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With the November 3rd deadline for 2024 tax returns fast approaching, Dr. Friday is in the studio to tackle some of the most pressing tax questions. In this episode, she breaks down the new “one big beautiful bill,” specifically clarifying the $6,000 deduction for seniors over 65 and how it impacts your bottom line. Dr. Friday also dives into the complex tax implications of selling rental real estate, including depreciation recapture and capital gains. Plus, she answers listener questions about the difference between a hobby and a business for tax purposes and offers crucial advice on common estate planning mistakes.
Summary Points
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Upcoming Tax Deadline: The deadline to file 2024 tax returns is November 3rd, 2025, due to a federal disaster extension.
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New $6,000 Senior Deduction Explained: For 2025, individuals over 65 receiving Social Security may qualify for a $6,000 deduction ($12,000 for married couples). Dr. Friday clarifies this is a deduction, not a credit, which reduces your taxable income. For someone in the 10% tax bracket, this equates to about $600 in tax savings.
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Applying the Senior Deduction: This deduction can be added on top of either the standard deduction or your total itemized deductions, offering flexibility for all filers.
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Tax Strategy for Seniors: The new deduction may create enough “taxable income room” for some retirees to perform a strategic IRA-to-Roth conversion at a very low or even 0% tax rate.
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Selling Rental Property: When you sell a rental, you must calculate tax on two components:
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Recapture of Depreciation: The total depreciation you claimed (or were entitled to claim) over the years is taxed as ordinary income.
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Capital Gains: The remaining profit is taxed at capital gains rates, which can be 15%, 18.8%, or as high as 23.8% for high-income earners.
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Estate Planning Warning: Dr. Friday strongly advises against putting your children’s names on your house deed or bank accounts to avoid probate. This can lead to significant capital gains taxes for them later and exposes your assets to their potential financial or legal troubles, such as lawsuits, divorce, or IRS levies. A power of attorney is a safer alternative.
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Hobby vs. Business: A listener’s question prompts a discussion on the IRS rules for distinguishing a hobby from a business. To be considered a business, you must operate in a business-like manner with a clear intent to make a profit, not just for personal enjoyment.
Episode FAQ
Q: Is the new $6,000 tax break for seniors a check from the government? A: No, it is not a refundable credit or a check. It is a deduction that lowers your total taxable income. The actual tax savings depends on your tax bracket; for example, a person in the 10% bracket would save approximately $600 in taxes.
Q: I never claimed depreciation on my rental property. Do I still have to worry about “recapture” when I sell it? A: Yes. The tax law requires you to recapture depreciation that was “allowed or allowable.” This means that even if you never took the deduction, the IRS calculates the sale as if you did, and you will have to pay tax on that amount.
Q: My father wants to add my name to the deed of his house so I get it when he passes. Is this a good idea? A: According to Dr. Friday, this is generally a bad idea. While it may avoid probate, it could create a massive capital gains tax bill for you down the line. If you inherit the property, you receive a “step-up in basis” to the home’s value at the time of death, often eliminating capital gains tax entirely.
Q: I’m a W-2 employee pilot. Can I deduct the costs of additional flight lessons I’m taking to advance my career? A: No. Under current tax law, W-2 employees cannot deduct unreimbursed employee business expenses. The deduction is only potentially available if you were operating as a self-employed (1099) contractor.
Transcript
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No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or your financial woes.
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She’s the how-to girl.
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It’s the Doctor Friday show. If you have a Question for Dr.
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Friday, call her now.
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737-WWTN.
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That’s 737-9986.
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So here’s your host, financial counselor, and tax consultant, Dr.
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Friday.
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G’day, I’m Dr.
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Friday, and the doctor is in the house.
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We’re here talking about my favorite subject at least, which is taxes We only have until November 3rd to file our 2024 tax returns.
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So working diligently this weekend on trying to get a few more returns kicked out there for us so we don’t have to worry about waiting to that very last minute.
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to get things done because you know as well as I do it gets a little crazy.
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So if you haven’t already put your appointment in, you’re gonna need to do that.
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At least if you’re working with my foam, we’re pretty pretty much filled up unless you’re a returning client.
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Uh but uh if you have questions, the best thing to do is give us a call at 615-737-998.
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That’s the number here in the studios right now, 615-737-9986.
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Taking your calls, talking about my My favorite subject taxes.
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So what we want to do is we want to be able to figure out what we um what we’re going to do with this current tax code because One of the things I keep getting phone calls and messages on, it’s pretty straightforward.
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And I understand why a lot of people are a bit confused because let’s be honest.
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Texas don’t always explain themselves well, but let’s talk just a little bit about the um $6,000 for individuals over the age of six 65 receiving Social Security and how or what if this is going to have any effect on your taxes besides the fact that there are some income limitations Most of the people I seem to be getting the call from are more individuals that might be within the the the $6,000 limitation But they’re trying to figure out if it’s really going to help.
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Are they going to get anything more?
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Um, you know, on and how is it going to make their their lives better?
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Um, so let’s clarify first.
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It is not This is a deduction.
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Yeah, I know you keep hearing me say those words, but it’s not a credit, which means the six thousand dollars is going to only be reduced or give you credit for your income bracket.
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in the 10% tax bracket, it’s gonna save you $600 in taxes.
