Welcome to the Dr. Friday Radio Show! In this episode, we have tax expert Dr. Friday take on the latest tax updates, answer the caller’s questions, and talk over the following topics:
- Can I Purchase the House I’m Living In Before I Sell My Primary Home?
- How to Know If It’s Better to Cash Out Part of Your Bonds?
- Can RMD Be Used for Charitable Contributions?
-
When Did IRS Increase Standard Deduction?
-
What Are the New Tax Brackets for 2023?
- How Do I File a Tax Return When I Have No Income?
- Do I Pay Taxes on Social Security Disability Income?
- What Is the New Tax Code for 2022?
and much more!
Transcript
Announcer 0:00
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or financial woes. She’s the how-to girl. It’s the Dr. Friday show. If you have a question for Dr. Friday, call her now. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:25
Good day. I’m Dr. Friday, and the doctor is in the house. It’s a beautiful Saturday we’re having outside. And we’re going to talk about a couple of things. Many of you guys probably heard some of it, but let’s see how it’s going to apply. We don’t always get a lot of good news, some people are a little confused about the tax changes the IRS came up with, it’s for the 2023 tax updates. We’ll be going into those as we all know, inflation rates for 2022 had some major big changes.
Dr. Friday 0:58
And finally, someone seems to be making some adjustments, at least in the tax code to help offset some of this information. So married couple filing jointly in the year of 2023, you’ll have a 27.7 100 standard deduction, that would be up from our 2022 numbers that we’ll be filing very soon, of 259 so that’s a 7.1 increase. So we’re going to have that across the board. Standard deductions have went up head of household, individual dependent care credits, and individual standard deductions for individuals have went up, versus $400.
Dr. Friday 1:36
Additional which these are big, big jumps. So you know, if you’re, if you’re looking to do some tax planning, maybe you’ve thought about doing some small conversions, I would never suggest I’m not a financial planner. But if you’ve been thinking about doing a few things, 2023 may be the year to look at some of those, they also increase the tax margins. So the 10%, the 12, the 22, all of those have had some fairly decent adjustments, you know, in the 22%, for a single bracket has increased more than $5,000.
Dr. Friday 2:12
So what you would be paying tax in 2022, you could earn 5000, more in 2023, and stay in the same exact tax bracket. So these are the kinds of things you need to know if you’re going to do some tax planning. And also just make sure that you’re following and understanding one of the big ones, of course, in 2023, we we still have guys the 0% capital gains rates for everybody. And so if you add the standard deduction plus the 0%, capital gains rates, you would be in the ballpark of about $57,000 for a single person. That’s going to be pretty much double for a married person.
Dr. Friday 2:51
And so that would be that if you take your ordinary income, and then you turn around and you add the capital gains along with that, and if it stays as a married person under $57,000 on long term capital gains, you would pay zero tax on that capital gains. Same thing for a married couple if you take all of your money, and then you add also in the long term capital gains to it, you might find that it’s all adds up to a little less than $108,000 or there abouts, you would basically have a 0% capital gains.
Dr. Friday 3:28
Again, in doing tax planning, these are important numbers to understand, because then you’ll be able to go back in and say, “Wait a second, I have some stocks I need to clean up. And normally I wouldn’t be paying 15% tax. But maybe if I sell in smaller increments,” and again, I would always suggest for you to go and get advice from a financial planner, because you know, just selling or managing your own funds, certainly not my expertise. All I can do is help you with the tax implication that would happen if you decided to do that.
Dr. Friday 4:00
Otherwise, not something that I can actually give you advice on. But if you decide to do something like that, I can certainly help you estimate what your taxes will be in that situation. So you know that you have what’s going on is going on. So just putting that out there, making sure that you’re following his thing because that was something that released I think it was like the 16th or 17th. When we finally pulled my like, you know, the 17th was the last day for filing individual tax returns and incorporations and things and if you didn’t file last Monday, then you’re officially late. If you had an extension you had until that date to file the paperwork, it did not and never does extend the amount due so don’t don’t be surprised when or if you get a bill after you if you’ve paid your bill in October or September whenever you sent the money in and then you turn around and you get another bill from the IRS and you’re sitting there going wait a second.
Dr. Friday 5:00
I already paid, then, you know, the reason is penalties. Now sometimes if this is a first or an unusual situation, and you haven’t had a waiver in the last 36 months, you might be able to get penalties waived, it’s something we do a lot of, but there, you know, there’s no guarantee. And in many cases, you might just decide that you want to pay it and then ask for forgiveness versus not. And then waiting and waiting. Because if it never gets waived, your bills just increased. So waiting for a waiver is not a problem.
Dr. Friday 5:32
And in many cases, you have a really, really good chance that it will get waived. And if you don’t have the money, well then make a difference. But if, if you’re not sure, or you just want to go ahead and get it, the IRS will refund those penalties, if they decide to waive them, they won’t just not waive them, because you paid them and therefore they’re gonna say, Well, you paid us so we’re not going to wait, that’s not the way the game is played. So just putting that out there for you to understand how the game is played.
