Welcome to the Dr. Friday Radio Show! In this episode, we have tax expert Dr. Friday take on the latest tax updates, answer the caller’s questions, and talk over the following topics:
- How much is taxed when you inherit money?
- October 15, 2022, Is the Tax Deadline for Individuals for 2021
- What Is Considered a Real Estate Professional for Tax Purposes?
- Is House Flipping Considered a Business?
- Do You Need a Will or Trust?
- Plan In Advance To Avoid Probate
- Are Personal Injury Settlements Taxable in the US?
- Biden Is Hiring 87000 New IRS Agents and What You Need To Know
and much more!
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or financial woes. She’s the how-to girl. It’s the Dr. Friday show. If you have a question for Dr. Friday, call her now. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day, I’m Dr. Friday and the doctor is in the house on this absolutely gorgeous Saturday, I will wish to tell you I can be outside all day, which I would love. But we are still in the midst of the final tax period. So if you haven’t filed your 2021 taxes, obviously you have until the 17th of October, that’s assuming that you filed an extension, if you did not file an extension, well, you’re late, you need to file it now versus never. Because you know there was a and unfortunately, we were really busy because anyone that hadn’t filed 19 and 20. In fact, some of you have gotten some love letters for the years of 19 and 20.
Dr. Friday 1:09
And maybe you accidentally or maybe for some reason you filed a tax return late in one of those two years, the IRS waived late filing fees as long as you had filed as of yesterday for 19 and 20. We tried to get that out as much as possible. And we did get a managed to get a few more returns in on time trying to get people back into that particular situation. So if you have a question, you can join the show at 615-737-9986. And let’s go ahead and hit the phones. We got dawn in my town Spring Hill. Hey, Don, Hi, how are you? I am good. What can I do for you, sweetie?
I am getting watches that say my wife is getting an inheritance. Father and all passed away. And what we want to do is pay off a house. Both of us are on social security. And I have a pension. And I’m just wondering, what’s the tax? Or how does that tax even work?
Dr. Friday 2:12
Well, there’s a couple of different ways. So if she inherited a home, or cash out of the bank, there is no tax unless as long as you sell the property within the 90 days are there about from the time that person passed away. So the basis is as of the date of passing real estate’s kind of coming down for a couple of years there.
Dr. Friday 2:33
I mean, to be honest, people were passing away in the home was selling for more than they actually had it valued at at that time. But so if it’s that if she inherits an IRA, or a pension or 401k, any of those, those will be taxed at the rates of ordinary income that you guys might be at, which obviously is a lower income bracket at this point in life, which is always nice to have. But so that’s you know, normally people either have stocks, you’ll get a step up and basis on a stock. So whatever the stock was worth at the day of passing, that will be your basis.
Dr. Friday 3:08
And if you sell it, there could be a slight gain or loss depending on the situation home same thing basically going to break even the only ones we really worry about are not worried, but we have to manage more our 401 K’s mutual funds, things that may have taxable dollars still in them that we’ll have to pay if we distribute.
Well, I should have said it’s an annuity.
Dr. Friday 3:32
Okay, so the nice thing about annuities is it’s, it’s last out so all the gains get distributed throughout the years normally, so what’s left in there is usually the principal, so depending on the age of the person, but what I would definitely suggest doing if she inherits an annuity, she would want to contact them and ask them there will most likely be taxable funds in that account.
Dr. Friday 3:57
So it won’t be a completely 100% free. But again, with your guyses depending on your pension, obviously, up to 105,085% of the social security is going to be taxed when we start bringing in extra money, but you’ll add your pension and some of that you still may be in the 12% tax bracket, but you might want to spread it and again, since it’s so late in the year, most annuities only allow one draw a year if you keep it in the annuity otherwise, they pretty much just want you to cash them out.
Dr. Friday 4:27
And I know your goal is to pay off the house. So you just don’t want to pay higher taxes just to get the money out to pay off the house. So the ideal to make sure you’re in the lower tax bracket. So first question you want to ask them how much of it is taxable? Usually interest the growth and then that way you can budget that into your personal tax return and kind of set that portion aside because let’s say she gets 200,000. Maybe 50 of it is taxable, the other 150 is not but that’s the kind of thing you’ll run into with that.
Okay. Sounds good.
Dr. Friday 5:03
No problem. Thank you for the call. I appreciate it.
Thank you very much.
Dr. Friday 5:07
No problem. Thanks. All right. And if you want to join the show, again, you can 615-737-9986. I probably should throw out there. Obviously, I’m not a financial planner. So paying off your house, to me is just a matter of how we can save as much as we can on taxes, I am sure, if you have a financial planner, they would love to put their two cents on that conversation, because I’m pretty sure they would say paying off your house is not the smartest thing, especially if your interest rate is two or 3%.