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Um it uh if you are um Married or yeah, if you’re single, your income can be 75,000.
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If you’re married, 150.
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So if you’re a married couple making less than 75, you’ve got lots of room to grow, but you are probably paying tax on your social.
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security.
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So it’s going to add to the standard deduction or if you itemize, but if you’re itemizing It’s going to be a little different because obviously if you already have $40 some thousand dollars, I don’t believe it adds in addition.
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That’s a great question.
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Someone asked me.
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I meant to look that up before the show.
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I will have the answer.
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or before the end of the show if it’s something it’s still added above your itemization because everything seems to be standard deduction plus 12 for married couples standard deduction plus six for individuals.
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So again, if you are in the 10% tax bracket and you pay tax on your Social Security and you have some other income um you’re going to save $600, not $6,600 with this deduction for an individual.
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If it’s two people, then $1,200 if you’re selling that same 10% tax bracket.
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So again, it’s going to use it.
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It’s going to be part of the standard deduction is the way it keeps reading in here.
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You can add the 6,000 to a total itemized deduction.
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Okay, so I do have the answer on that.
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So no matter which way you would normally do, so if you’re taking the standard, you’d add the six or twelve, depending if you’re single or married.
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If you’re itemizing, you’re going to add it above your itemization.
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So either way, it’s gonna be an additional six to twelve thousand dollars.
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It is not a credit.
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I need to repeat that because so many people are like, well, am I gonna be able to get the money back?
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Are they going to give me a refund because of it?
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The only refund you would get because of it would be solely because the um the $600 gives you a refund or whatever.
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The 6,000 is just going to help reduce your taxes due.
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It is not, again, not going to increase the entire dollar amount.
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So um, so you you are not looking at the ability to Get a $6,000 deduction and does not eliminate tax on Social Security.
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So that was the next question.
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Someone said, do I no longer have to report my Social Security on my tax return?
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And the answer is no, you do.
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Yes.
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If you are filing taxes and you receive Social Security, you need to report it.
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No matter what, it’s going to go in box A.
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If a portion or 85% of it is taxed.
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then you’re going to pay tax.
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This $6,000 is going to follow up where you would normally have your itemized or standard deduction.
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It will reduce or increase that number, reducing your tax due.
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Hopefully that one big beautiful bill explanation helps you.
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If you’ve got questions, you can certainly join the show.
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615-737-9986 I do know that this is still the week where a lot of kids are out of school.
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So um probably going to be a little quieter here in the studio than sometimes because some of you guys are out of school.
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actually out enjoying hopefully yourself and um what you’re you’re trying to do so um if you have questions on that or maybe you’re thinking you know what it’s October we only have a few more months till the end of the year now one of the things that this $6,000 or $12,000 deduction may do is give you some wiggle room um to do a conversion.
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Now let me put the caveat out.
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I am not a financial advisor.
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Okay so you need to double check this if it’s a good plan For your financial situation.
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But I had a gentleman that came in yesterday and um he we were doing his taxes and uh his income, even though he had to pay a little tax, his income was at the And if we had his total income, even though he had to pay some taxes because of self-employment, his overall income was under the standard deduction.
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He’s over the age of 65 and he has some money in an IRA.
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So the question is, would it be beneficial in this gentleman’s case to convert $10,000 or take it out and use, go wild and crazy.
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I’m not, again, not a financial planner.
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I’m talking to save tax dollars to either convert it because he has a daughter, so when she inherits, she won’t have to pay tax.
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And she’s gonna probably, if not nothing else, his daughter’s just graduating college.
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Um but Bottom line is she um she will be in a higher tax bracket, right?
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So if he can convert this and put it into a Roth for the next five years at what six percent I think we calculated would be on ten thousand dollars um you know it it would be well worth it and it grows tax-free right so hopefully he lives more than five or ten 10 years.
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But that being said, no matter what, in his case, it may be a good idea to consider.
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He’s already taking advantage of what we call a QCD, a qualified charitable deduction.
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But he was, you know, again, this $6,000 is an addition and he’s already under the standard deduction So would it be helpful for him to maximize the standard deduction?
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Because it’s zero tax, right?
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The only reason he ended up paying any tax had to do with a self-employment situation So in his case, he could have converted, that’s right, he could have converted for zero because his income was like twelve thousand and he will have like eighteen.
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So he could have almost had Another, I think we calculated almost $10,000 to keep it at a very low taxable situation, most of it at zero.
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So again, if your situation happens to be where you’re keeping your income very low and maybe don’t even have to file taxes, But you do have money in an IRA, um, and and you’re getting close, I mean, you know, at some point at 73, and I did find out if you were born after the age of or after the year of 1970.
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60 that RMD date goes up to 75.
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One of my guys came in and opened my eyes to that because I had not been uh paying attention.
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Again, I’m not a financial planner, but um anyways.
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So in this case, 73, you can do your QCD.
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And at this moment, qualified charitable deductions are allowed after the age of 70 and a half.
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So even though you’re not having to take required minimum distributions, you can take a portion of your RMD and you can do a QCD on it.
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You need to talk because I’ve I’ve had a f a few financial planners.
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Find out afterwards that that that is on the book.
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So talk to your financial guy.