Dr. Friday 5:59
Now, if you’ve got a question, maybe you’re thinking about your 2022 taxes, let’s be honest, we’re finally in that last bit of time. And I’ve been taking a lot of consulting this last week or so because, you know, many people are showing one. Many of my clients, well, we always love to do and I’m always appreciative, but we always want to go back, if you’ve sold something, you’ve done something, you’ve increased something, to go ahead and get that information out.
Dr. Friday 6:25
Now, in your mind, you know, make it so that you can preempt how much we’re going to owe, maybe in January, we need to make an estimated payment, maybe you need to know when I prepare your taxes that you’re gonna be writing a very healthy check. Because of this, I much rather my clients know in advance that we’re looking at these kind of numbers than then wait, and then tax season. And we’re really busy.
Dr. Friday 6:49
And we’re doing the numbers that we’re crunching and we’re doing. And then I turn around and say well, you owe this and you’re sitting there going, “Holy moly, I did not expect it to be quite that high. You know, I was estimating this, or I had a friend of mine just do a rough calculation. And they said it would be that,” you know, if you’re an existing client of mine, I have your tax return, we usually can use that as a premium from the next year. How much your taxes will be if you sell a piece of real estate or you sell a bunch of stock or you do a Roth conversion. And this is the time you want to make sure you have done that kind of thing. Because you don’t want that surprise, nobody wants that surprise, I’m certainly not the person that wants to turn around and give you that surprise.
Dr. Friday 7:29
So if you’ve got questions, you can certainly join us here live 615-737-9986 is the number here in the studio. And I realized with this beautiful day we’re having some of you guys may not even be in your car, you might be out enjoying a nice walk in the fall leaves. But if you’re listening and you’ve got questions, or you’ve got a friend or a situation that you’d like to have a little bit more information on, this is the time this is the show, you’re going to want to ask those questions, because let’s be honest, otherwise, you’re going to get yourself in a situation and then you have to go backwards taxes don’t work very well going backwards, I’ll share that with you.
Dr. Friday 8:11
Meaning once you’ve actually touched the money, or once you’ve already sold it, we can’t go back and say oh 1031 would have been a great idea, or maybe a split sale or whatever, you can’t really go backwards and say this is the way that kind of situation is all you can do is go forwards. And you may have missed that opportunity for good tax planning. So if you’ve got a question, you inherited property, you’re thinking about starting Social Security, or maybe you’re on early Social Security, you got to watch out for those penalties, I will tell you if you’re out because what happened in some share little case that happened in my office had an individual 2020, rough year, they decided to go ahead and take early social security because well, they needed to, you know, have something coming in, they weren’t able to really get a job and things. So they started that and then they were working and then they you know, come 2022.
Dr. Friday 9:05
So 2021 2020 both of those years, pretty much not a big deal. But in 2022 they got back into the business they were doing prior to COVID Not thinking twice about the situation. And you know, they’re getting their social security and they were working and now Social Security doesn’t know you’re working. But if you’re on or early social security, you have a limitation of how much money you can earn. And it’s right around 19 Four, I think. And so if you earn more than that you have to pay back $1 for every $2 you earn above that so if this person goes out and makes 35 $40,000, they’re going to be paying back 10,000 of their social security or there abouts on this situation.
Dr. Friday 9:48
And so the luck of the draw was that they called me and said, “Hhey, you know, here’s some good news. I always love my clients keep me in their loop.” And they’re like, “Yeah, I finally got back into working I finally got my job. You know, everything’s great.” And I just mentioned I said, “Well, you still taking it?” “Oh, yeah, I’ve got Social Security still. So everything’s great.” And I’m like, “Not really,” I had to be the bearer of bad news.
Dr. Friday 10:10
Because in this particular scenario, he needed to call Social Security, because he was still young enough where he was going to continue to work, he needed to turn off the early social security, and already be prepared to actually give back a big chunk of what he had been receiving, which, of course, when you’re finally just getting back on your feet, not the news you want to hear, but I again, much rather be the believer of it now where he has some time to start thinking about how he’s going to get that done, versus April 15, or March 12. And then you’ve got 30 days to come up with all the money, and it’s a little bit harder.
Dr. Friday 10:47
So just preempting, some of the situations you might be running into, or if you if you’re handling the accounts for your older parents, don’t miss out on some of those. I have people come in and say, “You know, my parents, or my mom doesn’t have to file taxes.” And and then I usually, you know, I’m saying that’s great. I mean, we all love to live and not have to worry about filing taxes to a point. And then you ask them, well, do you know if mom has an IRA or 401 K and, and those kinds of questions, and they’re like, “Yeah, she’s using some of that to live off of.” And then the first thing because the mind again, guys, I’m not a financial planner, but the first thing that comes to mind is that mom’s leaving money on the table, meaning could she not be doing some conversions of some of this money that she may never need to actually touch because thank goodness, mom is healthy in this scenario I’m sharing with you that I have.