Dr. Friday 5:41
Because as we all know, at this point, we’re most likely going to have you, you should be able to grow your money faster than the mortgage that is already in there. But again, I’m talking taxes, so you guys can figure out what’s going to be best for you. I know so many people come in my office. And I mean, I’ve had people cash out 401 K’s because they’re going down, and they really get the money and pay off their home. I am sure when we all hit a certain age a certain point, it would be nice not to have a mortgage, it’s in many cases, it’s $1,007, or whatever.
Dr. Friday 6:15
It’s a big chunk of fixed income going towards a mortgage and you’re like I’m not earning any money. And I’m not growing any money. Because right now you put money in the bank, you’re not making a lot of money in interest, it does turn around and make it into more of a situation. So it really just comes down to what is going to be best for each individual and how it’s going to work for you and that individual.
Dr. Friday 6:37
But again, just put that caveat out there, you might want to double check with a financial planner, they may have a better plan to give you a better a longer be able to use the money and grow it and reinvest it. But you know, right now with the market, I’m not too sure I’m sure financial planners, you know, all you have to do what my guy always says ride it out, let it ride. And that’s great. But when I look at it, and it’s not growing, it doesn’t make you feel good. Alright, so again, you can join us 615-737-9986.
Dr. Friday 7:14
This week, I was having quite the conversation with some individuals, many of you and myself included, I like to dabble in real estate, I’m far from an expert, I do have some very good friends that I would say, are much more of experts. But when it comes to the taxes, that I always feel like I’m the one they all come to, to find out what we’re going to do, or how’s the best way of doing it. And one of the conversations we got into was tax a real estate professional.
Dr. Friday 7:41
So we have a quite a number of people that are out there and they’re doing their thing. They’re, you know, making, buying real estate, doing all kinds of things that are coming out there. But I want to make sure that you have the right idea because many of my people, including myself, I would have a difficult time being a real estate professional, even though I have a number of Real Estate projects.
Dr. Friday 8:08
Because the one ruling that I find the hardest is you have to be able to put 50% of your time into that endeavor. So if I’m working 12 hours a day doing taxes and, and do radio and different things that are all dealing with my regular profession, as an EA, an enrolled agent, then I have to be able to do the same amount of time or more for that other endeavor, real estate, I can honestly say I don’t put that kind of time into it. And I think if people really track sometimes it feels like you do.
Dr. Friday 8:40
But when you’re really tracking your time. I mean, if you’re already working eight hours a day, yes, there is definitely 16 hours a day that anyone can work, there’s no question you can do eight and eight, and that would be legitimate, then you have to meet the 500. And then the 750 hours, test all the rest of them. But I think the hardest one is being able to say I’m working as many hours as a real estate professional as I am a enrolled agent, a tax person I myself, many people may be able to if you are a real estate, professional, meaning you sell real estate, you do things and then maybe you also do other things in real estate, well, that’s a different conversation, because you’ve already got or you’ve already received most of that because all of your work is in real estate.
Dr. Friday 9:24
I’m talking about the investors like myself that maybe you’re a doctor, maybe you’re a construction guy, and even maybe a construction person, depending on what they do may have some hours that they could apply. That is it really too but when I’m generating my source of income, it’s not doing real estate and that’s what you have to be able to do to really be a real estate professional and making the reasonable situation where is it even a vantage to doing it? So I have rental properties and I don’t get because of my income I make more than 125 or whatever your situation there is limitations to our income if you’re are not a real estate professional, that you can’t take up to $25,000 loss. And many of us don’t get any of it. So there’s no losses on the real estate. But in my world, what I think of as a tax person, okay, so right now I can’t take that loss. And it’s accumulating, right? Every year, I lose money on this piece of real estate.
Dr. Friday 10:19
But then when I sell that property, I get to claim all of those losses. And at my higher income bracket, my real estate, my capital gains, and everything will be lower, because I’m not, I don’t have to take 100% of the profit at this time. Now, I am sure there’s other people out there. And sometimes you may do a 1031. So those losses will be going back into your bases, then you roll that over, so you won’t have to do as much in the recapture and all that because you didn’t really use it in the first place. So there is an advantage. Now, if you’re a flipper, which my brother and I do, that’s different, because we consider that a business.
Dr. Friday 10:56
So that’s a Schedule C, or an LLC, a partnership, a 1065, whatever your personal situation is, but in our case, you know, it’s a partnership, it’s a, it’s a separate business, and we have to pay self employment, ordinary income and all that because it’s a partnership, not an LLC, actually, that we do ours and, and so all of those different decisions go into how you’re going to look at your taxes and what is going to be best for you. Because I have seen people that are flippers that try to do a Schedule E instead of a Schedule C, that’s not the right way to do it. Now, if you’re a renter, meaning you buy a piece of property, and then you turn it into rentals, yes, it is a Schedule II situation.