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If you have the ability, and right now you’re taking money, you’re 70 and a half or older, you’re taking money from your checkbook.
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and putting it into the tithing or sending it to your church, yet you are taking or will have to take required minimum distributions.
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Why not do it through there where it’s zero tax and your charity will actually Theoretically could get more money.
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So um it’s something to you need to have that conversation with your financial planner.
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If you don’t have one, I’ve got a couple of them.
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Hank Parrot’s been mine for 30 plus years with estate and financial strategies.
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But you know, if you have one, talk to them.
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Make sure they’re looking at the big picture.
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Because as a tax person, let’s be honest Most of the time we’re looking at the current year, maybe the next year, or maybe even five years out, but normally that’s more with people that are looking to take a retirement or conversion or or paying off uh like wants to sell a rental, then we have some longer pictures sometimes, a bigger view of what we want to do it’s your financial planner that may even say because sometimes I’ll sit there with Hank and he he and I have many of the same clients And I might say, well, that’s not going to benefit them this year, but then he’ll correct and say, yes, they have to pay tax this year, but you know, three years from now, their tax bill will be dropping.
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And they’ll be at a a low or zero tax bracket if we do these taxes now.
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So they have a bigger picture.
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They know more than you’re your tax person.
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So again, just keep that in mind that if you are dealing um or thinking about how the six thousand or twelve thousand dollars may May help or hinder, take it a little further outside the norm and look at is there an IRA that needs to be converted, or maybe you can convert five, ten thousand dollars for nothing because of this additional money Those are the numbers or the situation you might want to think.
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The government’s giving us some wiggle room.
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Let’s make sure we’re maximizing it.
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Okay, so we’re all get ready to take our first break.
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You can certainly join the show, add a little spice to it.
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615.
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737-9986 is the number here in the studio.
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615-737-9986.
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Taking your call.
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Anyone that’s listening.
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right now and you don’t know who I am, I am Dr.
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Friday, an enrolled agent licensed with the Internal Revenue Service to do taxes and representation That’s what I do.
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It’s what I’ve done for the last 30 years.
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So if you need help or you have questions, call the radio.
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If you’re afraid, we can also have you call the office on Monday.
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But we’ll be right back with the doctor The Friday show.
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Alrighty, we are back here live is De studio and again if you want to join the show live you can help with calling us at 615-737-9986-615 737-9986.
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Okay, so I did get a um uh email during the break.
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I was trying to remember if it was an email or a text.
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It was a an email um asking about selling a piece of rental real estate they wanted to know how to calculate the taxes Now it’s gonna be the doubt the numbers will be different no matter what your story is, right?
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But the two things you have to remember is assuming you’ve actually done um your taxes correctly You had to depreciate that asset.
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So if you depreciate over the number of years, you have to do what’s called recapture of depreciation.
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Now, I’ve had a lot of people argue the point that they don’t have to depreciate it.
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They don’t need to do these different things.
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Let me clarify You do.
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Okay?
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Tax law specifically says you are you have to depreciate the property each year.
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I don’t know if I totally understand.
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I’ll be quite honest.
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I’m I’m not a fan of it, so I’m probably not the best advocate to explain it.
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Um, but the the the the tax law specifically says so when you sell it, we have to recapture and that comes back to you.
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You as ordinary income tax, right?
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So if you’re in the 22 or 24 percent tax bracket, you’re paying more tax on that than you are on the capital gains in most cases So you have to know that capital gains, people will tell you there’s only two rates of capital gains.
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Again, I disagree.
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It’s three rates, right?
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Because you have 15% Once you have more than $250,000 as a married couple combined with your income, you add a 3.
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8% Which makes it 18.
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8%.
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And after you get over about $480,000 as a married couple, you go to 23.
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8%.
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They’ll tell you 15 and 20 and they forget the 3.
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8, but the 3.
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8 is totally documented against the capital gains.
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So you might as well know because I know more than one person will say Say, what do you mean the 24% tax bracket?
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Well, if you’re selling it and making $670,000 capital gains, a portion of it will hit the 23.
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8% tax bracket.
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Especially when you have earnings that are much higher than that.
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So keep in mind that when you are looking at selling now, you can do what’s called a 1031 exchange big advocate for it.
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But as people get a little older and they want to get rid of some of the maintenance and all the stuff that goes with having to have real estate Um they they basically start looking at ways to get rid of it and they don’t really want to reinvest into the world of real estate.
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And I I can’t say I don’t.
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I have twelve rental properties and I will say there are times when I get into that uh mode where I’m like, why don’t they sell it all and get one um one commercial property or something, one thing that would just be easier to deal with, but who knows?
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All right, you know what?
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Before we have to the next break, let’s get Ron on the depreciation recapture.
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I appreciate any of the calls.
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Hey Ron Hello Ron.
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Thank you uh for taking my call, Dr.
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Friday.
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Uh they uh if you sell property that should have been depreciated Uh you have to recapture it even if you have never taken it.
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That’s a good point, Ron.
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I forgot.
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I mean that is true, yes.
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If even if you had a tax or you did it yourself, you’re absolutely correct.
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Yes, it’s depreciate depreciated or depreciable whether you even bothered to take it or not.
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Yeah.
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So then you lost out on it when you could have taken it and now you have to pay capital ga uh recapture um ordinary income tax on things you may not have even had reduced your income tax That’s just double sadness.
