Welcome to this episode of the Dr. Friday Radio Show! Join tax expert Dr. Friday as she navigates through:
- Introduction & Upcoming Tax Season:
- Dr. Friday’s role as a financial counselor and tax consultant.
- Preparations for the upcoming tax season, including scheduling, deadlines, and extensions.
- The significance of tax planning and understanding personal tax situations.
- Life Events & Taxes:
- How events like withdrawing from a 401k, selling real estate, and changes in marital status affect taxes.
- Tax Programs & Scams:
- Warnings about misleading advertisements, especially concerning the Employee Retention Tax Credit (ERTC).
- The difference between the ERTC and PPP (Paycheck Protection Program) funds.
- Offer and Compromise with the IRS:
- Handling negotiations with the IRS and the importance of maintaining good standing.
- Entrepreneurial Tax Challenges:
- The tax dilemmas faced by self-employed individuals.
- Emphasizing the need to stay updated on tax obligations.
- Caller Queries:
- Inquiries on topics like inheritance, unfiled taxes, and the implications of sales and investments.
- Complexities in Taxation:
- The intricate nature of taxation, particularly for those with varied income streams.
- The importance of comprehensive tax documentation.
- Advice for Business Owners:
- Challenges faced by entrepreneurs regarding taxes, including different types of taxes.
- Guidance on the Tennessee Department of Revenue’s “TNTAP” system.
- Capital Gains & Medicare:
- Discussions on capital gains, especially related to selling homes.
- Potential Medicare implications due to significant capital gains.
- Closing Thoughts:
- The significance of understanding capital gains and their broader impact.
- A festive sign-off wishing listeners a Happy Halloween.
Stay tuned as Dr. Friday demystifies the complex world of taxes and offers her expert advice!
Transcript
Part 1 – 00:00
Announcer
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or your financial woes. She’s the how-to girl. It’s the Dr. Friday Show. If you have a question for Dr. Friday, call her now, 737-WWTN. That’s 737-9986. So here’s your host, financial counselor and tax consultant, Dr. Friday.
Dr. Friday
G’day, I’m Dr. Friday and the doctor is in the house. We are very busily getting prepared for the next tax season. Honestly, I got to play hooky the last week or so. So I am all ready to get ready to get organized, really.
If you are a tax client of mine and you want to set up your tax appointment, the calendar is on the website. So you can go ahead and set up your time for your tax appointments. If you are looking to have a tax appointment.
And then of course we still have to deal with some of the issues that are still coming out there. There were a few extensions out there for individuals that might’ve been, I know in California they have an extension. There may be a couple other small ones for the year of 2022, but all in all, most everybody should have already filed your 2022 tax return. It was due on the 16th of October and hopefully that was all filed. If you’ve gotten love letters containing something in them, or you have a question concerning maybe this year, because we’re what, 10 months into 2023, about time we start really talking about tax planning or understanding your tax situation. Because sometimes life happens and you either had to take some money out of a 401k, you sold a piece of real estate, you inherited something.
All of those things continuously happening. And most of them have an effect, getting married, getting divorced. If you are a small time employer and you haven’t filed for the ERTC, I would be careful with some of the ones that are advertising out there, but it’s definitely a legitimate possibility for you to be able to get. I will tell you a number of my clients have, we have processed it with a local CPA and many of them aren’t qualifying for as much as you hear that 24,000 or whatever, $23,000 an employee, but they are getting money back. I do want to reiterate that the ERTC, the employee retention tax credit is taxable income to the employer. So you wrote off those taxes, you’re getting it back. Or it becomes income in the year in which it affects. So that is important to understand.
Unlike PPP money, this is money that you will be paying taxes on. So prepare that way so that you make sure that you understand how that’s going to work. If you want to join the show today, you can at 615-737-9986. We have been working diligently on a number of offer and compromises. It is what we do a lot of. We’ve been doing that as an enrolled agent. I’ve been doing that for 20 plus years, helping people to make deals with the IRS. It is not something that every person that walks in my office is going to be able to do. I am not one of those firms that’s going to say, pay me $500 a month or a week and I’ll take care of your problems. We’re going to have a plan. We’re going to work towards that plan. And if any of the people listening have ever worked with me, you’ll know that the IRS does not move quickly.
So it is a plan that we are going to work together and make sure that we can get fully through the process. And keep in mind, if you get a deal with the IRS, let’s say you are one of them that can meet or get the compliance and you’re able to get a deal, you do have to stay current for five years. That means no payment plans.