Dr. Friday 11:40
But if you are a person out there buying, flipping, usually within months of when you’ve purchased it, then it’s short term, ordinary income. And in the case, as far as I’m concerned, if that’s what you’re doing full time, if you are the one actually flipping, it’s a business, it’s a schedule. See, it’s nothing to do with rentals, or passive income. But everyone has to make it on their own switch, you know, you need to get your own tax advisor to make sure you’re doing that correctly. Because I have had a couple of cases that came from this conversation. And we were sitting there talking, and that’s when we got into real estate professional versus, you know, just a passive real estate person and the advantages and the pros and the cons. And again, I mean, everyone has their own outlook, and you need to talk to a tax professional to make sure you’re getting the best advantage now, as well as what’s going to come down in the future. Because unless the right people get into the White House people we are going to end up with some pretty drastic tax changes coming by 2025 Even if they just let things expire. All right, we’re gonna take our first break, you can join the show at 615-737-9986. We’re gonna be right back with the doctor Friday show.
Dr. Friday 13:03
All righty, we are back live here in studio. And if you want to join the show, it’s really easy. Pick up the phone 615-737-9986 taking your calls, talking about my favorite subjects, taxes and things along with that making sure that you are doing what you can when you can. And you can also email Friday at Dr. friday.com. If you’ve got a question and radio is not your expertise to want to have to have a chit chat because I do know it takes a bit of courage to call a radio station, even if you’re not using your real name or if you are because not everybody likes to have that attention. I am obviously not a shy individual.
Dr. Friday 13:48
But my big sister, she probably would not like that she doesn’t like to be the center of attention like I do. I think it has to be doing you know, you’re the oldest sometimes the oldest people. I’m a baby, the family, you know, I am not an All right. I am an enrolled agent though, which is more important about this radio show licensed by the Internal Revenue Service to do taxes and representation. That is what I do. I do taxes and representation and right now people if you have a friend or you know somebody, we they brought additional help in.
Dr. Friday 14:18
We’re getting a lot of people that are ready to do their represent, you know, to get everything straight to get everything resolved. We all heard that you know $40,000,000.80 5000 Real Estate Agent I’m sorry. 85 Reo real estate, IRS collections are going to be at half of the amount 85,000. Half of it’s going to go to collections, the other half supposedly to updating their computer system and different things like that.
Dr. Friday 14:45
They’re up to 85,000 licensed revenue officers that they’re going to be hiring and, you know, once those people, it’s not going to happen overnight. We all know that there is going to be training since especially they’re not requiring any education for you to get the job. And I even saw something I don’t know if it’s true yet, but I saw something about, you know, they’re having troubles with the student loan thing, which I personally did not understand in the first place, most of us had to pay for our loans. But that being said, the part of it, they said, where if you work for a government or nonprofit or certain things like that, they may be able to pay your student loans up to I think it’s 50,000.
Dr. Friday 15:24
So they may be able to attract some young college or people right out of college, to see if they can get them to want to work for them for a number of years to get part of their college education paid for. And I’m not saying that’s not a bad idea, especially if you are wanting to go into accounting or taxation or any of those types of careers in the you know, background and have those, but it’s going to take them a while to get them up. But once those people are up to speed, you’re going to see a lot more audits, obviously, that’s where the money is, and they’re going to be starting to go. So if you are not up to date they’re going to be doing I’ve got two that came in yesterday.
Dr. Friday 16:00
And these referring 17 and 18. They are basically what we refer to as a paper audit, they basically go in, they disallow every single thing, or in these two cases, they did not file taxes in those years anyway. So they basically took the information if the IRS knew claim them as single and zero, no deductions, and now they Oh, well, mon case 92,000, the other one 141,000, these are both self employed. So they had 1090 nines, no deductions, which would be great if you could actually receive a 1099.
Dr. Friday 16:29
Most people have, especially, you know, if you’re in the industry of anything, or even myself or anyone, you would have some expenses to take for you to earn the money, right. So you don’t want the IRS filing your taxes, you don’t want them to be assessing you because now you’ve opened up an audit, which means you’re going to have to go through an audit process which in these cases, we will be trying to recreate those years for these individuals and trying to get in of course, in most cases, that’s not the only year that’s outstanding. So you know, 1718 1920 21, all those will probably be outstanding in both the cases.
Dr. Friday 17:03
And that way, you’re going to have to deal with those years as well. You cannot repeat you cannot make a deal with the IRS unless you are in current good standing. That means you have to have filed all of your taxes, it means if you’re self employed, you need to be making estimated tax payments based on your current income, not just the number you’re throwing out there. Based on what you’re telling the IRS in your offer and compromise that you’re going to have.
