Welcome to the Dr. Friday radio show! In this episode, Dr. Friday gives all the new tax updates and deadlines, including the following topics:
- October 15, 2020 Tax Deadline
- Pay Into Your SEP
- New Grant Program – Tennesee Department of Revenue
- Apply For PPP Loan Forgiveness
- All About The Cares Act
- Tax Advantages To Giving To Charity
- Need Help Getting Caught Up On Taxes?
- Quarterly Payments For Entrepreneurs
- Why You Need Help With Tax Representation
and other caller’s questions!
Dr. Friday 0:01
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 is in the house. We are here talking to you live. So if you’ve got questions, all you have to do is pick up the phone at 615-737-9986. We are taking your calls. Talking about taxes. I’m an enrolled agent licensed with the Internal Revenue Service to do taxes and representation which is pretty much what I do. So that means if you’ve got questions, maybe you’re getting ready to finish up those tax returns. I know I’m working most of the weekend, we have an October 15 deadline for filing your taxes assuming that you filed an extension. If you did not file an extension, then you are late. But if you did, then you have until 10/15/20 to file the actual paperwork. Now, remember, that does not and has not extended the amount due. So you could or will be getting hit with a penalty if you owe additional funds. If you’ve waited until the last minute. You also need to pay into your SEP, its one of the reasons many people delay is because they have extra time to pay into their self-employed retirement programs. So remember that deposit has to be done on or before 10/15.
Dr. Friday 1:43
So what’s new in the world of taxes and things? One of the newest things, there was a new program introduced by the Tennessee Department of Revenue the state of Tennessee has a new grant program available to reimburse small business and nonprofit organizations up to $30,000 in costs related to COVID. As recipients of the funds under the Tennessee business Relief Program, you can apply for this under tncareact.tn.gov/serg. If you need more information, I can send you a link to that. All applications have to be in before December 29, 2020. This is supposed to help cover costs to create social distancing measures, purchasing personal protective equipment for employees or customers contactless equipment, payroll expenses, and mortgage interest. So they are trying to help take the money that was given to them from the federal government during all of the cares act and moving that back through to the small business owner. So if you are still barely making ends meet, there is a criterion on this one, they are matching May through August of 2019 to May and August of 2020 to see if you have been affected by the COVID. If you have not been affected if you’re still making money still profiting doesn’t mean you can’t have a profit just means you’re not making the same amount of profits, then you may be able to apply. My suggestion is everybody should apply. If it doesn’t work well then fine. Most small businesses are having to do whatever it takes to survive. So again, if you are a small business owner, or working with a nonprofit, there’s up to $30,000 grant available, which means that you will not be paying that back It is a grant.
Dr. Friday 3:35
Then the next thing is PPP money. Now I know there’s no more PPP coming out yet there could be some more coming out in the future. But the ones that received PPP, remember we have to apply for forgiveness by December 31, 2020. There is a lot of mixed signals because it seems like to me, I’ve applied for forgiveness for about four of our clients so far, and we probably have about 60 that got PPP money. Most of them the banks aren’t ready yet, but we are getting some information. So you want to check back with your bank, it looks like they may be moving forward, and then I’m told it could take 30 to 60 days for them to be able to process the forgiveness. Now there is a simple form, if you received less than $50,000 there is a simple form that you can fill out this supposed to be making the process a bit faster, a bit easier. This all came out basically back in June, I believe, but the newsletter I’m reading is basically from October. I just received it the other day. So just again, put it on the calendar, right? Very, very important. If you’ve received PPP money, you don’t want to wait and then end up making that alone. You want to get forgiveness if it is all possible. So again, making sure that works for you.
Dr. Friday 4:52
If you have questions, you can call the show live right now. 615-737-9986. We have some news on the 2020 tax return, you know how charitable contributions, everyone’s like, “Well, why should I bother giving if I don’t have it?” Well reasonably give isn’t what the tax deduction. But sometimes there are tax advantages to giving. Well on 1040, straight out, not part of your itemization, as we’ve always had on the Schedule A or at least for most years, this is going to be box 10 B, charitable contribution up to $300, that you’ll be able to take as a deduction. So again, that’s going to be something new on 1044 for 2020 that will help people a little bit. If you give to charity, you’ll be able to claim up to $300, and you’ll still get 100% of your standard deduction along with that. So that might be something interesting, especially if you have something special you want to give to or whatever that might help you. So that’s one of the new things coming out, we haven’t received all of the updates for 2020, they are working on those forms. Sometimes things are changing, and sometimes they end up changing up until the last minute. So that’s why I’m trying to preempt.