That means you have to be making estimated in some cases, or maybe it’s sometimes it’s a one or two year situation that would normally not affect every other year you filed their good, but you ended up with a bad situation. But if many cases, it’s the entrepreneur, the self-employed person that ends up with IRS issues. If you are one of those, there are a plan, but you do have to get yourself on track on how to deal with not only moving forward, which is probably more important than dealing with the past because as soon as you get a fix on how to stop having to pay the IRS as much money every year, therefore getting yourself in trouble, which basically means making payments or maximizing your taxes, whichever it might come down to, then you can start taking care of the past.
But we do have to figure out a way to do that because it’s not just as simple as, oh, well, I owe the IRS a hundred thousand dollars. It’s, you know, I haven’t filed them for the last couple of years. And now with penalties and interest, you have all of these kinds of situations. It goes on past that because what I don’t want to do is have you coming into my office every year because there’s an issue or a problem. I want to get you on track.
So that way every year when we file your taxes, you’re on spec, you know, okay, I owe $15,000. I’ve paid him $15,000 or I have access to the 15. So I don’t have to worry about paying the IRS more money in penalties and interest. Cause that is probably one of the worst situations is not only not filing and paying taxes, but after two or three years, you’ve almost doubled the amount of money that you owe the IRS. So, you know, you may have started out owing them $10,000, but now you owe them 20 because it’s been a number of years.
So you want to be able to make sure that that information is going correctly. Again, if you want to join the show, you can 615, uh, seven, I’m sorry, 615-737-9986. 615-737-9986 is the number here in the studio. If you’ve got questions concerning your taxes or maybe some income that you have received or you’re not sure if it’s taxable. Um, and of course, sometimes some of the things you do as well, if you receiving something like social security, then you have to also remember that social security can become taxable. I have many times have a situation where someone comes in and they go, well, I set aside that 15% on the sale of this. And then when we figure out their taxes, they actually owe more because they normally didn’t have to pay tax on social security, but because of the sale of this property of this capital gains, it created not only taxable income from the sale, but also they tax their social security benefits.
So again, that is important that you understand not only what the tax rate is, but what’s being taxed and is there a way of not being taxed in many cases? You know, it really isn’t. I mean, I hate to tell you, I mean, you have your income and you have your expenses. If the expenses don’t offset the income and most cases, how can it, because we cannot have zero income every year. It just doesn’t make any sense. I have people that come in often and they’re always telling me I didn’t make any money this year. I didn’t make any money.
I can’t owe the government because I didn’t make any money. But then how did you pay your rent? How did you make your car payments in the case of this one particular, um, you know, how did you eat? You know, there is certain minimums people that you will have. And as a self-employed individual, you didn’t pay tax on that money. You have to pay tax on what it takes for you to live.
We live on after tax dollars. So understanding again, how do taxes work? What’s the best way to make it work and where it’s going is going to be the best or the simplest way for you to really understand how to keep yourself out of trouble with the IRS. All right. We’ve got Ricky from Franklin. A question on inheritance. It looks like, Hey Ricky, what can I do for you, sweetie?
Caller
How are you Dr. Friday?
Dr. Friday
I am doing great. Thank you for calling.
Caller
Let me tell you a situation I’m in about my parents, parents that are 10 months between one another. And it’s just in the last few years when we had all this real estate craziness. Yes. Having said that, I got three sisters and we had the house appraised and everything you’re supposed to do. And like I said, that was when it was bringing a hundred thousand over asking price.
Dr. Friday
Right.
Caller
My question is we, we, we, uh, we paid 719,000 for it and wind up getting 585 for it, which is a difference of $134,000, 33,500 a piece. My question is only income I’ve got is social security.
Dr. Friday
Right.
Caller
My wife’s got a super good job. Is it any way to recuperate that last? It’s what my question is.
Dr. Friday
Well it is, if you’re married and you file jointly, you will be able to claim the 3000. It’s not a lot, but $3,000 a year of that for the next 20 years. So you’d be able to use it all. And if there was any kind of capital gains in the future, you can wipe it out. But even if you don’t have any future capital gains, you will get $3,000, which at, you know, 20% would be $600 in your pocket every year. Um, it’s, so it really just depends on, I mean your situation, but, um, I would definitely say it would, it has to roll with you because you were the individual that were inherit. So if you file married filing separately, it won’t benefit you anything cause you’re not paying any taxes in cause you’re living solely off social security. It sounded like, um, you’re exactly right.
Caller
Okay. 3000 a year. What is that called?
Dr. Friday
That is a, it’s, it’s called lost carry forward and it’s under your capital gains tax laws. Um, but you get to claim up to a negative 3000. So you have 33,000. So for the next 11 years, you’ll get $3,000 a year and offset her, your ink, your joint income on your tax return.
Caller
All right. So actually can get it back just a little at a time.