Dr. Friday 17:31
You need to make sure that all of your ducks are in a row as far as you know, a lot of times people sit back and sure sometimes a 401k if you’ve already got a loan against it, and you know, you can only borrow 50% against it, we can get some waiver on some of that home equity is a tricky a tricky one, though, because if you have a house with enough equity in it to pull it out, the IRS is not looking favorably it depends on how old the debt is that they may or may not allow that to actually be even taken off, to be honest.
Dr. Friday 18:01
So really depends on how bad your credit is, and what the likeliness of them in the next few years being able to get the property or, you know, obviously they cannot. And let me tell people, you the IRS does not seize property, if it’s your primary home unless there’s fraud. So 99% of most people that are filing and dealing with IRS issues are just dealing with the fact that they owe the IRS nothing to do with fraud. And then they are dealing with the fact that they don’t or they aren’t going to have the ability to borrow money against the tax return or against the house.
Dr. Friday 18:37
So that way, they don’t even have tax returns. Because that’s the case in some cases, first we’ve got prepare the tax returns, then when you try to go to a bank, and it says that you owe 40 or 50,000 to the IRS, they’re not going to look very favorably. And on top of it. In many cases, the IRS has already put a lien against your house. And if you’re working I mean some people obviously they get levies against their paycheck, their bank accounts, all the different things that come along. And so you need to be dealing is all I’m saying.
Dr. Friday 19:08
And if you hire someone like myself and enrolled agents, and the one thing I will say about our firm compared to most is it we’re here we’re face to face, you’re not going to be dealing with somebody that is, you know, you know, here part of the time, but lives most of the time in Florida or you know, when you call some of those numbers, the 800 numbers, you’re gonna be dealing with someone in Texas the whole time.
Dr. Friday 19:29
All we’re gonna give you this, how can I give you the service if you don’t even know who you’re really dealing with. So you need to deal with someone that is face to face. So you actually have a human a name, a person that you can deal with and get it and also have a plan. I have a real issue when people go and the first thing out of their mouth when they call those numbers. They tell me all the time.
Dr. Friday 19:49
Well, I call them and they said you know first thing I was gonna owe $15,000 and Egan $5,500 a month and they don’t even know if they can do anything because they haven’t gotten by Attorney, they haven’t pulled transcripts, they haven’t done it. Are you qualifying for an offer and compromise? Are we filing back tax work? What are we collecting this money for? How are you justifying? Just because the IRS says I owe $150,000 That what timber said, I’m going to charge this first and 15th I mean, I’m sometimes think that’s the case. And in case most cases, people don’t owe all of that money, no, sometimes they do. Sure.
Dr. Friday 20:23
And 15,000 sounds a lot better than paying the IRS 150. But I will tell you, I get many of those people in my office after they’ve went through that because, you know, advertising works, I guess. And so they’re here, I’m everywhere. And they call that number and they, they stop all the the the fun that happens when the IRS decides they’re going to come and do something the love letters don’t stop. But now you’ve got somebody a shield, because we’re the EA or a CPA or an attorney, we all can provide a shield between us in the in the client when the IRS which gives you a little bit of breathing room.
Dr. Friday 20:57
But if you’re not making progress, if you’re not moving forward, if all they’re doing is delaying and moving the ball down the what’s the purpose, I had someone come in just last week, and they paid $7,000 to one of the local advertise on the show, I mean, on the on this radio station, a company and not that the company may or may not have done but they never got anything done. Now, I know I don’t know the whole story. So I’m not going to say anything, because I’ve worked on enough of these cases that sometimes people don’t provide the documents, don’t give us the information.
Dr. Friday 21:30
But when it comes down to it, the first thing you need to remember is if you really want to get the IRS on track with you get them off your back, start dealing with it and mainly start moving forward with your life and not worrying about, you know, every time you get something or do something or god forbid, then you inherit something or you want to sell your primary home and relocate and you really can’t, because the IRS gonna take all of it because that’s what you owe, then you need to deal with the issue before so you’re not waiting and walking in and saying, “Oh, I really want to sell my house, but the IRS is gonna take most of the profit.” That’s it, it’s and therefore, I mean, well, I mean, that may be the best suggestion, maybe just pay them off and make it go away.
Dr. Friday 22:11
But just because there’s a lien against the house doesn’t mean that’s the dollar amount you owe, you could owe more, you could owe less, depending on your situation. So again, if you have or a friend or someone you know, that has not dealt with their IRS situation. This is the time where you know, we’re at the end of the 2021 taxes. Nothing starts till February pretty much in 2022 taxes. And it’s time for you to really face up to what you want to do see if there’s a plan. Maybe the best plan is bankruptcy.
Dr. Friday 22:47
I don’t do bankruptcy myself. But sometimes it is the best way to deal with the IRS and other issues. So you know, I’m not going to tell you every single time it’s going to be what you want to hear how it’s going to happen. But believe it or not, IRS debt can go into bankruptcy. There is a process just like everything else, guys, but it can be done. And it’s a matter of you making sure you get the right advice at the right time.