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That’s right.
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Thank you for taking my call.
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Thanks for calling, Ron.
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I appreciate it.
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Um and I uh thanks, Ron.
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So I do know he’s absolutely correct.
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And I also know Ron does what I do.
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He’s a tax person, so he’s a great guy.
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But when it comes down to it, um, so if you’re one of those individuals that have um real estate and I’m sure Ron at like myself, I have found more than one return, just did one a few days ago where the gentleman had done his own taxes and it was a first year return.
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So this would have been the second year.
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He did not take it in the first year.
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So obviously we amended the return, but um if it’s been four or five years, you can’t it wouldn’t make a difference if you amend them.
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You don’t get a refund after three years So there’s no use if you’ve been doing it.
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And then you have to still do it over the lifetime that it’s been rented.
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So good point.
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I I was so hooked up on the The email that I had received with uh the person wanting to know how much it was gonna cost.
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I hadn’t thought about them taking a look at that aspect because um When we’re looking at it, we often look at the year it went into.
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And then it gets a little complicated because I’ve had a couple people that put a piece of property into rental, then they pull it out because a family member or something moves into it.
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They treat it more like a second home and then they put it back in and then they sell it.
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So you need to also be keeping very good records of all of that information so that you’re not going to end up, especially if audited, they’re going to come right in and they’re going to say, well, it showed up on this tax return as a rental.
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It looks like you forgot to report it in these years.
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um without explanation.
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So you need to have good records to make sure you know exactly how all of that is going to track through and and do what you need to do.
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So anyway, so that was a great email talking about how to calculate it.
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But again, you take your um to calculate, I don’t know if I ever got to that, you you basically take your original purchase price plus all the improvements That you were depreciating at the time.
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You add all that, you subtract that from the sale price, closing cost fees, any other fees you may have had to pay That’s going to be your capital gains.
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Then the other side you take whatever you’ve recaptured or whatever you depreciated turns into recapture and you end up picking and making that your ordinary income tax on your um tax return.
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So there is uh I was trying to look up really quick sometimes multitasking while you’re talking on the radio isn’t always the best thing, but I may look after this break.
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There um so if it’s past the lifetime, I have had a number of people that they’ve owned the property 30 plus years.
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And in those cases, recapture doesn’t come into play.
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But I’ll get to the exact year during the break.
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So I have that conversation.
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So if somebody is sitting on a very old piece of property.
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you may be outside of having to worry about recapture.
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But another thing is when you’re inheriting property, you know, which is Had a gentleman come in, decided before he talked to me he was going to add his daughter to his house.
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So that way when he died, he knew she was going to be able to get the house without having to go through probate.
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That was his biggest fear was probate.
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Um, and I’m gonna sit here and tell you that shouldn’t be your biggest fear because uh your biggest fear is that you paid forty-nine thousand dollars for a house that is now worth over six.
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And if you had left it to her and she goes through probate or you leave it in a trust, um, she would have no taxes.
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But the way he had handled it Um she may not have to go through probate, but she am not an attorney, so I don’t know if uh she would automatically get it because she’s the name on it or if she’d still have to probate it because his name was on the house, but either way, um she now has a capital gains of five hundred and fifty thousand dollars.
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So not a good plan don’t put your kids on anything like that.
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The only thing you you could put your children on, or you may want to, and again Um, I’m not an attorney, so think twice about this.
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I had an attorney friend do the show one time and he’s like, don’t put your name on your your children’s name on your bank statements.
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Um some people want to have them so that they can be there and he’s like give them a power of attorney for finance and they can go into the bank if you become incapacitated or die and then they will have access to those funds because did you know if you put your children’s name on your tax, I mean on your bank statement, excuse me, or on your bank account Um they get into a lawsuit, someone they get divorced.
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This is one of the stories he had.
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Apparently one of the adults that were married got divorced and that bank statement became a part of the divorce because the name of the son was on it.
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Now apparently it was able to be proven he never put money in that account.
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It was only his mother’s money, et cetera, et cetera.
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But He also had one where the IRS levied the bank account because of the fact that they can, right?
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They can levy the bank account.
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uh because the name’s on it.
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So you might just want to think twice because if someone gets in a bad car accident and get in a lawsuit, they get divorced.
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or um the IRS decides to levy, um any of those could put your funds in jeopardy and the only thing you’re trying to do is keep the money so that they’re able to take care of you and pay your bills if something were to happen to you.
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I understand the theory, but the best way to do that would be to sit down, talk to an attorney, um, and do the pile of attorneys.
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so that you can take them into the bank and have them there.
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So when and if something’s needed, you can deal with that.
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But not just to put their name on as a second signer because now you’ve opened those funds up to the potentially lawsuits or levies or apparently even divorce.
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I have had a case where parents had their name on their minor children’s Um, or even I think one was twenty-two and the other two were like eighteen and seventeen and they had bank accounts and the parents had their name on them.
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And the I they the parents had some trouble with the IRS, and the IRS went and swooped all the bank accounts and took all the kids’ money.
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Um, and this was their, you know, their life savings, college funds, whatever.
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And we had to prove that the money was the children’s earned, not something that the parents had put in.