Dr. Friday 11:40
But you know, she, you know, has social security and she gets like, $7,000 a year in a pension, and she, she’s living on her own, and she’s fine with that. Well, I mean, if that’s the case, you take half of her Social Security. So she let’s just say she’s making 20 in Social Security, take half of that, that’s the provisional tax code, add the pension. So that’s 10,000 plus seven, that’s 17. I mean, in that theory, easily 25 to $30,000, a year for free could be getting converted from a standard IRA into a Roth IRA, which even if mom never needs it, then when you inherit that IRA, and now we’ve got that 10 year window, that we have to take all the money from an IRA out anyways, now you’ve got some of it already deferred into a Roth tax free money for the people inheriting even if mom needs it for medical or extended care, whatever, it’s still there, it’s not going nowhere.
Dr. Friday 12:33
But it would be a way of thinking instead of always, you know, being I mean, in some cases, they don’t have IRAs, or anything, the money is basically money in the bank. And, you know, they have a small pension or they have Social Security, and that’s what they’re living off of. But don’t miss the window. If you happen to have a parent that has money in an IRA, the ability to possibly atleast talk to your financial planner and find out are we leaving anything on the table because you know. Mom getting free conversion and you having to pay 1520 to 25, whatever, your tax bracket on the same money. I’m thinking where’s the lowest dollar amount and what can we do to make it work? All right, you can join the show. 615-737-99866. We’ll take our first break. We’ll be right back with the Dr. Friday show.
Dr. Friday 13:31
We are back here live in studio. And if you want to join the show, if you’ve got a question concerning taxes, or maybe you’re thinking about selling a piece of real estate or anything along that line, you really do want to at least get an idea of what are the tax bills going to be if I sell especially a piece of rental real estate or inherited real estate? You know, you don’t want to just go out there. I know a lot of people are like, “Oh, don’t worry about it. You’re not gonna pay hardly anything for taxes.” And then I have had to tell people again, that’s not always the case.
Dr. Friday 14:26
So if you want to join the show, 615-737-9986 is the number here in the studio. If you’ve got questions. Maybe you’re receiving love letters, maybe you’ve got a situation where Uncle Sam has decided that they’re going to be dealing with you. We all know that there’s a basically a big hiring situation that the IRS is going to be taken on and there’s no question that in the next few years, even if they hire half of what they can’t plan to hire, and they finally get get them trained, which that’s why I’m saying the next few years because some of the people may come in as already accountants or tax people, but they’re not looking for that kind of experience, you do not have to have a CPA, you don’t have to have an accounting degree to work for the IRS. So bottom line is they will do all of the training. And so once they get these individuals trained, and you’ve been sitting here saying, “Well, I’m gonna try to get to this as soon as I can. I know I’ve got some back issues, whatever.”
Dr. Friday 15:28
Well, let’s be honest, this would be a better time to be dealing when the IRS does not have as many people in their staffing than if you wait until they have a lot more individuals for all of you guys that have been filing or maybe even people that listening that have been in the tax business for the last 25 years like myself, you all know that in the last probably what 8-10 years, we’ve had less and less revenue officers and agents, both sides dealing with either the phones or dealing with audits and collections that they keep reducing them. Now they have come up with some automated situations and some is that some of that is actually a good thing. And some of it not necessarily a great thing. I will say, I honestly think people need to think about getting there. Well, just the fact is, you know, people need to get in line and get things organized now because I think the IRS is going to have a bit more time for their collections and doing the things that they want to do.
Dr. Friday 16:30
So again, you can join the show, if you’ve got a question or a comment even about that, call 615-737-9986. It looks like we’re finally getting a little phone action. I appreciate you guys. Let’s hit Joe, while you’re on the phone there, huh? Can we hit Joe? There we go. Thanks. Hey, Joe.
Caller 16:54
Hey, how are you doing?
Dr. Friday 16:55
I am doing awesome. What do you got happening?
Caller 17:00
Got a question about some the taxes on IRA that I have I want to I’m thinking of pulling it all out. It’s not a big one. It’s only I think just barely over 30,000. And I know the taxes are going to you know, I’m almost 60.
Dr. Friday 17:21
So, over 59 and a half?
Caller 17:24
Yeah.
Dr. Friday 17:25
Okay, that’s a big number to have in there. And yet, what can you give me a ballpark? Are you married or single?
Caller 17:31
Married.
Dr. Friday 17:33
And what’s your guys’s combined income? Just a ballpark? Just give me in the in the area?
Caller 17:40
Maybe 90?