Dr. Friday 23:13
And it may be that part of it goes into bankruptcy and part of it doesn’t. So you just need to figure out what’s going to be best for you. And I can help you with that. So if you want to have a question you need, you know, you’re not sure which way to go the or you know, I’m not too sure where to start. First thing you want to do is obviously call my office but right now we’re live on radio. So if you’ve got a question or you’re dealing with the IRS, or you just want to share something really fabulous, because you know, it’s a beautiful day outside and I love listening to stories, you can call us at 615-737-9986.
Dr. Friday 23:48
Remember if you if you sell a house or if you inherit something, you need to think about the tax consequence. The last thing you want to do even in divorce, I had a situation recently where the individual inherited part of an IRA and or 401k that turned into an and they thought it was a great idea to go buy a house and cash it out. Now there’s a lien against the house because it would have been better not to have you know, not pay the IRS. So there are ways of doing things right and wrong and we can help you try to work your way through that again if you want to join the show at 615-737-9986 We’ll be right back with the Dr. Friday show.
Dr. Friday 24:33
Righty, we are back here live in studio and you can join this show if you want at 615-737-9986. And let’s bring our caller on from the borough. Hey, sweetheart, what’s your question?
My question is this if you’re involved in what’s the federal government’s taxation rules exactly on it If you’re involved in a personal injury case,
Dr. Friday 25:02
Great question. So what it comes down to is if it’s a personal injury, and it’s medical, not loss of wages, it is not taxable. If it is loss of wages, if they’re replacing your wages, because you either are injured and you no longer can work, the job you have or anything else, that would be a taxable situation, because you’d have to pay tax on any wages earned anyways. So that’s in Tennessee, of course, as you know, or I’m not sure if you’re from here or not. But in this, if you’re in the state of Tennessee, we don’t have a state income tax. So we are never taxed on any of that.
Even on all of that, I’m new to Tennessee.
Dr. Friday 25:41
And all of that, right, there is no taxation for income, earnings even before but we don’t have an income tax. So you would be safe in the state of Tennessee. Now, if the settlement is coming from another state, I mean, meaning if it happened in another state or something like that, there could still be a state income in those states. But for Tennessee, you wouldn’t have to worry about the Fed, if they’re replacing income loss than you might have. And it’s sometimes it’s a split, like, Okay, well, this personal injury is this much, and then loss of income was this much, we’d have to pay tax on that portion. That was loss of income.
Okay, that makes sense. So it all depends on have lawyers set it up?
Dr. Friday 26:20
Exactly. Normally. And that’s what you do. I mean, kind of, we usually have a conversation with the lawyers, because they usually try to get everything in there. Right? They want to make sure. But you know, obviously, depending on how its worded is the way that we have to deal with it for taxation.
Would you be happy to talk to me when I come to your office, and I left a message.
Dr. Friday 26:43
Sorry. But absolutely, yes. Give us a call. And I’ll be more than glad to walk you through any of that if you want. Yes.
I greatly appreciate that.
Dr. Friday 26:54
No problem. Thank you for calling. That’s the Dave. Dr. Friday. Thank you. Thank you. All right. Bye, bye. All right, Kathy, in college Grove right down the block. Hey, Kathy.
Hi. I was calling about our future plans. We currently own a farm and are looking to downsize. Of course, with the property values, escalating the way that they have, we’re going to show quite a bit of profit when we go to sell. So I was wondering if we could take that profit and roll it over into something like maybe purchasing a vacation rental home or something like that.
Dr. Friday 27:44
So it’s the final bit on the tax return? Kathy, is the farm. I mean, is it isn’t actually working farm or is it just a large piece? I mean, has it been on your tax returns? Have you been treated as a farm? Yes. Okay. And, and then is it also your primary home?
Dr. Friday 28:04
So, yeah, you can do a portion of it. And it’s called a 1031. But you can’t do it as what you’re thinking, unfortunately, the only way you could do it would be to sell the farm section of so your home plus five acres or 10, depending on who you’re talking to, can be considered your primary. But if you hearing the word farm, I’m assuming it’s multiple acres, I mean, more than five to 10 acres. Yeah, and if it is, then the other part could be sold as a like kind, but you’d have to buy investment property for investment property. So you could sell the farm, but you’d have to go buy a rental, you couldn’t go and buy a second home for yourself. So an answer to your initial question, or.
Is there a timeframe in that, that you need to buy that other investment property?
Dr. Friday 28:59
There is. Okay, so it’s called a section 1031. And basically, at the time that you’re sold the farm, you have 90 days to get another property listed and then start the closing process. There are attorneys that usually handle the paperwork on it, because the money from the sale would go into an escrow and then they would transfer it to the new property, you would never touch the property, you know the income from it, and then you would be able to preserve your you wouldn’t have to pay gains on that portion of the property.
