 3 pm Eastern Time, which would have been 2 pm here, which means we are now five minutes late for that one.
Dr. Friday 3:09
If you did not get your stimulus check, remember that when you file your 2020 tax return, you will be in good shape, because you will be able to get that money on that tax return. So they have now started issuing or showing at least some of the information forms and things that are will be available for the 2020 year. Another big change for many people is the $300 charitable contribution above the standard deduction that will be deductible for individuals. So that will be good as well. Being able to make sure that you have the ability to take every dollar you can ask of your tax return. If you have questions or you need to deal with something you can call 615-737-9986. You can call us and ask your question if you want.
Dr. Friday 4:04
I’m an enrolled agent license with the Internal Revenue Service to do taxes and representation. So it’s really important that if you have an IRS issue and maybe you haven’t filed for a number of years or maybe you haven’t done something for a number of years, then we need to get that addressed so that you can move forward and do what you need to do when you need to do it, and how you need to do it so that way, it isn’t something that we need to deal with or do on a different direction. So most important that we make sure we have that covered and we do what we need to do.
Dr. Friday 4:39
Does anyone else have a puppy? I have a puppy who’s a four and a half month old Great Dane puppy and he is making life interesting in my office at this moment. He is finding every little thing he can and make it so if you’re a puppy lover, you will love this adorable puppy. He’s got a gorgeous face but boy can he be a handful. Anyways so If you have tax issues, haven’t filed taxes, and need help, I’m the person that can do that for you. It’s not that difficult to do. It’s very simple to get you started making sure that we have everything on track and be able to do the things we need to do to make it happen for you. All you need to do i set up an appointment on Drfriday.com. But if you have questions, maybe you’re like, “I haven’t filed taxes in a number of years, and I don’t have my tax records, is that something you can help with?” Absolutely. But if you have love letters, and you haven’t dealt with those love letters, its very important that we actually start looking at those letters, and make sure that we have the information that we need to have with that because if we don’t, then you’re just accumulating more and more and the IRS will at some point file tax returns on your behalf. Trust me is never on your true behalf. But if you owe money, they’re going to say, “Hey, this person has 1099 income, or they’ve sold a piece of property, or they’ve sold quite a bit of stock.” And now it’s a situation where you now owe the IRS it maybe you don’t really owe them. I have had that situation people have had things show and do where it becomes more of an issue. So if you’re not sure where to get started, or you need help with that situation, all you have to do is give us a call at 615-737-9986. All right, let’s go ahead and hit Scott in Portland. What can I help you with Scott?
Hi. My wife recently passed away, and I have some life insurance come my way and a retirement plan? Do I have to pay taxes on any of that stuff?
Dr. Friday 6:39
So life insurance is usually completely tax-free. Now retirement plans, yes, they would be. I’m assuming it’s deferred like a 401k or a regular IRA. In those cases, they have changed some of the laws, but you would have a taxable situation. So you don’t want to draw all that money out at one time. You might want to sit down with a tax person or something and figure out what’s the least amount of taxes you can pay in that situation.
Who do I need to talk to?
Dr. Friday 7:14
That’s all right. Yeah, if you have someone that does your taxes, they can or you can certainly call my office, we’d be more than glad to help you. Because there are ways that you might not want to take it in the same year that you’ve gotten some other distributions, your income may be higher, you want to pay as little amount of taxes. You do have to take out all of the this is would be a spousal, maybe a little different, but you could roll it over into retirement for yourself and just keep it growing. But you may need it for bills.
My wife usually does the taxes.
Dr. Friday 7:46
Well, that’s not a problem, Scott. Yeah, give me a call or just check me out on the web drfriday.com. You can set up a free consult, we can go through make sure we get everything filed for you and try to help you out. We are in the Brentwood area. So we may have to do that by Skype, or have you come into our office. I know you’re in Portland, which is a little further away than than right next door. But if you need help, we’ll certainly be there for you.
Okay, thank you.