Dr. Friday 17:41
Okay. So what you might want to consider, I mean, basically, the 12% tax bracket is going to be in 20. If you wait till 2023 will be a little higher than if you do it now. But even now, if you take 80 plus 24, about 108,110, you are in the 12% tax bracket, taking the standard deduction, assuming you don’t itemize, right. So you can take a port and you don’t have to do all or none. You could take out let’s say 10,000 this year, and then 20,000 Next year, because there’s a little higher because that new cost of living they’ve given us.
Dr. Friday 18:19
And keep yourself in the lowest of tax brackets. And now that you’re 59 and a half or older, there’s no penalty. You know, if you had waited, did it last year, you would have possibly considered a penalty. And that would have been an additional 10% tax. But you did your your timing was very good. And so now you waited till you’re 60. So if you want to do at all and this year, I mean, I would probably have them withhold 20% And then you’ll probably be overestimating, but I probably do that just to be safe.
Caller 18:45
Yeah. And I thought that my sister actually worked for the state and she was telling me that they do automatically when they would when people were retiring withdrawals. There’s from there, they do automatic like 22%.
Dr. Friday 18:59
Oh, really? I think most 401k is in them will only do the automatic 10. They don’t even know you’re over the age that seems to be and then they’ll usually ask you there’ll be a number. But, you know, I would just make sure if they take out 20%, you’ll be fine. You’ll probably be a little on the high side, but you really have too much go out and then not worry about coming back up with it.
Caller 19:20
Yes, absolutely. Okay, I appreciate it. Thank you so much.
Dr. Friday 19:22
No problem. Thanks. Appreciate you. Let’s go to Donna. Hey, sweetie.
Caller 19:27
Hey, hon. How are you today?
Dr. Friday 19:29
I am living the life.
Caller 19:33
I hope you can help me. Explain some things. You have talked about RMDs before and next year, I’m going to be required to start on. I heard today a word that I’d like some more advice on. It’s a donor advised fund for your direct charitable contributions through an RMD. Do you know anything about that?
Dr. Friday 20:03
I do. We do them all the time. And it was just a year or two ago when they finally made it, like a standard law that we can use every year, they kept trying to just expire. And then we had to wait and see if they would renew. It’s called a qualified charitable deduction. And basically, what it comes down to is, and we love it, because if most of my people, all you guys are often giving really well, but we don’t really get to write off charity right this second because such a high deductible that people you know, aren’t using it. So the nice thing is, anyone that is 70 or older that can take and you’re gonna be 72, since you’re probably under the new rules, but anyone that’s taking RMD, 70, up to 72, you can take the money, let’s say you want to give on a red cross some money, so can they have a Red Cross, you can speak, go to the fiduciary person that’s over your IRA. Basically call them and say, “Hey, I would like you to write a check out to Red Cross for $5,000.”
Dr. Friday 21:03
Or whatever, you know, you can do just up to whatever your RMD, you can just do a small amount, maybe it’s only $500. But your RMDs are 2000, whatever the number might be, but you can give up to theoretically $100,000. So you can do whatever your requirement. And the nice thing about it, here’s the fun part. For me, right, so the fun part is normally you have to itemize to get your charitable deduction for individuals that are taking it from their qualified from their RMD and give it to a qualified we take it before it even hits the tax return. So bottom line is if you have a 1099 R, that’s what you would get at the end of the year, and it says $5,000 distribution, and I gave three of it to my church, you’re only going to see a $2,000 contribution on page one, and that’s all you’re gonna pay tax on is 2000. No itemizing required.
Dr. Friday 21:54
So, the hardest thing for some my clients is, you gotta rethink it. And normally, sometimes, like, every week, I put my money in the basket. So it’s a little harder, where ideally, you basically say, “You know what? I give the church $3,000 every year, so once a year, you have a cheque issued from the organization to the church, but they’ll send you the you’ll physically receive the check in the mail, and then you’ll put it in or give it to the church or wherever you’re giving it. And then that’s the way it will actually work. But you need to kind of put them all into one big payment, because I don’t think they’re going to write 52 checks for you, you know, every week for you to put it into the basket, they’re going to want to do one check for the whole year.
Caller 21:55
Okay, and you can make the commitment if you can only itemize every other year, you could make the commitment at the end of the year and pay them the first Sunday of that new year?
Dr. Friday 22:51
Absolutely. I mean, you know, being Catholic, obviously, they, you know, they have a whole set what we say we’re going to do and try to live up to those numbers. And so, that being said, the answer is yes, that’s exactly what I would do. If I was of that age, I would just basically and then have them issue a check at the first of the year, it can be middle of the year, whatever, you know, whenever everyone’s comfortable in doing it. But as long as it’s done before the last day of the year, the church will be happy, or whatever charitable organization you’re wanting to give it to. And sometimes people will do two or three different organizations that they they usually give a larger dollar amount to again, we can’t itemize.