Dr. Friday
Exactly. You’ll get it back. I mean, at least in your case, it will be something you can get over your lifetime where if it had been a hundred thousand dollars lost, you couldn’t, you know, they don’t, there’s, it would end up running out before unless you have other capital gains. But uh, in your case, yeah, you’ll, you’ll get it back a few pennies every year. But Hey, at this point it’s free money because you’ve already, um, suffered the loss of the, the real estate anyways.
Caller
Right. So based on this, the reason I’m getting it back, my estimation is because I’m filing jointly, which I always do with my wife.
Dr. Friday
Right. You are a hundred percent right, Ricky. It is because you’re filing jointly with your wife that you’ll be able to get any kind of refund back.
Caller
Oh, okay. So what will they do? Just start putting it in your bank account every month or what?
Dr. Friday
No, I mean, they basically that when you file your taxes, it will be on the tax return and it will increase your refund or balance due, whichever may be the case.
Caller
Okay. Thank you.
Dr. Friday
All right. Thanks, sir. Appreciate the question.
Alrighty. We’re going to go ahead and get ready to take our first break. Again, if you’ve got questions, that was a great one because a lot of times things happen and goodness with the real estate market, we had several people that were making way above market. But then when you hit that, that point where, so she was something like that, where you list it for 700 and you only sell it for 500. There is some losses that will come along and you will be able to claim those as a person that was a beneficiary. In some cases, people will get better benefits if they have other losses they can take against gains, but either way, he’ll be able to retain those. But if you have questions, join the show, 615-737-9986. 615-737-9986. We’ll be right back with the Dr. Friday Show.
Part 2 – 00:12:26
Dr. Friday
Alrighty. We are back here live in studio. And if you want to join the show, you can at 615-737-9986. 615-737-9986. And we’re going to go right to the phone lines. We have James from Nashville. Hey James, looks like you have a little tax issue. What can I do for you?
Caller
Hey, Dr. Friday. I never filed my taxes for 2020. I think it was that COVID year where they extended it. We can do it in June or something. Well, I kept putting it aside and putting it aside and never filed my taxes. I usually get, like the past two years I filed them and everything was fine. They gave me my money and everything. I got money back. So I believe I owe taxes. You know, I don’t owe taxes for that year. But I tried to get TurboTax or something to do my taxes and I can’t find the stuff to do that. So what can I do about that? Is there going to be anything special I need to do or can I just try to get the old forms and fill it out? Or is there special stuff?
Dr. Friday
Well, I don’t know. I mean, yes. I mean, all you need to do, there’s nothing really majorly special. Obviously, electronically would be easier because you do want to make sure if there’s a refund that year, you’re getting close to come April, you’ll lose the 2020 tax year. Right. So a one, two and three, 21, 22 and 23, the only refund for three years. So we want to make sure that you do this now versus later. So you can certainly do a paper copy. I think they still accept those. I know I don’t ever file those, but you can download the forms probably at IRS.gov.
I would suggest or you might want to see. I mean, I can’t believe TurboTax or them don’t have past years available. Just seems like they would want to bill you for anything because it is still e-fileable that year at this point. So you can still e-file it. But either way, I would just say, James, get it done. If you need help, you can call us as well, but either any direction you want to go, but just get it filed. So that way you don’t lose the refund would be more my concern than if you owe money. Well, then we can deal with that as well. But it’s mainly if you have a refund, I just hate to leave the money on the table.
Caller
Okay. Would there be any penalties or anything because it’s so late?
Dr. Friday
No, that’s the beautiful thing. If they owe you money, there’s no failure to file penalties. It’s only if you owe them money that you get hit with penalties.
Caller
Okay. I’m pretty sure, like I said, a few years before that and after that, I’ve gotten money back.
Dr. Friday
Right. I mean, either way you want to just deal with it, deal with whatever. And it sounds like you usually always file your taxes. So even if there is a penalty, you may have a very good standing to be able to get that removed as far as the penalty if you did owe money. But I would just say, get it worked up so that way you can get it filed, get it on track. So it’s not out there waiting and either unfiled and losing money or file and pay the few pennies that you might owe.
Caller
Okay. So you’re thinking there’s a good chance I’ll still get that money back. You said after three years, I won’t be able to get it back?
Dr. Friday
Right. So you’re good until April of 2024. So you have six months. Okay. So 2020 was due in 21. So 21, 22, 23, and we’re in 23, as you know. So those would be the years that you have. So right now, the IRS will refund for the tax years of 20, 21, and 22. That’s the three years they’ll refund money for. So you’re right there. But in six months, 20 will drop off because 23 will go on. If that makes sense at all to you. If not, trust me and say that you have six months to get your taxes filed and we don’t want to leave that money on the table.