Dr. Friday 8:15
No problem. I appreciate it very much. All right, we are moving right along here. Again, if you have tax situations, and you’re not sure where to start, that’s what we want to be. That’s what this radio show for over 10 years has been here for is to really try to give people the opportunity to know where to start, what do you need to do. When you’re in the middle of dealing with other tax or life issues, the last thing you want to deal with is the ability to have to go for that other stuff. So you definitely want to make sure that you are dealing with the issues and we can help with the tax side of it. We can’t help with a lot of other things, but we can help with the tax side. So if you need help with that, certainly give us a call. If you have questions here in the studio right now. 615-737-9986. We’ll take Michael before the break. Hey, Michael.
Hey, how you doing? I have a house and it was co-ownership. I’ve been on the deed, my mom owned it. She passed three years ago and I’ve been on a date for about 18 years. What’s the law now on capital gains when you sell a house that’s been own for you know. Well, I’ve owned it my part for about 10 years but she owned it for 50 years, you know?
Dr. Friday 9:36
Right. So she probably quick claimed you onto the deed. Is that what you’re thinking?
Right. Its co-ownership.
Dr. Friday 9:45
She just added you, you didn’t actually buy half of the house or anything. But she just wanted to make sure your name was on in case something happened. The downside to that is when someone adds you to the deed, they eliminate the wonderful tax situation we have.
So if I sold it, what would be the situation?
Dr. Friday 10:09
You basically inherited the house 50% of it. When mom passed away three years ago, let’s use an example and say the house was worth $200,000 at that time. You would get a 50% step-up basis on her share that you inherited. So that would be, $100,000. If the house was originally worth $50,000. So 50% of that was $25,000. So your basis would be like 125, even if you sell the home for 200, you’d only have 125 as a basis, you’d have to pay tax on 75.
Okay. The house was originally bought for $8500.
Dr. Friday 10:50
So half of that is, what you would have is when she puts you on, she gave you half of her original purchase price. So whatever the half of that is, which is roughly $4500. Then whatever it was worth when mom passed away, you would take half of that, because that’s what you inherited was her half at that time, and add that to the $4500. And that would give you what your basis is. Then whatever you sell it for the difference would be your capital gains. It would be considered long term capital gains.
So in that scenario, what would you be paying in taxes when?
Dr. Friday 11:31
So what do you think the house is gonna sell for?
Around here, they’re at least going for $250,000.
Dr. Friday 11:41
So let’s use 250,000 and let’s say when mom passed away, it was worth 200,000. So your basis is gonna be $104,500. Sorry, took me a second there to get my math going. I’m going to use a calculator. So your tax on that would be about 1455. You’d have closing costs, fees, things like that. What’s your normal income before something like this?
Dr. Friday 12:14
Okay, but you do file taxes, or you don’t have to?
I don’t have to now.
Dr. Friday 12:19
Okay, so you do have social security, or VA, or both?
Social security, and two small retirements.
Dr. Friday 12:28
Alright, so the problem will be the year that you sell this house, if this is the scenario, you make 145, and you’re single, 85% of your Social Security is going to be taxed. Plus the hundred and 45,000 that you make in capital gains. So now you’re at 15%, tax bracket there abouts, you probably are going to hit a little bit possibly of 20. I would definitely say before you decide to sell it. I’m using very rough numbers, Michael. You’re getting close to that 150 marks. But you’d want to have somebody sit down and calculate the total effective rate. I’m going to make a wild guess that you’re going to pay a minimum of 15% on not only your Social Security benefits, but all the capital gains. Part of it’s going to go up to 22 or even 24% if you’re single. So, roughly, I would say about $30,000 in tax.
Okay. All right. There’s no other way around that in my situation?
Dr. Friday 13:32
Not really, I mean, there’s no other way of increasing your basis. So the capital gains is all it is. So yeah, sorry.
Oh, well, nothing’s free.
Dr. Friday 13:45
I like your attitude. Now, because you can’t even do 1031. I would sit down if you need help, Michael, we could do some actual true crunching and get you a better number of what wants you to overpay or estimate overload. I’d rather prepare on the radio saying you’re going to owe around 30,000 based on our rough estimate, okay?
Okay, I appreciate it. All right. Thank you.
Dr. Friday 14:09
Thanks, man. All right. Why don’t we take a quick break and we come back we can hit Dan who’s in Franklin. If you want to join the show, you can at 615-737-9986.