Dr. Friday 6:16
Again, if you are receiving requirement of distributions, which means that you are 70, up to 72 years old, or anyone after that, depending on when it came into play requirement on distributions, you can do a qualified charitable deduction, which means you can take all of your RMD or your requirement on distributions, give it to charity, and then it becomes tax-free money to you. It’s a great strategy seriously if you are a person that normally gives or ties to your church anyways, give up to that dollar amount through your RMD, or your requirement on distribution is a wonderful way to reduce your taxes. There’s nothing wrong with doing tax planning at the same time as giving to charity. So if you need more, you should talk to your financial planner on that. Again, if you are receiving qualified or requirements on distributions, you need to talk to them about your qualified charitable deduction. They work hand in hand and their wonderful situation. So if you’ve got questions, you can join the show at 615-737-9986.
Dr. Friday 7:23
I’m an enrolled agent, licensed with the Internal Revenue Service to do taxes and representation, which basically means that I deal with people with IRS issues. Right now may not be the best time in your life, maybe you’re having a hard time with the whole COVID and everything. But it may be a great time to consider making a deal with the Internal Revenue Service, they look at your current situation, they’re not judging you on your past, they’re not judging you on what they predict your future is going to be, they are looking at your current information when they’re making a deal with you. So in some cases, it may be a wonderful time to consider making a deal with the government. So if that’s something you want to do, that’s what I do as an enrolled agent. And maybe you just need to get caught up on taxes, because remember, we can’t make any kind of deal, we can’t do anything unless we can get you an into compliance, which means filing all of the proper paperwork to get you up to date be keeping you in compliance. The bottom line is if you make a deal, and the guy arrested, we just had one, we made a deal with someone they owed, somewhere around 70 $80,000, and they end up paying about $7500. This person is going to get themselves back in trouble if they don’t keep making their quarterly estimates. As a self-employed person, we have to continuously pay our quarterly fees. And if you do not pay those or you do not stay in compliance, and when you file your taxes at the end of the year, they can take and reverse that offer and compromise they can reverse and say, “You know what, you didn’t live up to your end of the deal.
Dr. Friday 9:02
We’re gonna basically turn back the clock, charge you penalties and interest and add back the total dollar amount that you owed us. Because you said you were going to make this deal and you did not do it.” So, it’s not worth it, you have to stay in compliance for five years, you have to file your taxes on time, you have to make all your quarterly estimates. It’s a wonderful deal to be made. But it’s only as good as the person that’s making it if they can continue to make. I mean, a lot of times as entrepreneurs, guys, I’ve been in your shoes, I’m in your shoes. And you know, it’s not always easy to have to give your share. I always think of them more as a partner in my business, even though they’re very silent unless they want money, but a partner in my business and they’re going to get 25% to 30% of my profits. It’s that simple. That money needs to be set aside in a separate account. So that way I’m not operating on it, and they get to take their share. It’s just the fact of doing business. There are certain ways around some of it, if you reinvest it into possible equipment, you might be able to accelerate the depreciation and reduce some of the taxes for that current year. All in all, you know, you’re not going to be Donald Trump and you’re not going to pay $750 and still make a livable wage unless you want to have $400 million worth of debt due to somebody else. That’s the only way I can see that happening. All right, let’s go to the phone and talk to Linda in Franklin.
Dr. Friday 10:28
Hey, Linda. Thank you for calling.
I have a question. I’ve lived in a home for 20 years. Now, if I sell my home to go to assisted living or not reinvest in real estate, do I have a capital gain?
Dr. Friday 10:48
That’s a wonderful question. So here’s the way it works, Linda. I don’t know how much you paid for your home. But just for the sake of radio, let’s say you purchase it $100,000, just for the sake of this conversation, and then you sell it for $350,000, you would pay zero. So you have a markup of $250,000, above whatever you paid for it. That would be free money, you do not have to reinvest, you don’t have to do anything. If you sell it for more than that, then everything above that dollar amount would become capital gains. Does that make sense?