Caller
Right. Gotcha. Okay.
Dr. Friday
All right, buddy. If you need help, just give me a holler. I’ll be right back. Bye-bye. All right. And that’s perfect. I mean, James is spot on as far as just get the taxes filed. And again, I mean, really, I’m serious with, I mean, it’s kind of teasing him, but seriously, I don’t want him to leave money on the table because if he waits and says, oh, you know what? I’ll just file 20 when I go see my tax guy in 2023 to do my taxes for 23 and 24. And then the guy or person, whoever’s filing his taxes says, oh, sorry, you can’t get it. So filing it now would be a perfect plan so that he gets his refund. And that was one of the years that there was also a stimulus money. If he hadn’t received it, he might still be able to get it on because the only way you get stimulus money now is on the tax years that it happened. 20 and 21 were the two years that there was stimulus money available.
He may have already received his stimulus money, but I’m just saying, if you did not, those are the years that you have to file to request the stimulus money. And I still know there’s a number of people out there listening. They’ll say, I never received my stimulus money. We have many cases out there where we have copies of bank statements proving that there was no money received. The IRS is tracking the payments, but at this point, we’re not hearing anything. There doesn’t seem to be any kind of resolution per se that’s available to us to be able to go out and do what we need to do, which is to find that stimulus money. And I have a number of people. And I think part of it also comes as people were married in one year and divorced in the next.
So they used the 2019 for the 2020. And if you relocated, your spouse may have received the check. And I know they were supposed to turn the check back in and not do anything, but let’s be honest, we all know that doesn’t always happen that way. So I’m just trying to say is that you want to make sure that if for some reason you never received your stimulus money, I will say I’m not chasing it for most individuals any longer because we don’t find that the IRS is receptive. So what we have, we just send people out to the IRS themselves and pull your transcripts, see if they show the money and then look, go back and look at the dates. Cause that’s what we have and you know, find and see if the money is actually there. And then from there, you’ll have to call the IRS and deal with a lost check situation. But but anyway, so if you haven’t filed taxes in a number of years, easiest thing, let’s get them filed.
If you don’t know where to start, we can help you. We can get your transcripts. We can help you get that information so that we can at least report what the IRS has able to report and then any other additional income that you can provide as far as information, all of that can go on a tax return and prepare those taxes, get them all up to date. You have to have at least filed the last six years minimum to be in compliance. In some cases you may be able to, you may have to go past that because the IRS has done assessments on prior years and you have to address those assessments as well. But the IRS is basically saying we need to see at least the last six years on file, knowing that you’re in compliance and then going forward from there, making sure you stay in compliance.
And if you don’t, then that’s when collections or they can, you know, any deals they make, they will basically just turn them off and say, nope, we made you a deal. You fell through on the deal. You didn’t do what you promised and we’re going to come back and collect for all of it. So there are, you know, the fresh start program. You hear a lot of that pushed around out on the radio and TV when you hear about companies that do that. And there is such a thing as the fresh start program. It’s not something that new.
We’ve had it for a number of years to be quite honest with you. But it’s also something that if you’re looking to truly get a fresh start with the IRS and you don’t, you know, the biggest thing is if you have assets, you know, if you own a house you know, there’s a chance that they may allow some of the equity not to be counted depending on your age. If you’re in your seventies and or, you know, late sixties, they may give you a waiver, but if you’re in your forties or fifties equity in the house is going to be equity in the house, which means you made your mortgage payment, but you didn’t pay the IRS. So guess what?
That mortgage equity is theirs. Same thing with 401ks and other things like that. There are certain things that are excludable and able to be dealt with, but I just want you to make sure you understand how important it is to be able to get that information, get it done, stay in compliance. It’s so much easier to deal with the IRS when you’re only dealing once a year with them than having to go backwards and deal with them for five, 10, 15 years. I mean, I honestly had a case. I finally got it resolved, but it was 1992 or something. There was an assessment made. It kept getting delayed because of different things like she had went bankrupt. She had done everything, but never got tied to the IRS. So she was in her late sixties and she was receiving only social security. The IRS is taking a portion of it because of this, this situation. Finally got that resolved for, for them to take it off, but it was not a simple situation.
And you’re always thinking, well, I thought the IRS could only go back 10 years. That’s not always the case. It’s from the date of their assessment or the date of your filing. And in this case, it had been assessed a number of years ago, but it was still not something that because of the way that the time clock kept getting stopped, it was a matter that you were able to do what you needed to do. You know what I mean? She needed to address it and make it move forward. So that being said, all you need to do is track the information and make sure you’re doing everything on the right steps so that you’re not sitting there going, oh my gosh, I’m in my seventies and oh my gosh, the IRS is taking part of my social security.