Dr. Friday 14:30
All right, we are back here live in-studio and if you want to join us, you can add 615-737-9986 and we’re gonna go right to the phone lines. We’ve got Dan that’s held through the break and we appreciate it. Hey, Dan.
Hey, how are you, Dr. Friday?
Dr. Friday 14:51
I am awesome. What can I do for you?
Yeah, I’ve never heard this question. So I’m calling in about this. My wife is on private disability. I’m worried I’m asking about the taxability. With her private disability, she paid extra on the premium. So that wouldn’t be taxable if she ever got the disability so far she gets from private is not taxable. So she gets [inaudible] they don’t pay tax on it. But the public parks that we get, I guess SSI, we get public disability as well and that part is taxable.
Dr. Friday 15:27
Up to 85%.
I think. I don’t know if it’s really supposed to be.
Dr. Friday 15:38
Yeah, it is. So the amount that she paid in on she brought insurance like Aflac or any kind of disability you paid for it with after-tax dollars. So when she became disabled, it then becomes tax-free money, that’s 100% correct. Now, if you if she is also on SSI, that is taxable because even though we pay with it with after-tax dollars, it’s just the way the tax law works. Theoretically, it would only be taxable if she’s living with you who’s making more money, or if she was filing on her own, it would not be taxable either. Social security in itself is never taxable, only taxable when there is earnings. So she becomes taxable because she is married to you and you’re working probably a full-time job or living off a pension or whatever.
Okay, well. Thank you very much.
Dr. Friday 16:32
No problem. That’s a great question, though. Thanks, Dan. Appreciate it. Alrighty, let’s see. Let’s go to Frank.
Yeah, I have two questions. My first question is, I filed my 2018 taxes, but then I realized, because I’ve tried to buy a house, they asked me for my 2018 tax. When I went to get my 2018, and they mailed me I realized that they added my Uber income that I made in 2018. So for 2018. So now the problem is, I have to file a 2018 tax. So i’m trying to figure out what I can do.
Dr. Friday 17:28
Right, you need to do an amended tax return because the IRS will also get some sort of statement most likely from Uber. That way, you don’t want to have an understatement, correct? Also, because you’re buying a house, your income is not reported as much as what you had thought it should. So the easiest way and it used to be you could take that form downtown Nashville if you live in the Nashville area to Broadway and they would actually stamp it for you and accept it. Now, you’re going to have to certify it to the IRS and get it done as quickly as possible. I don’t know what will happen to your loan, they’re going to have to put it on hold, which is probably not going to be.
The guy said he can’t do it. Because of my income. I mean, they were building the house, and then they had it all completed and they just called me two days ago and told me that my Uber tax was not on my 2018 taxes, because I filed them in my 2019 but not my 2018. So what I mean, can I put the loan?
Dr. Friday 18:33
Right. Yeah, so there’s not a whole bunch. Unfortunately, at this point, you need to have the person that prepared your taxes or call our office. And we can set up an appointment for you to come in and we can amend those tax returns. You know, getting an amended return the show up in your transcripts is going to take months to happen. I don’t know how underwriting is going to do it. But it’s going to take a while. So to do it the right way, you need to get that filed as soon as possible.
Okay, so I’ll just set up an appointment with your office and just come down and do it. I live in Nashville.
Dr. Friday 19:08
Right. We can do that. Yes, we just need a copy of the original 2018 tax return and then a print out of whatever you did for Uber. Yes, sir.
Okay, so what is your what’s your number to your office and you’re also the address.
Dr. Friday 19:21
You can do one of two things. You can go to drfriday.com and pick up an appointment online or you can call my direct office which is 615-367-0819.
Okay, all right. Thank you.