Okay, if I paid 350, and now they’re selling for 700.
Dr. Friday 11:30
Right. So you would pay capital gains on… so we have 250,000 of it, that would be zero, right? So that brings you up to 600,000. So theoretically, you would have 100,000, you might have to pay capital gains on.
Thank you so much.
Dr. Friday 11:46
No problem, sweetheart. Thank you. All right. Let’s go ahead and hit Milton. I bet this is my Milton.
I am he. Hi Dr. Friday, how are you?
Dr. Friday 11:58
How are you doing sweetie?
I am well. I want to ask you about that $300 deduction that you’re talking about for donations cuz I’ve been donating, and I don’t even ask for receipts because I never have enough at the end of the year. But just hearing what you just said now, and in order to qualify for the 300. Do I need to get receipts to show documentation for that?
Dr. Friday 12:20
Yes, I mean, because I’m your tax person. So I’m going to say yes, I want to see receipts for it, or at least checks written to a nonprofit to be able to justify those deductions.
Okay, let me ask you this. If it seems like I’m donating, let’s say to Goodwill, or charity or whatever, stuff like that, do I need to get receipts for that?
Dr. Friday 12:42
Yes. Anything that was used that values it to the $300?
Okay, okay. That’s what I need to know, I heard you a couple of weeks ago talking about the $300 deduction. I wondered then, is that automatic? Or is it cut straight? Or do I need documentation? So I’m glad I’m getting the chance to ask you directly about that.
Dr. Friday 13:05
I appreciate you listening, and I appreciate you asking because there’s probably a lot of people thinking, “I’m just gonna throw 300 in there and just assume.” They could audit or review that information, and we don’t want to be caught without having the documentation, right? All right. I think I lost Milton. Let’s go really quickly to Rita. Rita in Coffee County.
Yes, Dr. Friday, thank you for taking my call. I have received from the Internal Revenue a letter that tells me that I have overpaid in 2019. I have approximately the same income within two or $300 as in 2018.
Dr. Friday 14:07
You paid the same amount in both years?
I paid close to the same amount in both years.
Dr. Friday 14:14
So the only big difference would be is every year they give us a cost of living increase on our standard deduction. I’m assuming you’re just taking a standard deduction. That’s an assumption. But that would be part of it. it’s not going to be a big saving. You know, you’re talking 12% on $400. So what is that? It’s pretty minimal. Do you know what the difference is?
I have income from a K 1, I filed it on Schedule E. In 2019 I had 1600 dollars of interest and 25,000 in Social Security.
Dr. Friday 15:09
Okay, so my guess is without looking at the two returns, depending on how much you said there was a slight difference. Well, it’s possible because that K 1 income could make your Social Security taxable if it’s high enough, right?
Well, yes. That’s what the difference is what they’re telling me that the difference is Social Security. They’re not charging me anything for Social Security.
Dr. Friday 15:42
Well, and before social security, did you earn more than $25,000?
Yes. Well, I didn’t earn it. I get it through a K 1.
Dr. Friday 15:57
Investments, yes. I should have said investments. But the K 1, and the interest added up to more than 25k?
Dr. Friday 16:06
Okay. Just out of curiosity, in 2018, did it all add up to more than 25 K?
Yes. In 2019, it was 30,000 plus the 1600 interest, and 2018 was 30 thousand 116 plus 1383 on interest.
Dr. Friday 16:33
Now, you’re barely making it. So they’re basically claiming that your Social Security is not being taxable. Are you single or married?
Dr. Friday 16:46
Because I’m trying to look it up real quick In 2020. Because you’re Social Security changes a little bit every year how much they make taxable because of the cost of living, right? And your so security may or may not have been up. Who knows.
Well, Social Security was 25,242 in 2019 and 24,552, in 2018.
Dr. Friday 17:14
So you must have barely had it taxable in 2018, and in 2019 it looks like it’s not being taxable.
Well, then I need to file.
Dr. Friday 17:30
You don’t need to file anything. If they’ve sent you a letter saying they’re changing your tax return, then they’re going to basically change it for you. And then they’ll send you back the money.
In 2018 then I need to file an amended return because they have sent me 1700 dollars back for 2019. So in 2018, should it not be the same?