Dr. Friday 29:34
A few moving parts to that. But bottom line is, let’s say you sell the farm for a million dollars, you have to go spend a million dollars on the investment property, I guess is the easiest way to say it, even if you only purchased it for 250 and 750 of it is capital gains. You don’t have to pay tax on any of that you do have to go back into debt for the million that you sold it for. And you can go up to three properties on 110 31 Uh
Oh, okay. Okay. So yes, it does so. Okay, when we purchased it, it was all one large property. So you’re saying we would have to divide the house out separately with a few acres and sell it. So how does that because I know.
Dr. Friday 30:21
The ideal situation would be is like the house plus five acres hopefully, because you assume that you would have the $500,000 exclusion. So you would have to go back to the original purchase the value of the home you had at that time on the property, and then how much per acre you paid. Right, you could get back into rough idea of what it was per acre there, you would then convert that into the house plus five, and then the rest of it is farmland.
Okay. All right. I got you. Thank you so much.
Dr. Friday 30:53
No problem, girl. Thank you for calling. I appreciate it.
Dr. Friday 30:57
Bye. Okay, so hopefully I didn’t lose, I think she understood it. But it is doable. But in any of those situations, let me again, put my little caveat out there, you want to talk to a 1031 attorney, or closing agent, there’s several of them. If you don’t have one, you can certainly email or text me and I will send you, my attorney that does it. Bob Notestine and he’s awesome. And he can probably answer a little bit more. And then I mean, if you’re into real estate, that’s great.
Dr. Friday 31:25
If not, I would probably hire a real estate person to get an appraisal. So they can give you what the time when you purchased it what everything was, and then the other side, just so you have documents, because you do have to justify the numbers on a 1031 exchange, and you don’t want to be, you know, educated guessing things and then turning around and having to deal with that as well.
Dr. Friday 31:44
So, but it is a doable concept. And it’s certainly something that you can make sure you have what you need and how you’re doing all the information. If you have a question on any of that, again, feel free to give me a call at the office. I’m in there on Monday, you know, five days a week, and you can certainly follow up and take care of that. So if you dealt with that, and then we have again, if you have an email, I had an email come in sorry, I was just reading it. A gentleman was saying that he’s been doing a withdrawal from his IRA and converting it every year to his Roth IRA.
Dr. Friday 32:20
He wanted to know if there was any limitations. If he retired, could he still do that kind of transactions, and he was correct. He also said that they were called Roth conversions. That’s exactly what they are. And you do not have to have any earnings to do a Roth conversion. All you have to do is do the conversion, I believe you can only do one conversion a year. And I do believe if at the age of 72, you have to take your RMD out first and then you can do the conversion. I would definitely again talk to a financial person to make sure that’s the best plan. But it’s also the wonderful thing about Roth guys, there’s no question.
Dr. Friday 32:56
The best thing about a Roth is that when and if well, not when, and if, when you pass away, and someone inherits a Roth, there is no taxes to them. If someone passes away, and they inherit a 401 K or an IRA or a 403. B, they have to pay taxes, and then they change them under this current administration, where if it’s in a trust, there’s five years that you have to take it all out and pay the taxes. And if you are an individual that inherited, it’s through a pod paid on death, then you have 10 years and you have to take all of the money out.
Dr. Friday 33:27
Remember, up until recently, we were able to roll that over a lifetime and then roll it to the next person in some cases, and the taxes and everything grew. And you were able to only when you took the money out, did you have to pay taxes on it. So the IRS is basically saying, Hey, we don’t want to be a part of your future retirement plan. We just want to get our money out once that person has passed away. We want our share. We don’t want to go into generations of rolling 401 K and IRAs through the system. So that’s something you do have to put into your plan.
Dr. Friday 33:59
Make sure again, with all the changes that’s happened in tax law, as well as in state law, if you haven’t updated your will or your trust, or you’ve been thinking about do I need a will or trust because a lot of people are like I don’t have $11 million worth of assets. I don’t need a trust. I have to quibble a little bit on that because the one thing I don’t ever want to happen if and when I want to I say that because I’m going to pass away like anyone else. When I die. It’s going to be it’s have to have somebody go through probate have to hire an attorney pay attorney fees to deal with probate after I’ve already passed away.
Dr. Friday 34:38
I want them to be able to take the trust distribute the funds and go from there and not have to worry about going through legal lawyers and who knows who will come out of the woodwork and say, “Oh, Auntie Friday said I got this” or whatever. You don’t want that you want to be able to have your wishes in the nice thing in a trust is you You know, in a sense, if you want your grandchildren or your children to get an allowance of in essence or a percentage of money and allow the money to keep growing or to be used for certain things, weddings, I’ve got some that have distributed only when there’s a wedding or college, a lot of them people pay off children’s college funds and help pay for those are their first house, you can, you can kind of put that in there and say, “Hey, this is what I want the money I want to stay in trust. So this is needed.”