Dr. Friday 19:35
Yes, I appreciate it. That happens, unfortunately, more often. It’s always kind of funny. When kids are going to college or you’re buying a house or refinancing a house. People finally have a tendency to sort of look at their taxes. I am going to always suggest, I know you sign them. I know. I mean we have people that sign them every single day I think. I have three signing returns as I’m sitting here, right now people sending over their 8879 authorizations to us. I know you’re looking at them. But you know, sometimes it’s sort of seems like gibberish. I mean, it’s not your expertise any more than me trying to repair a car trying to fix someone’s teeth, that would not be good at any of those things. But if you have questions, make sure whoever’s preparing your taxes, you ask those questions. There are no stupid questions when it comes to preparing your taxes. And if the person can’t answer those questions to what you need to know, to make it happen for you. So you’re like, “Okay, yes, I understand that.”
Dr. Friday 19:51
I just took a meeting yesterday, and the person had a good tax person, there was nothing wrong. But they didn’t explain a situation that came up that normally doesn’t come up and she had a loss carry forward situation with some rental income. I don’t think she had a good explanation why it wasn’t showing up properly in her tax returns. And that was one of the reasons she was taking a meeting with me. She needed to know why her tax returns weren’t what she thought they should be, because she had a lot larger loss on her rentals than what she had. She also found that she may not have turned in all the expenses to her accountant at the time. So those are very important situations where we have happening. All right, why don’t we go ahead and hit George? Let’s get George on there. Hey, George,
Hey Dr. Friday, how you doing?
Dr. Friday 21:28
I am awesome. What’s happening?
Just a quick question. Is there a minimum distribution from an IRA this year?
Dr. Friday 21:38
No. There are no RMDs required this year. For 2020, there was no RMDs required, I would say, if you have a charitable, qualified charitable deduction, then you want to take your RMDs anyways because it’s a great way to keep reducing your income and not paying tax. It wasn’t required as far as you have to take it. I believe you want to talk to your financial planner, but I think you can put it back in.
So well, I never took it out.
Dr. Friday 22:07
Okay, great in your wonderful shape.
I just wanted to make sure it wasn’t taxable. I mean, you have to pay a 50% penalty on it, if you do if you don’t take it out, correct?
Dr. Friday 22:18
That’s correct. No, that’s and that’s penalty still exists, they just waived it in the year of 2020 because of COVID. Right. So normally, if you do not take your RMDs, there’s a 50% penalty against whatever you were supposed to take out. That’s probably one of the biggest penalties the IRS actually has out there. So yes, you definitely want to always stay on top of that. So great question.
Right. Very good. Thank you so much, Dr. Friday.
Dr. Friday 22:41
Thank you appreciate you very much. You’re welcome. For some of those that may not know exactly what George was talking about. We’re talking about the requirement of distributions. Again, there have been some changes. But if you are 70 and a half, you are having to take requirements on distributions until this year. Now they to change that age to 72. But if you are a person that was already taking the requirement of distributions, and you weren’t doing the qualified charitable deduction, and you don’t need the money, it’s a mandate, right? You have to take your qualified require minimum distributions every year, you didn’t have to take it in 2020. Now, some people may, you may want to take it if you’re at the lower tax brackets to keep that going. But if you’re at a higher tax bracket, it’s kind of a mandate, it may be a good year that you clean up some corporate, some capital gains, or do something else that may actually be working in your favor, versus having to take that money out. I have some clients that unfortunately, it can, it can be a big difference. They have 30-40,000, easily coming out just when required minimum distributions. That money could be turned in or converted into stock sales or something that they might want to watch this year that they normally would end up in a higher tax bracket with.
Dr. Friday 22:46
So, just a little wizardry, in your taxes. If you have it. always suggest talk, checking or working the numbers before you make any big decisions and definitely talk to your financial planner. Alright, why don’t we take the second break here. When you come back, we’re going to talk more to you. If you want to join the show you can at 615-737-9986 and we’re going to be right back with the Dr. Friday show.
Dr. Friday 24:00
We are back here in the studio and I love it when my phone lines lit up. It makes my life’s more enjoyable. So I appreciate all of you guys calling. We’re going to head towards the phone lines because Virginia has been holding for quite a while.
Hi Dr. Friday. Can you hear me?
Dr. Friday 24:53
Yes ma’am. I can.
Okay, I have two quick questions. The first one is that I sent my taxes in on July the 12th. I was due a refund, but I’ve not gotten one yet. So I don’t know why I haven’t gotten the refund. That’s my first question. Would you know anything about that? Are they slow?