Dr. Friday 18:01
It should be I would actually, either when you’re not on the radio, but I would definitely have someone do a comparison double-check it makes sure that the math on the IRS site is correct. And if it is for 2019, then 2018 sounds like it should be amended because somehow they missed that adjustment.
Okay, you’re saying that I have miscalculated 2019?
Dr. Friday 18:25
Well, if in 2019 if the IRS has caught the mistake, and this time they’ve caught it possibly, right? They didn’t catch it in 18. I’m saying you need to reevaluate to make sure first that the IRS information is correct, that you do not owe that tax, and that they do refund 1700. But if 19 and 18 are that similar? It seemed like they both be close enough, where there should be only a few dollar difference, not 1700 dollars. That’s a very large difference.
That’s exactly what I’m saying. And the same for 17 and 16.
Dr. Friday 18:57
Right. Well, you can only go back 17, 18, and 19 at this point, they will not refund 16. So if there is a mistake, you can only do 1718 and 19 at the moment. But I would definitely suggest getting on that relatively quickly. That’s quite a bit of difference if we’re talking 70 or $80, that’s one thing, but when we’re talking hundreds of dollars, that’s a whole different conversation.
Exactly. And I’m scared to death to just spend $1700 dollars that they’ve told me that they owe me.
Dr. Friday 19:30
If you want you can call my office on Monday and we can go through the numbers legitimately over the phone while a cell phone is open and read it we can make sure that that information is right if you like.
Okay. Could I have your number?
Dr. Friday 19:48
Okay. Thank you so much.
Dr. Friday 20:09
No problem. Thank you. All right, we have to take a quick break. Joe and Daniel, if you don’t mind, please hold through the break. When we come back, I’ll get right to your phone calls and hopefully give you the answers you need. We’ll be right back with the Dr. Friday show.
Dr. Friday 20:34
Alrighty, we are back here live in studio 615-737-9986 is the number to call. And we’re going to go right to the phone lines. Hopefully, Joe, did you wait for the break?
Dr. Friday 20:50
Thank you, Joe. Yes. What can I do for you?
Yeah, I just thought about a simple refund that we put in for February. And it’s just the W 2’s, nothing complicated. We still haven’t received that refund, and it’s been since February and we check their website. It says it’s still processing. I just wanted to get your take on it. Why would it take so long for something like that?
Dr. Friday 21:17
Yeah. Well, we’ve got several cases that way. Joe, did you mail the return? Or did you e-file it?
We mailed it. But we know they have it.
Dr. Friday 21:29
I’ve got two cases the same way where the clients decided that they wanted to mail them and they mailed them. Mine was actually later than yours. They mailed them in May. Still no response. I mean, we know on the website says “we have received your return and we’re still processing” that’s all it says it doesn’t say that they’re in the middle of an auditor that they’re being reviewed or anything. We do know that the IRS with the mailroom was closed down, but only for April and May or something. They reopened I think in June, I mean, it was still like three months that they were behind. But in all honesty, Joe, I don’t know what’s taking so long to process paper returns this year, if it’s just that there are that many people that file by paper, and that they’re not able to get them in the system as fast as they normally do. But we’re talking five times longer than the normal, right? I don’t have a good answer. But we have called a few times, and the clients have called and they’re just being told that they’re being processed that this time there doesn’t appear to be any kind of delay other than they’re being processing. Well, that doesn’t help a whole bunch. So all I can tell you is hold tight, it should eventually get there. They’re saying that they’re caught up in the mailroom now. So I’m winging it by saying that I don’t think they’re fully caught up. I don’t think they have the number of personnel to do it.
Do you think it was the stimulus checks is what slowed it down?
Dr. Friday 22:50
I think so. I think they had to put a lot of people towards the phone lines for the stimulus, that they had to get those people to I don’t know how they got all the information to submit the checks, but I think they had to divert some of the tax people into that division. I just think that it’s just delayed those normal taxpayers’ individual situations.
Okay, well, thanks for your time, and I appreciate that.
Dr. Friday 23:12
Okay. No problem. Thank you for the call. I appreciate you. Alright, why don’t we go ahead and hit Daniel in Murfreesboro?