That is never a win-win situation. All right. So we’re going to get ready to take our second part of the show for a break, our second break. And if you want to join the show, you can do that. It’s a pretty easy 615-737-9986. We’re talking about taxes. We’re talking about money issues, but most important, my favorite subject is dealing with the IRS or the state dealing with tax issues. I’m an enrolled agent licensed by the internal revenue service to do taxes and representation. So if you need help with doing any of that, or maybe you have a friend or someone that you know is dealing with some of these issues on their own, they don’t have to, they can have someone in their corner, you know, because we can basically be a shield between you and the IRS if it’s necessary.
So if you need help with that, again, you’re in the show, if you want 615-737-9986, 615-737-9986 we’ll be right back with the Dr. Friday Show.
Part 3 – 00:24:07
Dr. Friday
Alrighty, we are back here live in studio on this beautiful Saturday, even though it sounds like it’s going to get a bit nippy out there in the next few days, but I’ll take it considering we are at the end of October for all of you business owners. Again, don’t forget this is the end of third quarter. So you know, payroll taxes, 941 filings, state unemployment, all those good things are due by the last day of this month. So if you have questions or need help with that, you can always call our office, but otherwise make sure you file them on time. And the IRS is preferring more and more people to file their 941s electronically versus by paper.
So again, if you need help with that, you can give us a call and we can deal with that directly for you. But so let’s see here, we have a person that sent in a text just this morning, just said if they sell their residence and they make more than $500,000, will they end up having to pay taxes? And you know, we did have a little of that prior, like when the gentleman James called or whatever, and it’s talking about, you know, in 2021, we had a really good real estate period of time. And so I had several people that were selling their primary home and actually exceeding the current standard deduction that you’re allowed. So just to make sure you have a primary home, it’s making your primary home.
You have to have lived out of it two of the last five years. Doesn’t have to be consecutive, but you have to have been in it two of the last five years. If that is the case and you sell it, whatever you paid for it, plus the additional exclusion, which is 250,000 for a single 500,000 for a married couple, you get to claim. So in this case, they’re saying that they paid 150,000 for the house plus the 500. So their basis would be $650,000, but they’re selling it for 850,000. So in the scenario, they would have a $200,000 capital gains, which in most cases would be around the 15% tax bracket for a married couple.
It could be a little higher. Don’t forget that if it goes, if your total income is over $250,000 as a married couple with capital gains, you’re actually at 18.8% tax. And then if it goes over like 485, almost 500,000 combined along with the capital gains, you would be at 23.8. So always make sure you understand those little extras because whenever someone calls me, the first thing they tell me is, Oh wait, I’ve already set aside the 15%. I know that’s my capital gains. And my first question is, what is your income? What is the combined profit?
Are you actually at the 15% tax bracket? You know, it is most of the time, 85% of the time, I will say that the individuals set aside enough because they took the 15% and that’s where they were at. But those, those other times where, like I said, these individuals, they took 15% of the capital gains, but their social security now is 85% tax. So there’s another $20,000 of ordinary income that they could end up having to pay tax on. There are always these little catches in there that you have to be careful of. I’m just being honest, that the tax law within tax law, you had the provisional tax code, right? Which is the code that basically tells you how much of your social security tax is going to be taxed.
And then within the ordinary tax code, you have the capital gains tax, which are, of course you have capital gains, which short term is ordinary income. It falls under the ordinary income tax laws, but long-term has its own rules because that’s when you start seeing the 15, 18.8, 20, 23.8 tax. So again, a second tax code within the standard tax code. And then you always have the hidden AMT tax, which is for anyone that makes over 40 or $50,000 as a single individual. I think it’s like 90,000 for a married couple. Especially if you make it through capital gains, it’s supposed to be the way the IRS sells it to you is that it’s a way of leveling the playing fields for individuals that live off capital gains.
Theoretically, they’re making more money and therefore they can actually afford to pay more than capital gains tax versus other individuals. Yeah, you can buy that or not. It is another way of taxing you and that’s what it comes down to. And you can be from ordinary capital gains of 15%, right? AMT tax starts at 24%. That could be a big shocker if you end up having part of those funds being hit with AMT tax. So all I’m trying to say is that taxes are very rarely black and white. Sure, you go to work every day, you have a W-2, you make less than $150,000. You are likely not going to fall into any of these things I’m talking about.
You’re going to have, hopefully you’ve claimed enough on your withholdings to cover your taxes and every year you end up with a small refund. And that’s perfect world. But if you’re a person that does a lot of investing, you do a lot of short sales or stock sales or investing in real estate, REITs, all those kinds of things, then you are the individual that could end up with having multiple types of income, therefore falling under multiple types of taxation. So just make sure if you are one of those individuals, I would always suggest getting a second opinion. If you do your own taxes, there’s nothing wrong with that.