Dr. Friday 25:17
Well, that is this quite a while to be honest, Virginia? Have you went to the IRS website and checked on the little boxes says, “Where’s My Refund” and you’re able to just put in your name, social security number, your status, like if you’re married single, and then the dollar amount of the refund? They will tell you if it’s been sent, if your accounts on hold, or if they’ve never received it.
I did try that. I was a little bit reluctant to put my social security number on the web like that. So I backed out of that. And okay, so you just that’s the only way to find out right now, I guess.
Dr. Friday 25:52
Well, you either have that or a phone call. You can call the 1-800-829-1040 number, it’s going to be a little busy. So be prepare, get a cup of tea.
I tried that. They sent me back to the website. So thank you, and I’ll check. But I have a second question. If I sell a rental house, the first of the year, and then later in the year, they raise capital gains, would that be retroactive to January of 2021? If if they passed it, say in April or May?
Dr. Friday 26:30
Yeah, most likely, if they pass any tax law within the year it’s passed. It’s usually retroactive. We’ve had them pass them in December and make them retroactive to January. So yes, that would most likely be something we have to keep our eye on.
Okay, well, thank you very much, Dr. Friday. I appreciate it.
Dr. Friday 26:51
Thank you for calling. I appreciate you. Alright, let’s get Steve in Gallatin, please.
Hello, how are you?
Dr. Friday 26:59
I am awesome. What’s happening?
Well, I own a condominium that I’m going to put up for sale next week. My realtor is concerned about the capital gains if it will affect me a lot. He thinks that I can sell the house for $25,000 more than I paid for it. I do owe an amount on the house.
Dr. Friday 27:22
So, first question, Is this your primary home or rental property?
Is my primary home.
Dr. Friday 27:29
Okay. I’ll use the generic numbers, Stephen, but the real ones in your own head. So let’s say you originally paid 200,000 for this house. And if you sell it for more than 450, then there’ll be taxes. But if you sell it for less or 250, above whatever you paid for it, then there’s no taxes due. So in your scenario. Is there a 250 more than what you paid for it?
Oh, no, ma’am. It’ll just that you won’t be over 25,000 more than what I paid for.
Dr. Friday 28:00
There’s zero tax. On your primary home have you lived in there for two out of five years?
No, I not lived here quite a year.
Dr. Friday 28:08
Okay. Sorry. I didn’t quite get in there. And now I’m all disappointed for you, Steve. Okay. So have you lived over a year?
I’ve lived here. I lived here a year last April. So, I’m over a year and a half.
Dr. Friday 28:27
So it will be a long term. Now, it’s gonna be long term, and you’re gonna make you’re gonna gain is your gain right now 25,000?
I owe like, 32,000 on the house, and I will sell it. He thinks I can sell it for 20-25,000 more than I, then I pay. So
Dr. Friday 28:49
how much did you originally pay?
I pay 244,000.
Dr. Friday 28:52
Okay, so what do you think you’re gonna sell for?
Between 265 and 269. And I owe 32 on it.
Dr. Friday 29:02
The amount you owe doesn’t come into the tax situation. You purchased it for 244,00. And if you’re selling it for 265,000 for simple math, we’ve got $21,000 there will be some closing costs fees. Again, you can adjust the waters to whatever you have. But if you actually have a situation where let’s say you you walk away with $25,000 more in your pocket, you’re looking at long term capital gains. Now the last question of this would be it how much is your ordinary income? And are you married or single,
I’m single, I’m 70 years old and I’m single. I only make social security. And other than that, I would say maybe 30, maybe 30,000 above my Social Security a year. So it would be around 50,000.
Dr. Friday 30:02
Yeah, you can stay in the 12% tax bracket or 15. And there are zero percent capital gains. But unfortunately, it looks like you should calculate a worse scenario, calculate 15% on what you’re going to make above this house. Because, I don’t know if any of the income you make can be deferred, depending on the situation. If it’s required minimum distributions like we were talking about if it can be deferred. If you can bring everything down to below 50,000, which doesn’t sound like it’s possible in reality, then you’d have zero capital gains, but I think you should just look at 15% against the 20 or 25,000, that you’ll put in your pocket, that will be safe. And then when you do your taxes, you’ll know exactly the dollar amount, but it’ll be close.