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And we are fortunate enough to be able to prove a big chunk of it and we were able to get it returned.
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But um that’s not always gonna be the case because a lot of times parents put money in kids’ accounts so that they have enough to go, you know, pay their petro or whatever they need to do.
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So just keep in mind put putting your name on someone else’s bank account could put that bank account in jeopardy, vice versa, having their name on yours same way.
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So just make Making sure that if um if you’re a do-it probably talk to an attorney would be your best bet.
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They do have the tools, pile of attorneys, and things that would give you the same control without putting those funds potentially in jeopardy All right, we’re going to take our second break here when we get back.
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We’ll take more of your phone calls at 615-737.
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9986-615-737-9986.
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Again, I am Dr.
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Friday, an enrolled agent, licensed with the Internal Revenue Service.
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taxes and representation.
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We’ll be right back.
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Alrighty, we are back here live in studio.
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And if you’ve got a question, 615-737-9986-615-737 9986 taking your calls talking about my favorite subject, which is taxes.
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And we are in the midst of finishing up our 2020 tax year and we’re getting ready to start our 2025.
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We’re not going to have a very big window between like we usually have For anyone that is listening and doesn’t remember or know, we are under a federal disaster extension, which puts our filing date November 3rd We usually have to have the October 15th for all individuals that did file an extension this year, 11.
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3.
Speaker 2
Um, and even if you didn’t file an extension, because actually it extended for anything happened after 4-8.
Speaker 2
So theoretically everyone has an automatic extension.
Speaker 2
Hopefully you file one anyways because you know it’s always nice to be in practice and to file your returns on time or file those extensions just so you can make sure you have what you need and you know get them done the way you need to We don’t want to have problems if we don’t have to.
Speaker 2
Um, but if you have questions, again, you can join the show 615-737-9986.
Speaker 2
So um A couple things that came up between the show and one was of course we were talking about selling a piece of real estate in which you hopefully have been depreciating and how to capture to to report your recapture depreciation.
Speaker 2
or um or when you’re selling it.
Speaker 2
Sorry.
Speaker 2
There is a couple things that you can do.
Speaker 2
If um if you inherit a piece of property The t the depreciation goes away, you get to step up in basis, you don’t have to do recapture tax.
Speaker 2
Does not apply.
Speaker 2
If you gift, give a gift, then obviously you’re transferring the property as a gift.
Speaker 2
You don’t have to recognize gain or losses.
Speaker 2
There’s a depreciation at the top.
Speaker 2
time of transfer.
Speaker 2
And therefore, however, the recipient of the gift inherits your adjusted cost basis.
Speaker 2
So to clarify, if you gift a house to your children Um, this is why we don’t really like to gift compared to inherit, right?
Speaker 2
But if you gift um a a rental house maybe that you want to give to, maybe they’ve moved in, you have to readjust the basis, uh, the adjusted gross basis at the time that it would be.
Speaker 2
So they won’t get a step up in basis.
Speaker 2
So let’s say the house is worth $500,000, but you only paid $200 for it.
Speaker 2
They’re going to assume your $200,000 basis if you gift it to them.
Speaker 2
Now you can do that right now, and there’s no gift tax on the table.
Speaker 2
But again, not necessarily something I would.
Speaker 2
would suggest doing.
Speaker 2
Also if you convert a residential a rental into a primary home, you do the two out of five years, uh depending on Um what you’ve done in depreciation, uh any gain attributed to depreciation would still be recaptured.
Speaker 2
But if the house doesn’t have a lot of gain because I mean we have the exclusion and everything, then you may be able to avoid some of that.
Speaker 2
It really just depends on um how and what you’re gonna do with the you know the house if it becomes your primary home.
Speaker 2
I’ve had a number of people that have sold their primary home, moved into one of their rentals, lived there for two, three, four years And then they’ve turned around and sold that one.
Speaker 2
And of course, each time they get that 250, or in the case of the one I know, as a $500,000 exclusion.
Speaker 2
Now, some people don’t really want to live in the neighborhood they have their um rentals in.
Speaker 2
Others don’t really care.
Speaker 2
Um, so either way you want to do it, you want to make sure that your um If you’re going to do that, you want to make sure you’ve got that all covered and you still could end up paying tax on the recapture, even if you get the exclusion of $500, but then you won’t have any you know, capital gains most likely, at least in the case of my client, each time they sell, there’s no capital gains.
Speaker 2
So there’s just a little bit they’ve had to pay on recapture, but Nothing in comparison that if they had sold them just as rentals instead of making them their primary home and living in them for I think a couple times they lived in them for like four or five years.
Speaker 2
So um You know, take it as it is, go from where you’re at.
Speaker 2
So you also want to consider if you are getting ready to uh work on your 2025 taxes.
Speaker 2
Again, we have the one big beautiful bill out there.
Speaker 2
So you might want to just check and make sure that you have everything you want on that one as far as we talked a little bit about the $6,000.
Speaker 2
um exclusion that you’re you’re going to have.
Speaker 2
But there’s a couple other um things that might come up.
Speaker 2
There’s some stuff with student loans If you’re a senior, obviously the biggest thing that most people are going to have is dealing with the $6,000.