Hi, Dr. Friday. Yes. I applied for the one-time emergency relief for the 10,000, and I only got 1000. I’m a sub. I’m self-employed. I’m a single-member LLC. So I’m the only employee of the LLC. I did not apply for the stimulus.
Dr. Friday 23:48
Did you apply for the PPP?
Yeah, I didn’t do it because I was told that I would not qualify for it. I’ve made a lot of money in 2017 and 18. But in 2019, didn’t make anything. So I was going to apply for and I was told that by my CPA and another financial advisor that I wouldn’t qualify for anything. So I didn’t do it. But then I ran into somebody else that had the same situation as me and he got a $60,000 loan.
Dr. Friday 24:24
Well, there’s a couple of different things. There are SBA loans, which EDIL loans. That’s a possibility that you could qualify for that. I don’t know if you’ve actually applied for an actual loan, have you?
I didn’t apply because I was told I wouldn’t qualify because a single-member LLC wouldn’t qualify because I didn’t have any employees. I said, well, I’m an employee.
Dr. Friday 24:53
In the beginning, I will say your CPA was right. Everything had to do with W2, 941 and all that, but then they opened it up to the self-employed, which is where you fall in, right. So whatever your profit was in 2019, they would have given you 2.5% of that. If there was no profit in that year doesn’t mean you wouldn’t qualify for the loans. And then in Tennessee, we now well, you missed out on one. But there’s now another one out there, right, the second that I’m talking about, which is under the Cares Act, where you can actually apply and get a grant up to $30,000. Now, you know, at the moment, we can’t unfortunately, go backward, but I am telling I mean, I will tell you, Daniel, we put everybody through every one of these, if we got rejections, we got rejections. Some people their credit, because some of the loans, the SBA loan does require credit checks, and some of the people weren’t able to do it but didn’t mean we didn’t try. And I would suggest you try and under the Tennessee Business Relief Program, see if those grants out there for you, what does it hurt worse than they can tell you is no.
Okay, well, I guess I need to get in contact with somebody that knows better than my advisor.
Dr. Friday 26:08
You can give my office a close call, I mean, if you want to just get help, I will definitely lead you in the direction of what these are. And we can take it from there. Because, I mean, we deal with small businesses, owners, 200 of them every single day, it feels like but now that we have a monthly bookkeeping service and everything. So all I’m saying is, if we don’t ask, we’ll never going to know the answer. We’re trying because most of my business owners are barely making it. They’re struggling. It’s not the same as it was prior to COVID. So we need to get as much help as we can for these guys.
Okay, what’s your phone number? One more time? I’ll write down.
Dr. Friday 26:44
Sure, my direct line is 615-367-0819.
Thank you, ma’am.
Dr. Friday 26:53
No problem. Thank you. Alrighty, and let’s see here if we can get is that Martina in Nashville.
Yes, it is.
Dr. Friday 27:01
Hello, sweetheart. What can I do for you?
Well, I got a question about the Care Act. So my husband worked for a company about 10 years ago, and he has a pension plan with them. The company got bought out and the new companies often him either to roll it over into an IRA, or to take the lump sum. Well, he’s been unemployed for a while, and so he wants to take it out. And so I’ve been reading up on the Care Act where he might not have to pay the 10% penalty because he’s not 59 and a half yet.
Dr. Friday 27:35
Well, If he was affected by the COVID, which it sounds like he might have been or unable to get work because of the COVID situation, you can take up to $100,000 out without the penalty, and you can spread the payments over three years.
Okay. So he got unemployed before COVID. But because of COVID, he cannot find a job.
Dr. Friday 27:59
So he’s been totally affected. That’s a legitimate reason why he needs to borrow. Now, I’m not your financial planner, I’m pretty sure some of them would not agree with me. But to survive, I have no problem with him taking that money out. He won’t pay the early withdrawal penalty, and he will have to pay the tax and he could spread that tax over three years.
Okay. And how do you take advantage of it because he called the company that sends them all the paperwork, and they said they cannot give him any information you would have to call a tax advisor. That’s why I’m calling you.
Dr. Friday 28:32
Right, so they basically won’t give him any advice. So when you file your taxes, there is an attachment to the 1099 R’s that we’re going to be filing on the tax forms, it’s going to ask “was this given to you because of COVID?” and you’re going to have a questionnaire and then you’re going to elect at that time to either spread it over three years or pay the tax in that year.