So the cap there is 50,000?
Dr. Friday 30:53
Okay. Well, I probably did this year, because I have a music school, but because of the COVID, I wasn’t able to have it.
Dr. Friday 31:03
Okay, well, that’d be good.
I may fall into that.
Dr. Friday 31:07
Well, that’d be great being your Social Security, only 85% at max would be taxed. So not 100%. Within calculation, we may been thinking 100.
Well, above the Social Security I made. Let’s see 24,000.
Dr. Friday 31:26
How much is your Social Security roughly?
Around 1500 a month.
Dr. Friday 31:36
That’s roughly $20,000. So that’s 44. And you’re only going to have like 16 of it taxable. So maybe 40, it’ll still be really tight, I think to see if you actually would make it in that ballpark. But I would just set that 15% aside when the check comes in, and then do your taxes. And then you can send it. At this point, you don’t even have to worry about an estimate, as long as you get them filed on time.
You’ve been very helpful, I appreciate it.
Dr. Friday 32:02
No problem. Thank you, appreciate your calling. I love that kind of stuff. Guys, it’s a little hard on the radio, because I mean, there’s certain information I don’t want people to give. I don’t want to be specific about certain things, because well, we need to get all the details, but you need to do that. So when Steve called and that was awesome, because he at least has some tools. Hopefully, I gave him some tools to work with, to figure out how much he is going to need and not need. If he’s able to do something. And, you know, again, since his incomes kind of low, he might not always have to pay tax on his social security. And this is kind of probably make more of the Social Security taxable, so I’m kind of figuring the worst scenario for him. But you really do need somebody that’s going to step up or help. Or if you do your own, making sure that you have the tax software to help you do what you need to do, right to make sure that you have everything you have and get back to doing what you need to do. Because we don’t want to pay any more than we have to we want to pay your fair share. But I am saying that you know, the game is or the whole tax law is about understanding what taxes are, and what’s taxable and what is not, and paying what we’re supposed to pay, but not paying $1 more than we need to.
Dr. Friday 33:14
So if you need help with doing that, again, you can email phone call, or you can go right to my website, and start making a tax appointments, whichever is going to be best for you. My website is drfriday.com. And my email is firstname.lastname@example.org. And yes, Friday is actually my first name. So it just gives you something to work with. And if you need help, I mean, that’s what the initial consultations are always free. That way, we’re able to make sure we’re able to help you I’m not like one of those businesses that you call up and they say, “Hey, you know what that’s gonna cost about $5500 start paying me $500 a month a down payment of 1000. And we’ll get you in there and we’ll take care of you.” I don’t know if I can take care of you. I don’t know if I can help you do what you need to be done. And to do that I need to have conversations and possibly get power of attorney and do the things I need to do to give you the best service that I’m able to do. No one’s perfect, but I do my very best to help my clients. So if you need help doing that, or if you haven’t filed taxes, or if you’ve got a friend that does. At this point, one nice thing that may have come out of COVID is maybe some people are not at their best right now.
Dr. Friday 34:24
Maybe it’s a great time to make a deal with the IRS because if you know you get back on your feet, sometimes I know a lot of people wait till they get back on their feet. But dealing with the IRS is not about dealing when you’re at the best. It’s really when you’re at your worst. So there are ways of doing that. Making sure sometimes life is just difficult and making it work for you is all we can do but making sure that we have what we need to do and take care of what we have to take care of. That’s our job to you know to do that with a power of attorney we can usually represent you and do everything that we can to to make the best for you. So again, if you need help, you can call our offices, you can email and you can go online and set up a tax-free appointment, initial free appointment. Wo we can make sure we’re all on the same page and see if we can actually help you do what you need to be done. When you need to do it. If you’ve got questions, there’s still time to join the show at 615-737-9986.