Dr. Friday 23:31
Theoretically, if you’re single you can get $300. And if you’re married up to $600, but yours being that you’re going into this other RMD yours is already coming out before itemizing that’s so nice for older people, because so many of them do not really itemize.
Caller 23:48
Right. Okay, great. All right. New option to think about.
Dr. Friday 23:53
I like it. Yeah, thanks for bringing it up too, Donna. Because there’s a lot of people that even though it’s been around probably for 10 or more year, it’s until it really starts. You know, I’m just saying until it gets into your world. You’re like, Wait, now I’m going to do this RMD now maybe I can go into this other side. So great for my listeners as well. Thank you.
Caller 24:10
Yeah, you walk into the your advisors office and you’re one age and you walk out two years older.
Dr. Friday 24:19
Exactly. It does happen. But well, enjoy your Saturday, sweetie. Thank you.
Caller 24:26
Alright, have a great day. And thanks for being there.
Dr. Friday 24:28
No problem. Thanks. All right. We’re gonna take our second break for the show and you can join the show at 615-737-9986 and we’re gonna be right back with the Dr. Friday show.
Dr. Friday 24:49
All righty, we are back here live in studio. If you want to join the show, it doesn’t take much 615-737-9986. We are taking your calls live here in studio and we’re gonna go right to the phone and see what Brad and Shelbyville can help us out with. Hey, Brad, what’s happening?
Caller 25:26
Hi, hello, thank you for taking my call. Sure, I quit my job in October. And I have zero income for this year, and I don’t know how to file.
Dr. Friday 25:37
Well, there’s a beautiful thing called you don’t need to. If you have no income, the law does not require you to file anything. If you’re on unemployment or disability, there may be a requirement, but if you’re just living off of savings, or you know, whatever it might be that you know, laws, it’s not an income tax form, then Brett, you don’t have anything you have to worry about.
Caller 26:04
Okay, I do have I started a business. So I have a tax ID number. But I have not gotten any income through it. And does that matter?
Dr. Friday 26:14
Well, it does. I mean, to a point. I mean, if it’s is it an LLC or just a sole proprietorship number?
Caller 26:22
I believe I registered as an LLC, but I am sole proprietor.
Dr. Friday 26:27
Well, the only reason I say that is there will be a zero franchise excise return that needs to be filed and the federal government will be looking for at least a zero Schedule C, possibly that you’ll need to file. So there may be even though it may all be zeros, you know, I mean, because you haven’t actually opened at the state of Tennessee well require a minimum of $100 on a franchise excise report. And that needs to be filed on or before the Tax Day, which is April 15. Assuming next year is April the 15th.
Dr. Friday 27:00
And then, of course, you might have a business license, it’s also due on that day. So those would be the big things to remember not so much the federal government but if you did register with the state, you are going to have that kind of situation. So I’m just saying you might want to do you have if you have a tax person, if not, give us a holler. I know you’re in Shelbyville, easy to get to Brentwood, but it’s a pretty easy return to do. But I would say more about making sure the state stays in compliance than worrying anything about what the federal government is going to need you need from you.
Caller 27:33
Understood, I have used h&r block in the past, but I have no problem going to Brentwood and talking to y’all to figure it out.
Dr. Friday 27:40
Yeah, whatever works for you, if you’ve got someone nearby, the biggest thing is if you go to h&r block, and I’ve got a lot of good friends, even though I do sometimes make a little fun of the franchise itself. They’re great people that work for them. The biggest thing is you need to make sure that you tell them that you want them to file all the state because sometimes they just get focused on the Fed. And they will say “Oh, you don’t need to file,” which we already know. We don’t need to file a federal but we do have some state obligations since you are a single member LLC. And that would be the biggest thing. I think they could probably handle it just as much versus coming. But either way we can work with you. Okay?
Caller 27:52
Great. Thanks. Love the show.
Dr. Friday 28:18
Thank you. All right, we’ve got Russ in Cookeville. What’s happening? Russ, you there? Yes, I
Caller 28:29
Yes I am. Yes, Dr. Friday. Hey, thanks. Thank you for taking my call here. Sure. I guess I had a question. I’m in the house that I’m in, is paid for. And while I was going to sell it and move to another place, can I like Well, I haven’t picked it out yet. Can I purchase the house somewhere else before I put the one that I’m living in first? Or is there a time when you have to sell that? Or?
Dr. Friday 28:55
Well, there is I mean, bottom line is you have to live if this is your primary home and my understanding was this is the home you’ve been living in how long have you lived in the house you’re in right now.
Caller 29:05
I’ve lived here 30 years. And its paid for.
Dr. Friday 29:08
Cool. So the bottom line is, in fact, I would suggest doing that. Some real estate agents will actually work with you as far as the sell and the buy. But from the tax standpoint, you theoretically have two years, almost two and a half before you have to worry about selling the house that you’re in today. So you have to live in two out of the last five years. So that means three years you haven’t lived in it, you can still claim it as your primary home and get the exclusion. So I would definitely go find where you want to live and make sure it’s you know, gonna do what you want before you sell where you’re at. And then you’re like, “Oh my gosh, where am I going to move?”
