Listen to this week’s episode of the Dr. Friday Show, broadcast live every Saturday at 2:00pm Central on on 99.7 WTN! In this episode, Dr. Friday gives advice to callers and discusses the following topics:
- The September 15th Deadline for Business Returns
- Why Asking Questions About Tax is Important
- At What Age the IRS Considers The Breakage Point?
- Tax Credits on Solar Energy
- Tax After Divorce
- What Happens When IRS Never Contacted You About A Tax You Forgot to Pay More Than a Decade Ago?
- Is Roth/IRA or Standard IRA Better Than 401K?
- The Importance of Settling Tax Issues Before Getting Married
- Can I Retrieve a Tax Refund if I’m Currently Making Payments on an Installment Agreement?
- Joint Filing and Taxed at 22%
Transcript
Announcer: 00:01 No, no, no. She’s not a medical doctor, but she can sure cure your tax problems or your financial woes. She’s the how to girl. It’s the doctor Friday show. If you have a question for Dr Friday, call her now. (615) 737-9986, that’s (615) 737-9986. So here’s your host financial counselor and tax consultant Dr Friday.
Dr. Friday: 00:30 Good. Hey, I’m Dr Friday and the doctor is in the house. We are live here in studio today on this wonderful Saturday. The weather is nice outside, no rain, and inside at least so a better enjoy it based on what I just heard. It’s going to get pretty hard again next week. So, and we’re going to get pretty hot in the next couple of weeks because September 15th is a huge deadline for anyone that has a business return. 1120 1120s 1065 this is assuming of course you already filed an extension. So if you have an extension, it is time to make sure that your business tax returns. And then it’s only another 30 days after that where we have October 15th and it actually is gonna fall on September 16th this year guys. But it’s easier just to keep everyone consistent. And then on October 15th we have the deadline for everybody’s individual returns.
Dr. Friday: 01:22 So these deadlines are coming up within the next six weeks. We will be done with a 2018 taxes and we should be full fledge into 2019. So a couple emails have come in this week and if you want to join the show, maybe call a question. If you haven’t filed taxes for a number of years or maybe you filed and have some questions about what came, a love letter, something actually came back to you. (615) 737-9986 is the number here in the studio. (615) 737-9986. For all you that don’t know who this crazy lady is. I am Dr Friday and enrolled agent with the Internal Revenue Service, a licensed to do representation and taxes, so that’s what I’ve been doing for the last 20 years. Pretty much that particular thing, taxes and representation. So if you’ve got tax issues and I will tell you I’ve had three cases in the last two days that came in and many of them have called national organizations.
Dr. Friday: 02:16 There is nothing wrong I suppose with the national organization, but if I have a tax issue I want to do a face to face. I want more than just getting some representation over the phone. You might want to get a second opinion as Dr Electric always likes to say because you might find that we are also a little bit easier on the pocket book. At the same time, you’re getting a face to face representation, which means if there’s a love letter that comes in, you have the same person, me that will be representing you, dealing with the IRS issues and taking care of your IRS problems. And I’ll be honest, probably more of an honest approach because in most cases if you’re calling one of those numbers you see if you owe more than $10,000 and you, and you call that number, the first thing they’re going to do is talk money.
Dr. Friday: 02:58 They’re to say it’s going to cost you this, this, this and this. Start paying me this and they have no true idea and this is one of my pet peeves to a point, no true idea. If they can really help you, they could probably delay you. They can stall you, they can even do taxes and catch you up. But do they know what they’re actually going to do when they start that billing? Nine Times out of 10, the answer is no, because they haven’t contacted the IRS. They haven’t pulled your transcripts and they only taking your word or your conversation with what it is. And after 20 years, I realized that sometimes the taxpayer doesn’t always know what it’s going to take to get them back onto the right steps. Are they going to actually have to get mortgages? Are they going to have to consider, I mean, in some cases, consider selling the home you’re in so that you can finally get out and get back on your feet.
Dr. Friday: 03:47 It’s not the IRS, again, not trying to freak anyone else. The IRS, very rarely, unless it’s tax fraud, will do anything with your home. Your homes are safe, your basic cars are safe. That’s not what they’re looking for. They’re looking for resolution and there are several plans out there. So if you need help and you’re not sure where to start, you need to give us a call at the office on Monday. Meanwhile, if you’ve got questions for the radio show right now, (615) 737-9986 (615) 737-9986. So one of the first questions that came up where I’ll pull from the bag is how do I notify the IRS, the IRS, my address has changed. And many clients are like, why do I want to notify them? Well, you want to notify them because what you don’t want the IRS to say is we’ve been notifying you for the last two years that you have tax issues.
Dr. Friday: 04:37 And next thing you know, basically they’ve just swiped your entire bank account or your employer got a love letter saying they now have to take your entire paycheck and start sending it to the IRS. And you then sit there and say, wait, I never got anything on this because you relocated and the IRS doesn’t have to do. And even if you filed a letter with them or if you filed an old return, bottom line, if you relocated, you need to make sure that you send them an 8822. It’s an address change form. It’s a very simple form. It’s like what you do with the post office. You do want to notify the IRS if you have relocated. You know, in any case if you buy or sell a home, whatever the situation might be, you do want to definitely do that though.
Dr. Friday: 05:21 You want to notify the IRS so that they can keep, I know you’re saying, but if you don’t get the letters, it’s hard to deal with the issues. And if there are no letters, at least you know you’ve notified them. So there aren’t any letters coming. So there can’t be an instant levy or lien because then the IRS has done something wrong and yes, they have been known to do things wrong. Have a client that came in just last week and and last, I think it was last Friday actually, just yesterday. Interesting case to a point prior tax year. And they got this notification about three years ago that the IRS was changing their tax return and in the middle of a crisis time in their life, letter got ignored, put away, whatever. Now of course the IRS is seizing and are wanting to do levees in on all that.