If you have been doing them and you feel that you’ve maximized your taxes and you’re not taking things you shouldn’t be taking and or you’re not missing tax deductions, sometimes it’s nice to have a second opinion. I would always suggest at least get a second opinion. More than once I’ve told the person that there was nothing more I could have done than they were doing themselves. But then there’s other times where I’m like, you can’t take these tax deductions. You’ve been taking losses on things that you’re not entitled to. And sooner or later you could be caught doing your taxes incorrectly. Or you know, you missed out on a couple of things, you know, and you really should have taken this as a tax deduction.
So getting that second opinion would be something that my opinion that would be priceless because then you know that either if you’re doing your taxes, perfect. And again, if you do your own taxes and all you have is a basic W-2 or maybe a basic 1099-R, Social Security, there’s really not. I mean, nowadays we don’t really itemize as often as we did back eight, 10 years ago, right? Because the standard deduction is so high. So you don’t really have the same situation. But if you are a person that has rentals, you’re self-employed, you have a number of investments, K-1s, different things like that, then you might want to get a second opinion to make sure that you’re meeting compliance on both sides. You’re not leaving money on the table and you’ve also maximized, you know, you’re not taking taxes or tax deductions that you’re not entitled to. So last thing you want to do is be audited.
Let’s be honest. I don’t think it’s going to be high on anyone’s table of things I want to accomplish in life, but you know, it can happen. And we all know that if they continue to try to find the funding that they’re looking for from the number of new agents, they will be out there doing more audits than anything else because that’s what’s going to generate income for the government. And no matter how they sell that, that they’re trying to help us get better customer service. I think what they’re looking for, most of the people they’re hiring are for auditing. So therefore they’re looking to create more income by auditing more tax returns. Statistically, they’re going to find mistakes and therefore generate income.
So if you’ve got questions, maybe you’re getting ready to put all your paperwork together. And I would say every year, just find a manila folder, a box, a place on your desk, a basket, whatever, and just start putting all of your tax forms in there. Also final paycheck stubs. I can’t tell you every year because somebody has moved and they worked a job and the old employer either is out of business and or they can’t reach, so they can’t get their W-2.
At least if you have your final paycheck stub, there is the ability to create a W-2 or at least then you can go back and pull your transcripts and get the W-2 from the IRS. But making sure you remember, because we’ve had more than one return sent back saying, Oh, you forgot to file, you know, something, uh, on your tax return. And they forgot because you know, life happens and you get busy and then you’re like, Oh my gosh, I forgot that I worked the first part of this year at this location because you moved, you, you know, you did all these other things.
And then you found out that you had a whole different situation. All right. So if you have questions, you can join the show at 615-737-9986. 615-737-9986 is the number here in the studio. We are live today. So if you want to join the show, maybe you have a question or you have a friend or someone that hasn’t filed taxes and you’re not too sure how you can either help them or what, if it’s you and you’re not sure where to start, I guarantee you it’s not as complicated as it might sound. And we definitely have been doing it long enough to help you figure out where to start and what to do. Same thing with businesses. I mean, we often, I mean, obviously entrepreneurs are something we deal a lot with.
And one of the reasons is we usually have a lot more taxes. We have to deal with sales tax, business tax, franchise excise tax, you know and, and then obviously federal taxes. So we have a lot more to deal with. And if you have a situation where you have more of that going up, maybe you’ve started a small business and you’re not too sure exactly how 10 tap works and you’re trying to figure out how you’re supposed to be in compliance.
And then of course your charter, if you’re a small business and you have a small LLC and you’re like, okay, now we’re dissolved. How am I supposed to get that back activated? These are the kinds of things we have been dealing with for quite a while. So just saying it is out there, you’re able to, you know, get some help if you, if you need that, because I know 10 tap can be, I mean, I’ll be honest being that we’ve been at this 25, almost 30 years, I guess. You know, we remember the year hand filing the sales tax and then used to have to do it on the web. And then finally through 10 tap makes it so much easier, seriously.
And you’re able to go back and look at prior returns and prior things, see what was filed when it was late. All of those are pluses as far as I’m concerned, but I do know it can be a little overwhelming for especially new business owners that haven’t really quite figured out exactly what they’re supposed to be filing, how they’re supposed to have access to it. And why is there penalties when you didn’t file something and you’re like, Oh my gosh, why do I have a penalty?