Dr. Friday 35:30
And then your custodial or executor can then issue funds to do that the money can stay invested and growing. So it’s something to consider, I know you have to put a little bit more money up front. But from what I can see dealing with people that have had to go through probate and everything else, you’re going to spend the money no matter if it’s up front is putting a trust and everything correctly together.
Dr. Friday 35:52
Or if you’re going to put a well together and have to go through probate and if I’m correct, and it may be some attorneys listening, but I had someone tell me that what I think it was kind of Civ, a simple or small probate in Tennessee no longer exists, they only do probate. So those used to be like the fast track was like less than 100,000. It was just a small, you know, probate the there was a little different system, but I think they stopped that.
Dr. Friday 36:15
And now it’s all or nothing, which means probably the fees are higher. If you have a very smallest state, you have to do that. I again, I’m not an attorney. I don’t do probate. But I did hear someone telling me that. So, you know, plan in advance will make it a lot easier when you’re not here to help at all. All right, we’re gonna be taking our final break. If you want to reach me, you can hear at the show 615-737-9986 I know it’s such a beautiful Saturday. Everybody’s out there. 615-737-9986 and we’ll be right back with the Dr. Friday show.
Dr. Friday 37:00
All righty, we are back here live in studio got about eight minutes left on the show. So if you’ve been wanting to ask the question, you’re like, oh, my gosh, I got it. So now’s the time to pick up the phone 615-737-9986. And we’re gonna go right to Chris and see if I can help him with this question. Hey, Chris.
Hey, Dr. Friday, how are you?
Dr. Friday 37:26
I am good. What can I do for you?
So in the last segment, I call it at the end we were doing are discussing probate and different things like that. I was wondering if my estate if I have an estate plan that does avoid probate, correct?
Dr. Friday 37:42
Well, if your estate is going to fall into a trust, it does. Well, yeah,
I want to set up a trust for our family. And that means we will be able to avoid probate. Correct.
Dr. Friday 37:53
Exactly, exactly. And that’s, again, I don’t sell them. It’s nothing to do. But I’ve just been, you know, 24 years doing taxes and all this. And I find that for people that have trust, everything goes through smoothly and people with estates or because an estate is basically just a fancy way of saying someone’s passed away as far as I’m concerned well, and then go into probate, it becomes more of a situation.
Dr. Friday 38:17
Now sometimes it’s probably not cost-efficient. I mean, if you’ve only got you know, don’t own a real estate, you have a bank account, you can do a pod, and I don’t believe you have to go into probate. But if a house is left in, you know, if you pass away and your name is on a house, it does I believe have to go through probate. So yes, I love your idea, Chris, you would be the I mean, that’s the perfect plan.
Dr. Friday 38:41
That’s what I have at least as a plan. So at least the people I leave or whatever, it’s gonna be easier. That’s what I’m hoping we’ve got some real estate we’ve got to house. So yeah, so there you go. And anytime you have real estate, then, of course, you have to hire lawyers, and then they have to go through probate and all that kind of stuff. And it just it’s just a mess. And anytime I have to hire a lawyer, I’m sorry, guys if you’re listening, but I prefer never to have to hire one if I don’t have to.
Alright. Thank you so much, Dr. Friday.
Dr. Friday 39:11
Thanks for calling. I really appreciate it. All right, let’s. Let’s hit Alan and see if I can help. Hey, Alan. Hey, Alan, I’m on the phone. How are you there? What can I do for you, boss?
Oh, I got another question about this. My wife retired, started retired her retirement states this kind of month. But she worked part of that up to that time, or before that time. So we had to do taxes on her retirement money.
Dr. Friday 39:48
Well, most retirement money is taxable. Yes. So if it’s coming out of a 401 K or an IRA.
She don’t really get a pension, she’s just gonna get social security every month.
Dr. Friday 40:03
Okay? Well, if it’s just security, then social security by itself is not taxable. But if she has other income coming in through a pension or anything, then yes, if it’s just Social Security, no, you don’t have to file taxes and taxes or not. It’s not taxable. As far as paying tax.
You have to file the Social Security money along with W forms from the job. Right?
Dr. Friday 40:29
Correct. So, in this particular year, she may have a W two from or working earlier, and then having to and then, you know, go into the thing from there. But after that, then the every year after that, she probably won’t have to worry about it.
Yeah. You think the IRS will ever be no more or you think it’s always gonna be here?