I really appreciate that. You’re going to be my go-to girl.
Dr. Friday 29:04
No problem. I appreciate you listening. Thank you very much.
Thank you. Bye-bye.
Dr. Friday 29:09
Okay, we’ve got Steve, Carroll, and Lynn on the line. It looks like I’m past my second break. So if you guys don’t mind, we’re gonna take a quick break that way. I’ll have a good 15 minutes to chit chat. If you want to join the show 615-737-9986 and we’re going to be right back.
Dr. Friday 29:37
Alrighty, we are back here live on the radio. If you have questions 615-737-9986. Let’s go right to Stephen Manchester.
Dr. Friday. I really appreciate your show.
Dr. Friday 29:57
I’m gonna lay the foundation here. I’m calling about capital gains, it’ll be due on a sale of some property that I have. My house sits on 10 acres, I’ve been in it for 30 years, I am married. But since then the property has kind of become commercial, it’s been it’s become commercial property. So I’m going to my 10-acre house, I’m going to the 10-acre tract with a house on it, I’m going to sell five acres of it, that sale will probably be $750,000. I can’t use any of my one-time capital gains.
Dr. Friday 30:42
Do you have any plans of selling the other five acres within the next year or two?
I do have a plan of selling the other five acres, but it probably would be four or five years.
Dr. Friday 30:56
So theoretically your homestead the 10 acres plus your home, you’re dividing into two properties, you’re subdividing, I guess you would say. If you were to do that and do it all within two years, you can extend that and take that 500 against the total sale. You may not make a difference. In all honesty, I don’t know how your property’s sitting if you’re selling like the frontage, and that’s all commercial in the back part where you’re still living in the five acres or not. Or if you’re going to need the 500 anyway. But since there’s only one house, you can’t, you know, can’t say I lived in this house and you’re selling without. So long story short total capital gains long term capital gains. And the only basis you could reevaluate when you purchase the home, that land had value, right? I mean, there was a value to it, you could take and put a couple thousand I don’t know, let’s say you paid 100,000 for the land, and I’m making a wild guess nothing to do with reality. So each acre was worth $10,000, you could apply that 50,000 against the 750. Because there is a basis to that land. I don’t know how much it was though.
Right. And you’re actually about almost on the number cuz it’s been so long ago when I bought it. So the 750,000 minus 50,000. And you pay capital gains on 700,000.
Dr. Friday 32:19
Correct. And just keep in mind, that’s about 24% tax because you’re gonna get hit with the 20 plus 3.9, 2.8. So 23.8% tax on anything over 200.
Woo-wee. Okay, yeah, I do have a capital loss on another track land that I sold. So I will use that.
Dr. Friday 32:41
Use it. 100% you can use all of that against this. Yes.
Okay. All right. Well, thank you very much. One more question. If I were hypothetically, to do this today, with the capital gains tax, I mean, could I wait till you know, March before I paid the estimated capital gains?
Dr. Friday 33:03
So within the theory, usually I try to get my clients to pay within 90 days of the sale. But as long as you paid 110% of what you owe the year before, you wouldn’t actually owe it until April 15.
Dr. Friday 33:16
Does that make sense? So whatever you normally have, you have the same dollar amount probably every year do unless you have a big sale or something that happens. So you probably are pretty safe with a minimal amount if no estimate until the March or when you get ready to file the tax return itself.
Okay, like I paid about 12,000 last year in taxes, I could either choose to pay 12,000 or, or I could just overestimate.
Dr. Friday 33:43
Yes, send in 15 that way, then the rest of it that way, you don’t have to worry about a penalty. Just hate penalties.
Right, right. Okay, thank you very much.
Dr. Friday 33:52
Thanks, Steve. All right. Let’s see we Carol from Mount Juliet has hung in there. Carol, You with me?
Yes, I am.
Dr. Friday 33:59
Awesome. Appreciate that.
Well, thanks for taking my call. I have a two-part question. A surviving spouse has passed away earlier this summer, and her house was sold a few months later. Okay, the first question is, will there need to be any taxes paid on the sale of the house? And the second part is the proceeds from the sale of the house will be divided among her beneficiaries, but not until 2021. My second question on that. Will her beneficiaries need to pay any taxes from the proceeds they get for this year or in 2021?