Speaker 2
But there’s also going to be in here, there’s the um uh charity if there there’s a charity situation where I believe above the gr uh above the window it’s like three hundred dollars the if you purchase the car there’s gonna be above the line uh some interest that can be coming up uh that’s going to come into play.
Speaker 2
So we you might want to revisit before you get too far into to see what you have.
Speaker 2
All right, let’s talk to Larry about Medicare Hey Larry, thanks for calling.
Speaker 2
Just getting tired of hearing myself talk.
Speaker 2
You there, Larry?
Speaker 2
Nope.
Speaker 2
We lost Larry.
Speaker 2
I think he’s coming back on, but we will see.
Speaker 2
Otherwise, we’ll just keep talking because we have the one big beautiful bill right there Um, so there’s a couple things that we want to go over, obviously.
Speaker 2
The no tax on overtime.
Speaker 2
This all these come in effect in 2025.
Speaker 2
Okay, so just so you know, the $6,000 for the Social Security over 65.
Speaker 2
No tax starting 25 through 28.
Speaker 2
Individuals receive qualified overtime compensation or ones that receive uh self uh individuals employees and self-employed employees may uh qualify for a tip received occupation that has listed by the IRS as customary and regular received tips on before December 31st, 2024 that were reported on W-2s and or 1099s.
Speaker 2
It’s going to be interesting to see.
Speaker 2
I’m thinking the 1099 would be maybe like Uber drivers.
Speaker 2
You guys obviously receive tips, and I’m assuming people put the tip.
Speaker 2
I know I do often.
Speaker 2
on the um on on on the credit card, excuse me.
Speaker 2
And so the 1099K, I’m wondering if it’s going to come back in as something interesting.
Speaker 2
to deal with um because I’m I mean if it’s not reported on the W2 or 1099 then you have to directly report it on a 41 37.
Speaker 2
That’s going to be some documentation above and beyond.
Speaker 2
All right, let’s see what Ron has to say.
Speaker 2
Hobby versus business.
Speaker 2
We don’t like those answers.
Speaker 2
Hey Ron, what you got for me?
Speaker 4
Don’t like those answers.
Speaker 4
Um getting ready to retire probably like five five years.
Speaker 4
trying to get myself set up to you know keep myself busy dur in retirement.
Speaker 4
But I really don’t want to start a business or anything like that.
Speaker 4
Rather be a hobbyist With the food growing and stuff like that?
Speaker 2
Oh okay.
Speaker 4
What’s the differences on taxes and stuff?
Speaker 2
Well, the biggest thing with the hobby is you can’t deduct any expenses really I mean it doesn’t, it’s not like a Schedule C when it’s a business, right?
Speaker 2
You’re gonna have to itemize it um on the other side.
Speaker 2
So they make you put it you know what I’m saying?
Speaker 2
So I don’t like hot.
Speaker 5
Yes.
Speaker 5
Yes ma’am.
Speaker 5
Yes ma’am.
Speaker 5
Okay.
Speaker 2
You know, so I mean I mean if you’re only gonna receive um what kind of hobby were you gonna have to be a little bit of a
Speaker 4
Growing uh meat and meat and foods and stuff.
Speaker 2
Okay.
Speaker 2
So the nice thing about those kind of hobbies, so you’re talking farming more of that kind of situation, which falls potentially, even though um If you have a farm, you know, I’m just saying you’re going to have no sales tax if you’re making the product, if you’re going to farmers markets Um, you know, you’re going to have some cost basis, but what you’re saying is you really don’t want to be tracking it as if it is uh for profit business.
Speaker 2
It’s more gonna be for pleasure and recreation.
Speaker 2
Is that what you’re thinking, Ron?
Speaker 2
Just to keep you out of trouble.
Speaker 5
Right.
Speaker 2
So I can so the biggest question will come according to the IRS you’ll need to pay self-employment tax if you have earned more than $400 Okay.
Speaker 2
So uh so if you’re only gonna sh report four hundred and you put on then you don’t have the expenses, you’re just gonna say, Hey, I’ll pay the tax and not have to deal with it, but you know, that will be the biggest um The biggest thing I’m thinking.
Speaker 2
Obviously the big you know, a lot of people push it, Ron, where they basically show losses two, three, four, ten, fifteen years on businesses, which are truly hobbies, right?
Speaker 2
Two out of five years.
Speaker 2
If it’s a farm or a breeding or horse racing, maybe two out of seven.
Speaker 2
But if you haven’t made money three out of five years, then you’re basically losing and the IRS says that’s a hobby.
Speaker 2
So in your case, what you’re saying is, hey, you know what?
Speaker 2
I’m gonna go enjoy doing what I like to do, like I’m growing lavender right now, enjoying it, have fun some beehives.
Speaker 6
Um not not for money, right?
Speaker 2
I’m I mean it’s a lot of output but not much coming in.
Speaker 2
But I’m enjoying it.
Speaker 2
So it’s for my own recreation.
Speaker 6
It’s for my own mental health.
Speaker 2
Um and so, you know, and so in that case, I haven’t sold anything yet.
Speaker 6
Um, and I don’t know if I have enough.
Speaker 2
I mean, at some point I might have enough where I might want to sell a little honey or something.
Speaker 2
Uh, but that would be more Or um like you said, just something, maybe even just donate it to someplace that that can do it if you’re legally able to do that.