Caller 29:47
Okay, well that’s good. Yeah, I didn’t want to get into it where you had to move twice. Okay, so I have like up to two years to sell the one that I’m in then.
Dr. Friday 29:57
You actually have three but I would definitely I I kind of leaned towards the easier side. So in your mind, as long as you say two years, you’ll have plenty of time to get out in the market, sell it and be within the three years that you haven’t lived with it.
Caller 30:10
Okay, that sounds good. That sounds good. D. Friday thank you very much. Have a good afternoon.
Dr. Friday 30:14
Thanks for calling. I appreciate it. All right. And that was a great question, again, so many times. And you know, nowadays, primary homes, I have a number of clients that have sold primary homes. And again, the rule is to have the last five years, I’ve had a couple people keep the primary home and go and turn it into a rental, and then they have moved somewhere else. And they’re trying to see if they like where they’re moving to, before they get rid of the primary home, it is not easy to relocate.
Dr. Friday 30:43
And just like Russ was saying, my personal opinion, I would not want to have to sell my primary move into a temporary rental and move all my furniture and everything else either into a storage are into that house, and then by the house you want to move into and then have to move again, that sounds like a crazy nightmare. As far as I’m concerned. I’m not a big person that likes to move period. So it would be really over the top as far as I’m concerned, of having to do it twice. So thinking about that. But yes, you have a little cushion there, especially with his being paid off, he’s not worried about two mortgage payments or anything.
Dr. Friday 31:21
So if you have that kind of flexibility, I would say take the time, figure out what you need to do. And then do it don’t rush to worry about what you have on one side to do with something on the other. So if you’ve got a question, maybe you’re in the midst of making those kinds of decisions, and I can help you at least with the tax can’t tell you if it’s a good idea to move or not. Because you know, that’s a personal opinion. And what you’re going to get today for the price of real estate versus probably what he paid for that house 30 years ago, may still be a problem, we didn’t really get into the number crunching.
Dr. Friday 31:53
But Russ, if you’re thinking about it, you have if you’re single, you have a $250,000 exclusion, if you’re married, you have a $500,000 exclusion. And if you were living in the house with your spouse for a period of time, and then you know, we lost that spouse, if they passed away, we would have a step up in basis if their name was on the house. If you had joint tenant on the house, so you might want to talk to someone just to find out because if he’s lived in this house for 30 years, guys, you know, he’s probably paid a lot less than what he’s going to get today for that house.
Dr. Friday 32:27
And even a $250,000 exclusion may not be enough, I have had more than one individual sell their primary homes that they have lived in the last 20 years, 30 years. And even with the mass of maybe sell them put some new improvements, updated the bathrooms updated the kitchens, put some money in the house still doesn’t hit the dollar amount. difference. So you know, I’m selling my house for a million dollars, we paid 250 for 30 years ago. And then we you know, put a new kitchen and bathrooms, maybe we have 300 and you get even if you’re married, you only have five, three and five adds up to eight, you sell 4 million, you still have roughly $200,000 of capital gains, you’ll have to pay on that house.
Dr. Friday 33:09
So understanding how those numbers work is going to make you a better idea of how and what you want to do. Because if you turn around, think, okay, I can just sell this house. And I’m going to take all of that money and put it down on a new house. But wait a second. Uncle Sam has his hands in that pot, because he’s saying you know what, you have $200,000 capital gains, that $200,000 Maybe putting you in a higher tax bracket. And capital gains rates are not as simple as everyone likes to say, “Oh, it’s 15%.”
Dr. Friday 33:41
I can’t tell you how many speaking engagements I’ve done. And even with real estate agents, but people that just basically say you’re basically going to have 15% capital gains. And nowadays, that’s not necessarily true, because if you add ordinary income, let’s say this gentleman is married, and their combined income before the sale of this house is $100,000. And now we’re adding 200,000 on capital gains, that kicks him into a $300,000 income bracket and the 3.9 3.8 Excuse me, assessment above the 15 kicks in at 250. So everything above 250. So another 50,000 would actually be taxed at 18.8. And if any reason it kicked them all the way up into a $470,000 tax bracket, they would be at 23.8. That is the highest tax bracket for capital gains, not 15 and then 20. But it’s really 15 and then 24.
Dr. Friday 34:38
Almost if you’re actually looking at the higher tax bracket. So just again, the numbers and I know on the radio, sometimes some of this stuff is not as easy to follow then if you’re sitting there being able to talk directly with someone and their information, but I do want you to understand in this conversation is that there are limits to how much 15% is going to cover If you’re going to sell or do something, you really need to understand how is that going to affect your taxes, especially if you have pay taxes and then reinvest in a new house.