Dr. Friday 34:43
Okay, so let’s start with the first. A parent passed away, let’s say an ideal a parent passed away, left their home to their estate. At this point, let’s just use a number. I like to throw numbers around. Let’s say the house was worth $100,000 at the time that that person passed away and you sold it for $100,000, there would be a zero tax situation for the beneficiaries.
Dr. Friday 35:08
Okay. Now if the money is sitting in an account that is earning interest, then there would be some tax on the interest earned on that money since it’s going to be held in the estate until 2021.
Dr. Friday 35:22
I would basically say don’t put in an account that earns interest that way, you don’t even have to worry about filing any kind of tax on it. That’s my personal opinion. But that’s either way. So the house itself is valued at the price that it happens at the time of passing, if you sell it for roughly the same dollar amount, then you’re going to have zero tax beneficiaries will have zero tax on that particular part of the estate.
Okay, if the house sold for more than the house.
Dr. Friday 35:53
Well, it sounds like she passed away within months of the house sale?
Yeah, she passed away 61 days before the house was sold.
Dr. Friday 36:03
So it really I mean, that would the value of the home within 90 days of someone’s passing? So it would not likely be it would have been basically the same value as it was when she passed away. Unless somebody went in there and did improvements.
Okay, so your first one $100,000 example, is the value or the value the day that the passed away
Oh okay. So within that 61 days, the value hadn’t gone up, then there’s no tax. But if the money is sitting in an interest-bearing account, we would have to pay taxes on the interest.
Dr. Friday 36:43
Exactly. And it may not be that much, especially what they’re paying right this second interest. But normally, normally, when I’m dealing with a state, I usually tell them not to put them in interest-bearing accounts, because it just continuously leads to other tax questions. You know, so just keeping it there and then doing the distributions in a few months, it sounds like since it’s 2021 will be here.
Well, for some reason, we have to leave the money. We have to leave the money where it’s at for four months.
Dr. Friday 37:13
That’s to see if there’s anybody that she owes money to.
Dr. Friday 37:18
That’s probably making sure she does to finalize her estate to make sure all the settlements of her bills are done.
Probably. Okay. Well, okay. This is good news. Thank you.
Dr. Friday 37:28
No problem. All right. And really quick. Let’s hit Lynn. She’s been waiting very patiently.
Yes, I’ll make this quick. Just need a little advice that can help me out. My parents had me and my wife file separate returns. [Inaudible] seemed like a good idea, I need to have it done correctly with both together married filing jointly. What is the process for that?
Dr. Friday 37:55
Just file an amended return, you can’t do it the opposite way. Meaning if you file jointly, you can’t separate but if you filed separately, you can join. So just do a 1040 X.
Single. Is that a problem?
Dr. Friday 38:09
Well, you need to correct it, obviously. And you change that instead of being single, you want to go to married filing jointly. And it’s not so much it’s going to change, like the standard deduction or anything. But some things are allowed as a single person that might not have been allowed if you’re married filing separately. Or in this case, you just basically say we want to be married filing jointly.
I will try to do it myself and choose me. So I do one for her and one for me or just do one or both?
Dr. Friday 38:37
That’s a great question, you are going to have to do one 1040 X for each of you. Basically zeroing out both I’m showing file jointly, and then that way, the same numbers are going to come into the same number. So does that make sense? So when you do the 1040 X, you’re going to go from single to married filing jointly. And you’re going to bring in her information into that tax return. I’m just saying making you first on the tax return her second. And that they would amend her tax return at the same time. Yes, one 1040 X with the merged information attached behind it a full 1040 along with any other schedules
And just mail my own returns too with it?
Dr. Friday 39:27
No returns, they already have your mail a new return, you know the one that’s basically showing it as a consolidated or joined.
So a 1040 X of course with its return.
Dr. Friday 39:38
That’s what I thought. Okay. Thank you very much.