All right, we’re going to go ahead and gear for our last break. And so if you want to join the show, you can again, it’s 615-737-9986, 615-737-9986. We’re going to take our last break here for this show. So if you’ve been waiting and you’re like, Oh my gosh, I’ve got to get through. And I know our phone lines sometimes get a little busy, so you’re fine. Just call back. But if you have a question, 615-737-9986, we’ll be right back with the Dr. Friday Show.
Part 4 – 00:36:01
Dr. Friday
All righty, we are back live here in studio and the phone lines are active. So it looks like our first caller is Tim from Bellevue. Let’s go ahead and get him on the line. Hey Tim, what can I do for you?
Caller
How you doing?
Dr. Friday
I’m doing fine.
Caller
And I am selling my house soon and I’m trying to figure out the capital gains.
Dr. Friday
So how long have you lived in it?
Caller
26 years.
Dr. Friday
Okay, plenty of time. Just ballpark, what do you think it’s worth? Just give me a rough number. Does it have to be locked in?
Caller
I’d say $300,000. I’ve got probably $120,000 in it.
Dr. Friday
Okay. So theoretically, are you single or married?
Caller
Single.
Dr. Friday
Okay. So you would be able to sell it for $370,000 without paying any taxes.
Caller
Okay, so if I go over that, would that be earned or unearned income according to Social Security?
Dr. Friday
Unearned. It would be unearned. So well, it won’t affect your Social Security if for some reason you sold it for $400,000, which would be awesome, and you ended up with $30,000 capital gains. So if you sell for $300,000, it would be unearned and it will have a zero effect on your taxes. The big problem you have with that is your Medicare, not Social Security. Sometimes Medicare, it won’t affect it on this one unless you start showing other income, if that’s making, I’m confusing you a little bit. So it will not affect your Social Security or Medicare if it sells for $300,000, everything will go smoothly. You sell it for $400,000, you make a little money.
Caller
I’ll sell it.
Dr. Friday
Okay, perfect. Then you don’t have to worry about it.
Caller
I’m not worried about the Medicare, but I’ve got my federal Blue Cross Blue Shield.
Dr. Friday
Oh, okay.
Caller
I’m one of the cards.
Dr. Friday
No worries. Okay, great. Then you don’t have to worry about it. So sell it for as much as you can, but you could sell it up to $370,000 and pay zero tax.
Caller
Oh, you’re a doll.
Dr. Friday
No worries, mate. Thanks for listening.
Caller
I appreciate you. All right, bye.
Dr. Friday
Thanks, bye. Let’s hit Steve in Nashville. Hey, Steve, what can I do for you, sweetie?
Caller
Hey, Dr. Friday. I’m a local Nashville native and I’ve rented here for the last 30 years and decided to buy a property about an hour west of here. And so I’ve developed it. I put a steel building on it and I also bought a car this year. And I’m wondering, it’s going to be a future homestead. Is there any way I can itemize this, these investments off my taxes rather than just claim a standard deduction?
Dr. Friday
Probably not. I mean, the car you purchased, theoretically, single or married, Steve?
Caller
Single.
Dr. Friday
Okay. So, you know, we have to beat the 13,000 you’re automatically going to have. You’ll have the property taxes, which you may not have had in the past. You’ll have the sales tax from the new car that you purchased. You’ll have your mortgage interest. If all that adds up to more than $13,000, then you get to itemize. Otherwise the answer is no.
Caller
So the investment itself and land and the building I put down there, there’s no write off there.
Dr. Friday
There’s really no write off. It’s what you just called it. It’s an investment, just like buying stock or anything else you’re investing for the future that’s hopefully going to grow and become bigger and better.
Caller
Well, thank you so much, Dr. Friday.
Dr. Friday
No problem. Thanks for calling, sweetie. All right, let’s hit my girl, Dana and Franklin. Hey girl. Hi there.
Caller
Hi, Dr. Friday. So I just purchased a business, a franchise, and I’m getting a small business, getting it all set up. And I apply at the handyman service. And I applied for what I thought I needed. So I have a sales and use tax certificate now. But from what I understand from my accountant, they’re saying that I wouldn’t need that because handyman services is a service. So there’s no tax on services.
Dr. Friday
No, he is completely, you might want to recheck with your bookkeeper or accountant. Service, that’s true, but it’s only services like medical or taxes. Handyman often bring in markup supplies. Unless the person’s providing everything and just the service, I think you’d even still have a tough time on not collecting sales tax in Tennessee nowadays. I would double check that Dana, because I have say, I mean, I will tell you, I have people that are handymen that are collecting sales tax on their invoices.
Caller
Okay.
Dr. Friday
So just double check with the state.
Caller
Okay. Is there anything else that I need to apply for with the state? Because I believe that’s the only thing besides the business license with the county.