Speaker 6
I don’t know a whole bunch about food yet.
Speaker 2
Um but you know, um but yeah, I mean I I would say in the case of what you’re talking, doing it as a hobby because most likely you’re not going to have any real earnings because if it’s anything like my bees and lavender Or I’d have to have earned several thousand dollars to break even to even, you know, for re buying all the the stuff I’ve brought.
Speaker 2
So um I don’t think unless you know, I don’t think I will show I would actually show a loss at this point.
Speaker 2
Um so it’s It it definitely isn’t something that would even fall on a tax return in my case, um, you know, at at this moment.
Speaker 2
But it is uh um I think it’s good for people to keep busy if you’re getting close to the age of you know, retiring because I’ve had too many clients that have come in, they’ve retired, and next thing you know, they just it’s like they kind of lose They’re ump, you know what I mean?
Speaker 6
Because they don’t stay busy.
Speaker 2
You know, they don’t have a reason to get out of bed, so they’re sitting around in their chair.
Speaker 3
Next thing you know, they’re walking with a wheel.
Speaker 3
Exactly, yeah.
Speaker 3
Exactly, yep
Speaker 2
Thank you for thanks for entertaining me, Ron.
Speaker 2
I appreciate it.
Speaker 2
All right.
Speaker 3
Bye-bye.
Speaker 2
All right, we’re taking our last break.
Speaker 2
If you want to join the show, you can.
Speaker 2
615-737-9986.
Speaker 2
We’ll be right back.
Speaker 2
Ah, there.
Speaker 2
Do I hear Tommy?
Speaker 2
Oh my goodness.
Speaker 2
Ah, there’s my boy.
Speaker 2
Okay.
Speaker 2
What can I do for you, sweetie?
Speaker 7
So I am a commercial helicopter pilot and I fly part-time for a company and I am currently working on ratings in an airplane to further my flying career Can I write off my lessons for the airplane since I’m actually working and earning uh and paying taxes on my uh um helicopter job?
Speaker 2
Are you a 1099 or a W-2 guy?
Speaker 2
A W-2.
Speaker 2
No.
Speaker 2
Under current tax law, you cannot write that off.
Speaker 2
Now If in the future you do become a 1099 due to the fact that you’ve taken these courses and now you’re going to have your own little side piloting business, we could write it off at that point as part of your investment into the business.
Speaker 2
But as long as you’re an employee, no.
Speaker 7
All right.
Speaker 7
That’s that’s the question I had.
Speaker 7
Thank you so much for your time.
Speaker 2
Hey, no problem.
Speaker 2
Thanks for listening.
Speaker 2
Um great question.
Speaker 2
Sounds like a All right, thank you.
Speaker 2
Um Tommy’s business sounds pretty interesting.
Speaker 2
I don’t think I’d be any good at piloting, but uh we can hang up on Tommy Thanks.
Speaker 2
Um but I just wanted to make sure we had him and can you imagine being A helicopter pilot sounds pretty cool.
Speaker 2
Um, anyways, as a tax person, maybe not always the coolest of individuals.
Speaker 2
But I do love doing what I do because every day there’s always a different fact, a different situation to make sure you’re going to have it.
Speaker 2
So For all people that are running a business but haven’t shown a profit, and for some that wonder why I don’t deduct businesses because they say, well, I haven’t done anything the last couple of years, but I still have expenses.
Speaker 2
Um here’s the reason we want to bring that up.
Speaker 2
Ron brought it up and I thought, well, this is a perfect interest.
Speaker 2
entrance for the next five minutes to talk about the hobby versus business concept because the IRS has a very special set of rules that says, hey, a taxpayer must carry an activity like a business like manner maintain complete and accurate books and records.
Speaker 2
Okay, well you kept records saying that you keep losing money.
Speaker 2
Taxpayer puts in time and effort into the activity to show they intend to make it profitable If you’re not really out there, but you’re just maintaining your licensing and um maybe a few dinners with somebody I don’t feel personally that you’re putting in the time and effort to make this a profitable business.
Speaker 2
Also, depending on the income from the activity for your uh depending on the income from this activity for your livelihood.
Speaker 2
So if you uh have a full-time job and then on the side you say, hey, I’m gonna be a real estate agent Because this is a common area in which I have seen people, for one, I think a lot of people think they can be real estate agents.
Speaker 2
Um and I knowing from personal experience on how hard real estate agents work, I don’t think that’s the case.
Speaker 2
But so just to make sure we have that information.
Speaker 2
Um, but if you are not depending on it for your livelihood.
Speaker 2
and you’re trying to do a transition even, cutting back on your one hours to get into more of this, then maybe.
Speaker 2
But if you’re working a full time with overtime and then you’re still trying to be a real estate agent, the IRS is going to say that’s a hobby.
Speaker 2
you’re not putting enough time and effort into that activity to make it profitable.
Speaker 2
Personal motivation to carry out activities such as general enjoyment or relaxation.
Speaker 2
They don’t want us to have j and I have to disagree a little bit because I do enjoy my business.
Speaker 2
Um a lot of my clients are hilarious.
Speaker 2
Sometimes I think they’re more entertaining than what most things are.
Speaker 2
So um I think I have a great business that way.