Dr. Friday 35:09
Alright, so if you want to join the show, hey, I appreciate it 615-737-9986. I’m an enrolled agent licensed with the Internal Revenue Service, they do taxes and representation that is really all I do guys do and do it for over 20 plus years, and I basically can represent you in front of the IRS, I do not work for the IRS, I actually work for you. And that way, you can actually have some sort of resolution and understand how resolution actually works. And I know there’s a lot of individuals that like to advertise on these radios that basically talk about how they can do that.
Dr. Friday 35:49
But I’d be curious to find out how many of those individuals are actually doing the work? Are you actually meeting with the individual that you hear advertising on the radio? Are you actually has that person even live in Tennessee? Do they even know? I mean, do they have an address here where you can actually go and meet and talk and do a face to face and have something other than just basically knowing that they have done resolution? You want to have someone that you know that you can meet and as and when anywhere in the last 25 years working here, then you need to call my office.
Dr. Friday 36:18
But right now if you’ve got a question on that, or anything to deal with taxes, give us a call here in the studio 615-737-9986. And we’ll take our third break when we get back we’ll be winding down the show. So if you’ve got a question you might want to pick up the phone now we’ll be right back with the Dr. Friday show.
Dr. Friday 36:54
We are back here live in studio only have about maybe a left of the show. So if you’ve got a question now be the time to probably pick up the phone and give us a call 615-737-9986. Manny is on the phone. Let’s see if I can help him out. Hey, Manny, what’s happening?
Caller 37:18
I have a question Dr. Friday, I set up and self settled a revocable trust a few years back. I have an EIN number. But I don’t have anything in the trust yet. And do I need to be filing on that because I haven’t filed anything other than got my EIN number on it.
Dr. Friday 37:39
Right. Most trusts actually have to have activity to require filing status. If you want, you can email me the information you have there should have been a love letter you received from the IRS initially, when you got the federal ID number that would have said that you need to be filing, I don’t know a 1041. Or I’m assuming you know that’s the form you’d be filing but on the trust and when, when and how and that usually in that letter will actually stipulate grantor trusts are different than then the type of trust you’re doing. And I’ll be honest, I can’t say I do a lot of those trusts compared to more estate settling or that kind of situation.
Dr. Friday 38:18
So I would look it up to make sure but many trusts are unlike most tax returns like 1120 1120 s 1065. Even if you’re zero you have to file that’s the law, the IRS basically says or they’ll charge you a penalty for failure to file but trust they’re a little different. So I’m not going to help a whole lot because I’m not absolutely sure the type of trust that you have. But if you want to email or just email me at friday@drfriday, and they’ll give that out again friday@drfriday.com. I’ll be more than glad to look up your trust and make sure you know send you over the IRS reg regs on it. So you can you know, make sure you stay in compliance.
Caller 39:00
Okay, thank you kindly. I appreciate that.
Dr. Friday 39:02
No problem, buddy. Thanks. All right. We have some more people calling in. But again, remember if you have IRS issues and you need help, sometimes as easy as just emailing me over, just as that gentleman I mean, it’s not something’s not really probably an issue is more it’s just making sure that he’s doing what he needs to be doing because the last thing you want to do is get on the IRS hit list for doing nothing because you didn’t realize you needed to do it. And that’s where you know that can be a problem. Like I said, I deal more with business returns and that does happen often with those. Alright, Walter in Nashville. Let’s see if I can help Walter. Hey, Walter.
Caller 39:42
Yes, I’m calling about some bevelling bonds for the year. I cashed them the other day and I’ve stuck with all of of interest, and it takes us pay interest on every year. So I’ve accumulated quite a bit of interest. I guess the best thing is this bite the bullet and go with that don’t have any alternative?
Dr. Friday 40:03
I mean that no you don’t have any alternative at this point you’re going to have to put on your tax return. The good news is depending on your other income, how what tax bracket you’ll be in and in since we’re in Tennessee and we no longer have the halls income tax, that’s another win win because you would have had to pay state income tax a number of years ago on that. I don’t have that. You did it at a good time.
Caller 40:26
Okay, so it depends on what percentage you have any idea?
Dr. Friday 40:30
I do you know, what you normally file for an income tax? I mean, do you usually have 20 3050 100? Do you know what your income brackets usually? Okay, so are you single?
Caller 40:41
I am single.
Dr. Friday 40:47
Okay, and give me a ballpark of just the ballpark of what that interest was? How much?
Caller 40:53
95,000.
Dr. Friday 40:54
The interest was 95,000?
Caller 40:57
Yes, ma’am.