Dr. Friday 35:22
We do want to make sure again, I tell people about the charitable deduction. So up to $300 a year, I need to make sure some people have kind of backed off on doing some of the charities, I also want to reiterate that giving money to ordinary people, or giving money to a fundraiser that’s for a person, none of those are going to be tax-deductible. Making sure that the charity is a true tax deduction, you can go to irs.gov and input in the charitable tracking and find out if they are but no single individual or small groups unless they are true charity 501 C3, that’s the only ones you can write off your tax deduction. And that also includes your children, I’ve had more than one person enlist their children as a charitable deduction. I know sometimes it’s just out of humor. but sometimes they really think because I bailed them out that maybe is considered a charity. Not going to happen. Okay, guys. So we’re going to take our last break for the show, if you want to join the show, you can at 615-737-99866. And if you’re listening and you want to share maybe some of your holiday, what you’re going to do for Thanksgiving under the COVID concept, I would appreciate any phone calls about that. I think a lot of people are thinking they have to be alone. And like I said, I’ve got a girlfriend that’s going to have a dinner table with monitors, so she can actually enjoy the holidays with her family, but still be safe. So if you’ve got a story like that, or suggestions on how people might be able to do it, I think it’d be a great thing to put out there. You can join the show 615-737-9986 We’ll be right back.
Dr. Friday 37:10
We are back in studio in the last part of the show. So if you’ve been listening, and you’ve got a question concerning taxes, or maybe you’ve got a friend that has some tax issues, now it would be the time 615-737-9986. Why don’t we go right to Samuel in Gallatin?
Hello. I am a wood worker. I have been making a lot of gifts, and in the process, people are starting to pay me for them. So do I just include that as miscellaneous income on my taxes? And then when would I go from being a hobby to have to record it as business?
Dr. Friday 38:03
So if you make a profit of $500 or more, the IRS actually considers that a business. So hobbies are hard, because the problem is you can’t really write off the expenses. There’s no real way to do that. So preferably, as soon as you’re actually generating actual profit net income, I’m saying and even if you’re only doing it part-time, my suggestion is you look at it and seeing is it truly a business? Is it something you’re trying to generate future income from? Or is it something that you just have to be really good at woodworking, a few friends use your service or whatever, and they’re just paying you for your time? You don’t really have a lot. As I said, they don’t really give you a place in the system for hobbies to write off that cost. So without writing out the costs, you’re gonna like you made a lot more money than what you did.
So if I keep track of the cost, that would basically be my materials. And I could add an amount of labor if I had that cost to kind of get an idea of what a business cost might be?
Dr. Friday 39:13
Correct. I mean, basically, in the cost section you would have, I don’t know where you did the woodworking but if you have a garage in your own place, you have obviously tools and equipment that would be being used at some point to consider as well as your materials and supplies would be a very generic list, but that would be the essentials, just to get you basically on the table, right? Then eventually you’ll have home office usage or cell phone usage or things like that if you’re using those to sell your product or to do something. But yes, I would at least look at your supplies and your tools. Because I know part of it is your gift to be able to do what you do, but part of it does require some sort of equipment.
So if I get cash flow, and I deduct this stuff, and I show a loss, how many years can I show a loss before the IRS is upset with me?
Dr. Friday 40:05
Ideally, three out of five. Usually, it takes a year or two. I mean, they do want somebody to obviously eventually be able to generate income. Just not just continuously use a hobby to take lots tax losses. But, if you’re actually trying to make an income, you will most likely make a profit at some point.
So what if I basically did pretty good and only made about $1,000 a year or something?
Dr. Friday 40:41
No, that’s perfect. That’s profit.
So if I just a little bit about breakeven, they’re not gonna be on my case.
Dr. Friday 40:49
Not really, no, they’re looking at all the people that have been using it for 10 years. I’m taking losses and not gains.
Okay. Well, you’ve been very, very helpful. Do I follow for LLC, would that be the best thing to do or just keep it simple?
Dr. Friday 41:07
Yeah, I would keep it simple right now just stay as a sole proprietor at the moment. And then when you get ready to really consider possibly going into an entity, I would probably go into a single-member LLC, that would require you not to make any major changes in your basic accounting.
Okay. And I would just set up a separate checking account for that.