Dr. Friday 39:41
You’re good. No problem. All right, why don’t we take our last break here, and then when we come back, we will take a few more calls if you want to join the show 615-737-9986. We’re going to be right back
Dr. Friday 40:13
All right, we are back here live in the studio. If you have any questions, we got a few minutes left on the clock 615-737-9986. But to recap a few of the things that we need to make sure we do this week. Most importantly, for anyone that hasn’t filed your 2019 tax return, remember, it is due October 15, which is next Wednesday. So time is flying, when it comes to those kinds of things. Also, you want to make sure that if you’re a business owner, just as the gentleman had called earlier, don’t let any of these grants or money go through, there was another one that was through the Tennessee Department of Revenue that ended at the end of August, I believe. Many people were able to do things with, you need to be able to track and deal with this information. So if you need help, you can give our office a call, or just go to tncareact.tn.gov.
Dr. Friday 41:09
If you have PPP money, we have to do something before the end of the year. Very, very important. So we want to make sure that you have that covered. So those are some of the important things. Don’t forget I keep bringing in but the $300 for charity. Many times people have Melton brought up a great point, which was a lot of people have stopped tracking their charity because itemizing is almost impossible. So getting something itemized that you don’t do it anymore, you don’t track it. Well, now you need to at least track up to $300 you need to have proof, my opinion because you never know when Uncle Sam might decide they’re going to ask a question about that. So make sure that you’re dealing with it and that you’re tracking it. If you have some questions, and you don’t want to really deal with calling a radio show, which I totally can understand not everybody is brave enough to do that. You can email the question to firstname.lastname@example.org. Again, if you haven’t paid your taxes, and you’re like, “If I don’t file they’ll never know I don’t owe it.” Well, that’s kind of silly to assume the government will eventually find out.
Dr. Friday 42:28
Now I know some people are sitting there saying, “Well, I haven’t filed in 20 years, and they don’t know who I am.” I agree there is always somebody out there. But I’m also one of those people that if I pay something a day late, I feel like they’re calling me. So not everyone gets away with it. File, make a deal with the government or take care of making a payment plan, they have a lot of those online, you don’t have to deal with the phone system. Make as best as you can the payments that you can in the right direction. That’s the important part of that conversation, you do not want to just wing it, in my opinion, you don’t want to wait and do something where you can’t figure out later. You don’t want liens and levies, because it always happens to come up when you’re finally getting back on your feet. And then the next thing you know, you get this love letter from the IRS, or the Internal Revenue Service basically saying, “We’ve put a levy on you” or I have a case right now where a gentleman is actually truly stuck in Colombia, because during the time that he was there working, the IRS put a lien against his passport, and therefore he’s not able to travel. So he’s not able at this point, his passport is needing to be renewed, he was not able to do that, because he owes the IRS. In his case, he doesn’t actually owe as much as they say, but it doesn’t make a difference. It takes a long time to get those situations taken care of.
Dr. Friday 43:50
So if you’re in a situation and you travel for a living or, or maybe your business, I have people that work in the insurance and other businesses where their credit is very important. And if the IRS decides they’re going to put a lien or levy against you, and you’re like, “Well, I don’t have anything,” you have your credit and they can do that. And then that may not allow you to be able to represent certain companies or do what you need to do to make a living. So if you know if avoiding the IRS is your secret to success, go for it. But if you really want to resolve the issue, you want to be able to go out and buy a house, maybe get married, put your kids in college, all these things require either tax returns or dealing with the IRS to get things resolved. I can help you so that you can call our office or you can check me out on the web the easiest way to look on the website, which is easy, Drfriday.com. There’s a calendar on there and you can set up an appointment to come and see me. And if you don’t see any dates available, you can certainly give us a call here at the office at 615-367-0819 on Monday is the easiest number to reach me at. Again, if you don’t know where to start if you haven’t filed taxes or you just keep getting letters and you know what you keep them all in a drawer because if you don’t see him, you don’t have to deal with it. You need to start someplace we can help you. You can’t change the past, but we can certainly change our future and how we’re going to handle this.
Dr. Friday 45:21
If you’re an entrepreneur, and your answer is just to avoid sooner or later that business that you’re building is going to crumble because you cannot work or succeed with the IRS been on your back. Again, people, we are not Donald Trump, we are not Warren Buffett where they can have lawyers and people in the courts dealing with the IRS stalling, delaying, or whatever. We’re dealing with the real world and the real world says we either have payment plans, offering compromises, non-collectible. That’s our option. All right, so this is the end. Call 615-367-0819 that’s my direct number or you can reach me at email@example.com. I hope you guys have an awesome Saturday. Call you later.