Dr. Friday 40:58
Okay, so you’re gonna be looking at 22% on most of it partly, I would honestly say probably closer to 20, because you didn’t eat up all of your 12%. And you’re not gonna be maximizing. But if you have 20, or 30,000, ordinary income plus 95 on that. And even if you normally don’t have to pay tax on your social security, this is going to kick in 85% of your Social Security is gonna become taxable. So I would set aside, Walter, 20% of it, I would just set it aside for Uncle Sam. I know, it’s like ripping off the band aid. I’m trying to do a quick so you know, it’s not happening. But yes, that would be the answer is just just set that aside, and another account, not that I plan it major, you’re gonna run out and spend it all today. But you know, just set that aside. And whenever whoever does your taxes, if you do your own, you can calculate the exact dollar amount, but I would estimate around 20%.
Caller 41:55
Okay, one other question. I’ve got four children, and I’m giving them the max every year, husband and wife. So that is how much of that now?
Dr. Friday 42:04
16,000 in 2022. 17,000 in 2023.
Caller 42:09
Okay, so 16,000 each?
Dr. Friday 42:14
Each and their children. All right, buddy. Thank you, Walter. Appreciate it. Goodbye. Yeah, he did really good on those bonds, I will say, but he’s had to sit on and probably for 25 years. So that was a good situation. And again, sometimes, I mean, if you’re in those situations, sometimes it’s a good plan. But it could have been, that would have been better to cash out part of them this year, and part of them next year, keeping them closer to the 12% versus the 22.
Dr. Friday 42:41
But again, you know, at this point, he’s already done what he’s gonna do, he’s gonna be giving the money to the kids, which I’m pretty darn sure that they’re going to be extremely happy that Walter is coming for Christmas. And I’m just saying he’s a give his share of that. So if you have those kinds of questions, though, if you’re, before you do those things, before you make those decisions, sometimes it might be nice to have a second opinion.
Dr. Friday 43:05
And that way you can email my office, whatever, and we can give you a better idea is on the radio, I don’t want to ask a ton of personal questions. It’s no one’s business, but but I want you to be able to have the tool to be able to say, hey, you know what, it would have been better to do some now and then on January 2, do the rest. And I could have maybe saved a couple $1,000 Maybe it wasn’t worth saving it because, you know, the rates were what they were and they weren’t in he wasn’t earning at once they maximize, he wasn’t earning any money on the bond. So maybe it was better to cash them out.
Dr. Friday 43:35
So he could actually put the money, or his kids could put the money to work in a better situation than where he’s at now. So tough choices, but it makes you think, just if you have those situations, I want you to think about what your options are, where you’re going to go and make them before you make the decision. And then you know, because paying taxes, I will tell you, I can’t tell you how many times people walk in my office. And people are talking about oh, well, you know, I can’t I don’t wanna pay 25 I don’t wanna pay 30%.
Dr. Friday 44:02
What can I do to save it? And you know, business owners a first thing out of their mouth? Can I go buy a big truck? Or can I buy something? And the answer to this is very simple math, guys, if you need that piece of equipment, if it’s going to turn around, and either cost us less money in repairs and maintenance or create more revenue for you. Sure, go spend 100,000 to save 30,000 in taxes. But remember, you’re in the 30% tax bracket. So if I spend $100,000, I’m only going to save $30,000 I had to spend another 70 to save 30.
Dr. Friday 44:39
Now not sure how your math works. That doesn’t make sense to me would have been better just to pay the 30 and not have to spend the 70 If it’s not really going to be a huge saving for you. So don’t fall into that conversation where people are always going in there like oh, I want to make sure I have this or I want to make sure I have that. You want to make sure are that you have the ability to understand how it’s really going to help you I have people that do those things. And they’re actually in like the 20% tax bracket.
Dr. Friday 45:10
So I had to spend $100,000 to save 20 higher your bracket better the deal if you’re in the 48% or 38%. Even if you live in a state with income tax or not, then yeah, that person may be getting closer to breaking even 50% spin and 50% in taxes. But in many cases, some of these people are making, you know, 12. I mean, when I say you’re in the 22% tax bracket, half the time, I really mean that your effective tax rate might be 14%. So theoretically, I spent 100,000 to actually say $14,000. Okay, so let’s just think about that before we go and do anything really crazy. All right, what’s the end of the show?
Dr. Friday 45:48
So basically, here’s what you’re going to do if you need to reach my office, you can 615-367-0819. You can also check us out on the web at friday@drfriday.com. And if you are a current tax client of Dr. Friday’s office, and you haven’t already received an email to sign up for next year’s class, they’re your taxes. Please feel free to email me again at friday@friday.com. So we can make sure we have the proper information so we can send you a link so we can get you on the calendar. That way, we’ll open it up in the next few days for other individuals that might want to start coming into the service, but we’ll make sure all of your guys existing clients are all taken care of. Again if you need to address friday@drfriday.com, check me out on the web also 615-367-0819. My direct number is 615-367-0819. I hope you guys have an awesome Saturday. Truly enjoy the wonderful weather and as we love to say in Australia, call you later.