Dr. Friday
Right. County and city or whichever you’re in. And then that, that’ll be the only two things, unless you’re an LLC and then you might want, you’ll have to have your franchise excise.
Caller
Yep. Corporation.
Dr. Friday
So you’ll still have a franchise excise. Any kind of entity other than sole proprietor, but your CPA probably will get that for you. It’s only an annual filing, not a big deal. So the business license and the sales tax would be the only two things you’ll be tracking.
Caller
Okay. And then what about federal tax payments? I’ve got all that information for that. Any advice on.
Dr. Friday
Well I would definitely set up a separate tax account for taxes. So as the profits come in, you can set aside a percentage, let’s say it’s 10% of a profit or whatever that you’re sitting over there. Cause you’ll have some other expenses like miles and different things depending on your situation. But I would definitely set one aside because if you’re making money, obviously 20, 25% of actual profit is uncle Sam’s between social security, Medicare and federal. Got it. Okay, great. Thank you so much. All right. Thanks. Bye. All right. Lee in Nashville. Let’s see if we can get him in and out. Hey Lee.
Caller
Hi, Dr. Friday. My husband and a friend took care of another friend until she passed away. She put her home inside a revocable trust.
Dr. Friday
Okay.
Caller
And left it to my husband and this other friend.
Dr. Friday
Perfect.
Caller
Well, we have to pay income tax on the proceeds from this home. And if we do, is it also going to make our Medicare tech, our Medicare payments go up?
Dr. Friday
Well, I’ve got great for you. So, so here’s the deal. Um, whatever at the time of that person’s passing, whatever the home was valued, let’s just say it’s worth 300,000, just the number. But if it was worth that and they sell it for 300 or less, there’s zero tax. It’ll have no effect on your taxes. If for some reason they hold it for a number of years and it’s worth 300 and they sell it later for 500, that’s when it would affect you. But, um, right now if they were to sell it after the, once it gets done and everything else, it’s likely going to be valued at the same amount as it was when the person lived in it, therefore, or what the time of that person’s passing. So you’ll have zero taxes due and it will have a zero effect on your Medicare.
Caller
Oh, that is such good news because we’re not expecting that it’s valued at three 40, but we’re not going to get that much because it’s in bad shape.
Dr. Friday
Right.
Caller
Um, all right. Thank you, Dr. Friday.
Dr. Friday
No problem. Thanks for listening.
Caller
I appreciate it. All the time.
Dr. Friday
Thank you. Bye bye.
All right. Well, thank you so much. I do appreciate you calling in and asking the questions. It makes the show so much more entertaining than hearing me just tell you all about the different tax laws. But again, for some of you that may have wondering again, when Lee called, she was talking about someone that had her husband and a friend had taken care of somebody. The house was in a trust. So at the time of that person’s passing, and this goes for anyone that inherits a home, we have this wonderful thing called a step up in basis.
So at the time of that person’s passing, whatever the house is worth, that is what your basis will be. So in this case, if it, if the basis was over 300,000 and they sell it for that same dollar amount, there’ll be a zero tax. Sometimes people will hold onto the homes, fix them up, try to make them, um, or rent them out for a while, turn them into rentals. At that point, you may, your basis stays the same, but if you hold onto it, it may increase or decrease based on the market and where it’s at. So again, really your choice.
But if at this point it will have, and when she was talking about and several calls, I think I brought up one of the biggest things I have noticed is that we end up with problems with Medicare when we have these large capital gains. So somebody sells something or does something and, um, it’s not going to be your primary home, but let’s say you have a rental or second home or you have some stock and you decide you’re going to clean out the stock and turn it into cash because the market’s not doing so well.
I’ve had all these kinds of things happen. And so somebody does that and their income goes from their usual 50, $60,000 now up to 180,000 or something like that. So if a single individual goes over $90,000 and that would include the taxable portion of social security and everything, they’re going to add a hundred percent of the social security. So just keep that in mind.
But if it’s over 90,000, then Medicare will increase. You’ve got the standard and then it will go up. I think it’s like $33 a month. And then if it’s a married couple and they have again, 180,000 and it goes above that, then your Medicare will go up and it will go up for a year or I think it’s over a year when it actually gets in and out, but it will go up for a year and then it will come back down. But that can be very expensive because I have people that end up with a large sale.
So she back in 21 and 22 where they went from their usual 60, 70,000 to like 300,000 as a single person because they sold something and now their Medicare went up by, I don’t know, four or five, $600 a month. So for 12 months, I mean, it’s seven, $8,000 that you hit with. All right. So I’m going to spin it up. This is the Dr. Friday show. I hope you guys are enjoying this Saturday.
And as we always say, happy Halloween, happy Halloween.
Cop you later. Thanks for watching.