Dr. Friday 40:51
Always going to be here. It’s a form of controlling a, let’s be honest, the IRS has all of us, you know, I mean, so even if we went to a consumption tax, which I’m a big avid person for, or something along those lines is not going to ever happen in our lifetime, at least. Because, you know, Majan, the IRS not having the fear factor to be able to, you know, come in seize lobby or do anything else. I don’t see that happening.
Well they’re always gonna send out those love letters. Right?
Dr. Friday 41:21
You got it. Those love letters will be out there. Even if they had one that someone received one, it was for five cents. Now, if that wasn’t a waste of postage that cost them 50 cents to mail a letter for five, I didn’t think they could do that.
I just change the words IRS to Bob. Okay, well, thanks alot.
Dr. Friday 41:40
Thank you, I appreciate the phone call. All right. So if again, if you have questions, or if you’re trying to figure out what’s the best way to do something, I’ll be more than glad to help you achieve that. If at least if it comes down to tax questions, if you have real estate or other types of questions, I do have many friends and experts that would be more than glad to help make sure we’re doing the right thing on all those.
Dr. Friday 42:04
So if you’re looking to do a trust, or an estate, or any kind of legal documents, I definitely suggest using an attorney, it’s going to save you later in life when you don’t have to worry about you know, having I mean, I know Russ Cook, known him for gosh, 20 plus years. In fact, he handles all my trust and all those kinds of things.
Dr. Friday 42:27
And one of the biggest things, he’s always told stories, different stories, and you know, how people have taken napkins and wrote up their wills and trusts and different, you know, their documents, to have something. And in some ways, it’s like, it’s not an impossibility, you can do this, but the verbiage like I leave all of my money to my family, but then somebody comes in lawyer, whatever.
Dr. Friday 42:50
And they say, “Well, that doesn’t count the house or the cars or the jewelry, because that’s not money.” So the way you write something in you and I may have in a conversation, say something, it’s not the right way that a lawyer would look at it and say, “This is more the way it needs to be, or this is the proper language.” So you have to be very, very precise about how you want something.
Dr. Friday 43:15
But again, you don’t want to be like some famous people. I mean, you know, there’s many famous people who have passed away without a will or trust or anything. I don’t care if you don’t have much, at least put something on paper so that people that, you know, gosh, forbid you to die and you know, people come and they want to know what you want done. You can tell what do I want done, “This is what I wanted done.”
Dr. Friday 43:39
And you know, at least you know, then that your wishes are going to be there as well as what’s happened. So I just want to make sure that everyone has what they need, how they need it. And you’re not just you know, you’re not just kind of floating through life. And I know a lot of times I’ll meet with young people, and they’re like, Well, you know, “I’m too young, I don’t have much.” And unfortunately, I’ve had more than one person that has lost their child or their kids. And if you’re over the age of 21, then they have to go into probate because there was no will or anything there even though there was not much.
Dr. Friday 44:13
But sometimes there’s money in a 401k I had one that had an IRS refund, you can’t get your hands on any of that if you don’t have the executor ship to do it. So again, the show is not about wills, trusts or anything, but it all feeds back to handling our money. And when it comes to money, we talk about taxes. And taxes is what I talk about as an enrolled agent licensed by the Internal Revenue Service to the taxes and representation. That’s what we like to talk about. But sometimes we have to have things in order to make that happen.
Dr. Friday 44:44
And so I just want to make sure that we know what we’re doing. We’ve got everything going the right way and we can actually get things done the way they should be. I don’t want you sitting there and saying, “Oh I wish somebody had told me this. Oh, I wish I knew this.” If you wait too long, I guarantee you the other people will have a plan. If you don’t have a well, the state has a plan for you, if you don’t have your taxes filed, the IRS has a plan for you, it’s just not going to be the plan that I would wish for any of you.
Dr. Friday 45:10
So just make sure if you have issues, you need to go ahead, let’s just make that a priority. Let’s just do it. And that way, then you can start moving forward and stop looking backward or not having a bank account and not doing certain things because you’re afraid the IRS is going to come in and levy your bank account or something. You don’t want that. Alright, so if you want to call me it’s not a difficult thing to do. All you have to do is pick up the phone on Monday morning, you can call 615-367-0819.
Dr. Friday 45:48
If you’re driving and you’re like I can’t write down their phone number. It’s very easy. Just go to the web. drfriday.com. That’s right, drfriday.com. All my information is in there. Our calendar has not yet opened. We will be sending out to all of our existing clients starting this week to go ahead and start setting up for next year’s tax appointments. And we will open up our calendar once that’s been finished. So I know a lot of people go in there and they’re like, “Well, there are no dates available.” That’s because we don’t have the calendar. We had to shut it down so we can open it up again for the tax season. So again, if you’re looking for that no problem also you can email firstname.lastname@example.org. Hope you guys have a wonderful Saturday and I will talk to you next Saturday. Call you later.