Speaker 2
But it that ta uh one of the rules they say taxpayer has a personal motive to carry out the activity such as general enjoyment or relaxation, taxpayer has enough income from other sources to fund the activity.
Speaker 2
Losses are due to circumstances beyond the taxpayers control or normal for the startup basis of that type of business.
Speaker 2
There’s a change in the method of operation.
Speaker 2
So you lost money maybe only because of that profitability.
Speaker 2
change taxpayer and their advisors have the knowledge needed to carry out the activity.
Speaker 2
So one of the things I had was a guy that um his son raced cars and he was on the top 100 racing list.
Speaker 2
in the in in the world or in the world I believe.
Speaker 2
Um and so he wasn’t, you know, he’s a good good driver, good kid.
Speaker 2
Um but the fact is every year we lost ten, fifteen, twenty thousand dollars in this business business.
Speaker 2
After about 10 years, the IRS audited him said what you drew.
Speaker 2
So the good thing was about two years ago we changed the way he was doing his account.
Speaker 2
We also brought in an expert to talk more about what would be the aid.
Speaker 2
So we were able to prove that his losses had to do with a change in the capacity of doing it.
Speaker 2
We also closed the business after uh the audits because let’s be honest we are pushing our luck on that activity.
Speaker 2
His son then took it over and you know know make it or break it he at least is now a driver and driving for a company um uh I think it’s a team that he drives for.
Speaker 2
So anyways And then the taxpayer expects to make a future profit and with appreciated assets used for these activities.
Speaker 2
So you’re a real estate agent, you go out and buy yourself a uh Land Rover because you think you have to have a really nice car to sell the kind of houses you want.
Speaker 2
You haven’t sold a car yet.
Speaker 2
Now you’ve got a Land Rover that you want to depreciate because it’s over six thousand pounds And you think you should be able to take the whole car off because it’s your only vehicle in which you can’t, just let you know that, you must have a second vehicle to be able to use and you must be able to prove that the miles being put on this vehicle are for big business only.
Speaker 2
Driving your kid back and forth to school, going out to dinner with spouses, uh, shopping, whatever, those are not part of your business, therefore not business miles.
Speaker 2
Therefore, the car is not 100% business.
Speaker 2
You get it?
Speaker 2
Okay, um, if you have questions on all this, you can certainly give us a call.
Speaker 2
Um the office number is 615-367.
Speaker 2
0819-615-367-0819 is the number to my office.
Speaker 2
You can call on Tuesday.
Speaker 2
Monday, I think we’re closed due to a holiday.
Speaker 2
Uh but we’ll be in there on Tuesday.
Speaker 2
Also, if you want, you can email.
Speaker 2
It’s always a great way to get us.
Speaker 2
Friday at drfriday.
Speaker 2
com.
Speaker 2
If you are a current a current tax client that is listening, We have sent out our calendars.
Speaker 2
So if you have not received a date for the 2025 tax time, then you need to uh go ahead and give us a call again on Tuesday so we can do it or email us and we’ll get you the link so you can choose your time and date.
Speaker 2
We want to get all of our current clients.
Speaker 2
let put on the calendar if you want to a face the face.
Speaker 2
Otherwise, obviously you can always upload into Smart Vault for us or other situations.
Speaker 2
But either way, just making sure that we guys are all there so we have a nice smooth tax season.
Speaker 2
It’s gonna be a fun one this year.
Speaker 2
because of the one big beautiful bill.
Speaker 2
We’re gonna have a few more things.
Speaker 2
We’re probably gonna have to update our um our schedules because it’s gonna take a little bit of time to make sure everyone has those little bits of extra paperwork that might be required.
Speaker 2
to do what we need to do.
Speaker 2
So we will see if it uh is there or not, but otherwise we’ll move from there and and take in and see what we have.
Speaker 2
So if you um want to do anything more, if you have questions like your need back work or back taxes, you need to file your 2024.
Speaker 2
Um you can call the office on Tuesday, 615-367-0819 is the number in the stuff in the office.
Speaker 2
So that way you can get on the calendar.
Speaker 2
We can get you caught up Staying in compliance, guys, that is the number one.
Speaker 2
If you’re having IRS issues, if you’re having any kind of other issues, the best way to deal with the IRS is first get into compliance.
Speaker 2
Make sure you’re current.
Speaker 2
This year is the best year for it because if you haven’t paid estimated taxes, and yes, if you are self-employed, it is a rule, a mandate.
Speaker 2
I don’t care what you want to call it.
Speaker 2
We’re supposed to be filing them.
Speaker 2
And if you haven’t filed first, second, or third quarter, you are officially not late in 2025 as long as you pay all three by 11.
Speaker 2
3.
Speaker 2
Very important, if you’ve had any kind of issues in taxes in 2025, there might be some waivers because of the extension.
Speaker 2
But you need to be in compliance.
Speaker 2
You need to make sure it’s going to work.
Speaker 2
One more time: 615-367-0819.
Speaker 2
Number for the office.
Speaker 2
Email is Friday at drfriday.
Speaker 2
com, Friday at drfriday.
Speaker 2
com.
Speaker 2
You can also check us out on the web, rehear the radio shows, whatever, at drfriday.
Speaker 2
com.
Speaker 2
Again, drfriday.
Speaker 2
com cop.
Speaker 2
You later.