Dr. Friday 41:26
Right. You can do that as a sole proprietor. You can use it under your social security number, or you can get yourself a federal ID number as a sole proprietor and just open up a business bank account so that way all the income and expenses, you can kind of track the one account instead of using your personal. It’s not essential, but it is at least some direction to go.
Okay, and do I need to get a state license or a county license?
Dr. Friday 41:51
You would need to get a city and county license as you start generating a real business? Yes.
Okay, then I would pay taxes to them?
Dr. Friday 42:00
It’s 40-60 bucks.
Do I make a follow-up tax report?
Dr. Friday 42:09
You’re gonna do a Schedule C, which is where you’re going to take your income and expenses off.
Okay. I understand. I appreciate your help. Thank you. Thank you.
Dr. Friday 42:20
Good luck, buddy. Thanks. All right. Let’s see if we can go ahead and hit Al before the end of the show. Hey, Al.
Good afternoon. I just got the last few minutes of your show. When you were talking about charitable contributions. They are right off, of course. And it’s 70 and a half your minimum required distribution, you may have covered this. I don’t know.
Dr. Friday 42:46
Go right ahead. Go ahead.
Well, minimum required distribution, I typically use mine, before the year is over sometime during the year to make charitable contributions to save some tax.
Dr. Friday 43:00
I am a full fan of that, yes,
This year, I would understand because the COVID that minimum required distribution doesn’t fit this year. So I’m holding off to January to make my charitable gifts for next year. I do not know if you covered that or not. But that’s a good way to save some taxes, or otherwise, you’d be paying tax on that.
Dr. Friday 43:26
Right. So the qualified charitable deduction, I did cover a little and I suggested if you use 100%, or at least up to whatever you usually give to charity, to go ahead and continue that because as you know, that’s a zero tax situation and it’s a way of reducing your IRA and not have to pay any tax on it because you automatically giving it to the charity. This year, there is a $300 additional on the regular 1040 charitable deduction. I don’t know if it’s only going to be in the year of 2020. But right now, they have added that above the standard deduction. So it’s another way of getting a few dollars to write off if you are giving to charity.
Okay, okay. Have you heard anything about the required distribution being put off this year?
Dr. Friday 44:14
Yes. In 20, in fact, 2020 part of the Cares Act, they did extend it. You’re not required to take a required minimum distribution. You are correct in that one.
But I can still claim the 300 though, right?
Dr. Friday 44:28
Yes, you can still claim the 300 as long as you gave it to a charity. Yes, sir.
Yes, ma’am. Okay, I didn’t know if you’d covered that.
Dr. Friday 44:36
I appreciate it, you never know.
Well, I’m in my 70s. And they’re hitting me pretty hard at this time with it. I thought it might be helpful to some of the listeners. That’s the whole reason I called appreciate your help. Have a good day.
Dr. Friday 44:51
Thank you so much.
Thank you. Yes, ma’am. You’re welcome.
Dr. Friday 44:55
To be honest, that is what I love about my listeners. You can’t really call and ask. wrong question. He got it on the right subject, we are talking about charitable contributions RMDs. And again, talking to your financial planner may be a good plan to make sure you’re not losing free money that could be taken out in 2020, or at a lower tax bracket that might end up being higher. But with charitable contributions coming from your RMDs It’s a great plan. I do actually totally love that concept. Thank you for taking the time to call the show.
Dr. Friday 45:27
Alright, guys, we are winding down. We’re getting close to the end of my show here. So let’s just make sure you have a way of contacting me, the easiest way would be to call the phone number of 615-367-0819. Sometimes just calling a radio is not for everybody. But you have a question and the easiest thing to do on that is to email email@example.com. If you’d like to set up an appointment, or you can email me as well through that, all you have to do is go to my website, which is drfriday.com. You can click on the appointment, you can find out more about who I am or what I am. And that way if you have tax issues or you have someone that maybe you know has some tax issues, then you want to be able to go forward with that and make sure that you’re dealing with everything you need to do to get the IRS something back. You don’t want to deal with them anymore. You want to be able to make sure that you’re getting the best deal possible to do it. So I hope you guys have a wonderful Saturday and you enjoy the weekend.