Dr. Friday: 06:12 So bottom line it comes through as the IRS has erroneously added income to their tax return. Everything that was on the original tax return was correct. All documents are matching up, but yet the IRS is showing something different on them than what we have now. Since I just got the case yesterday, I don’t really know if the IRS has other W2’s or if there is a possibility of somebody reporting something under these taxpayers. Hopefully that’s not the case. But meanwhile the government has already started trying to collect on $20,000. Now it’s, I think it was $20,000 change and with all the penalties and interests like I dunno, $30,000 of money that, you know, they said that they made $92,000 extra and they owed this money. And so all I’m saying is when those letters come, you know, that’s when you either need to know someone like myself who can deal with it for you, or you need to make sure you’re responding to those letters.
Dr. Friday: 07:08 The worst thing you can do with the internal revenue service is what… ignore them. Just ignore them because that’s going to eventually make your life very challenging. So if you’re getting love letters and you’re not sure what to do, and again guys, we don’t take name and numbers on the radio. We don’t track who calls and who doesn’t call. So if you want to give a fake name, change your voice because you’re concerned with whatever or if you’re calling because you know somebody, whatever. It doesn’t make a difference. If you’ve got a good question, please join the show. (615) 737-9986. You know, people that don’t ask the questions are the people that usually get in trouble. Had a gentleman, a older gentleman that didn’t want to come in, didn’t want to, didn’t want to bother me, but he was going to make some big changes.
Dr. Friday: 08:00 He was going to be selling something that was going to give him a profit of over a hundred plus thousand dollars, and he’s a tax client. And you know, and I’m like, no, no, no. You need to come in. We want to make sure that this isn’t going to, and he doesn’t have to sell it all. He could sell part. It’s one of those situations. And when we got together we were good because the good point was we actually decided on, I only need to sell part in the spread the other part into 2020. I’m was going to save him more than $30,000 in taxes just by coming in and having that conversation. And sometimes it’s the opposite. I had another guy who had done all of his own estimating. He just wanted to come in and make sure his numbers were right and the guy was spot on within $500 of my number.
Dr. Friday: 08:42 We were very happy with his numbers. Again, double checking your information. It is silly not to do it when you’re talking about your own hard earned money. I mean, tax dollars or tax dollars in, they help everybody or hurt everybody depending on the decisions we all make. So if you’ve got questions and you’re not sure which decision you should be making, or you just have a theory in your head and you want to throw it across the board and see what happens, give us a call here at the studio right now. If you’ve got a one you want to do on the radio, otherwise you can call me Monday at the office, but on the radio, (615) 737-9986. Okay, so there’s a basic myth out there that says, Hey, if my child is over the age of 18 I can’t claim him any longer on my tax return.
Dr. Friday: 09:26 Many people walk in my office and say that, and I and I have to kind of break, or if they’re in college, whatever. And here’s a big myth breaker on that one. First, the breakage point for many people is actually the age of 17 and under or 17 and older. So the year in which your child turns 17 in the eyes of the IRS, they are basically an adult. We all know that. I know I was an adult at 17. Then of course you could also qualify as a student. So a child, obviously 17 and under 16 and under I guess you’d say at 17, they become a student in my mind till the age of 24. And then anyone over 24 becomes just a dependent, a relative, a dependent, not a qualified credit. So if they’re under the age of the year, while they’re 16 and under, you’re going to get $2,000 for that.
Dr. Friday: 10:23 That child at this point, under current tax, if you go from 17 to 24 and they’re in college, there’ll be some college credits. Otherwise they’re just $500, which is the same as your qualified relative. There’ll be $500. So, but it does nothing in the law that says if you’re fully supporting or mostly supporting this child that you don’t get to claim them. Boom. That’s not the case. All right. The phone lines are lighten up. I love my listeners. Thank you cause you guys are probably tired of me talking to myself a bit. Hey. Okay, let’s go to Steve. Hey Steve.
Caller: 10:54 Hey, I got a question for you. We are talking to someone about putting some solar into our house and they were telling us that there’s a 30% tax credit that’s available until the end of the year. And my question is because he wasn’t sure how to explain it. He was saying if tax credit would be about $10,000 so does that mean if I owed only a thousand and they gave me a $10,000 tax credit, would I get at $9,000 check from the IRS or does that mean if I only owed 11,000 they gave me a $10,000 credit? I would now only owe $1,000. And I guess my real question is, will I actually get money back from the IRS or the credit? Just credit of what I would owe them anyway.
Dr. Friday: 11:32 Okay. So yes. This is a refundable credit in answer to your question, Steve. So if for some reason you don’t need all $10,000 they’re going to refund it, but in theory, the way the IRS kind of looks at it is, let’s just say whatever doesn’t make a difference, you’re going to get all of the money you paid in if there was a difference, but you, it’s refundable, so if you owed $1,000, You’re getting 9,000. Dollars back. If you paid zero taxes.
Caller: 11:58 Okay, so you actually get a check from the IRS to help pay for that.
Dr. Friday: 12:02 Absolutely. My brother just got one of those last year. I did not go solar myself. I’m not so sure if I’m in an area where that’d be good, but I do have several clients that have taken advantage and you do want to kind of hustle to that one. I don’t know if it will be renewed. It has happened in the past. It’s not permanent though, so it may be something you want to think of sooner versus later.
Caller: 12:19 Thank you so much.
Dr. Friday: 12:20 No worries. Thanks. All right, and we’re going to continue on here real quick. Let’s talk to Bobby and then Lou. Hey Bobby.
Caller: 12:28 Hi. How are you?
Dr. Friday: 12:28 I am awesome.
Caller: 12:31 Yeah, I just had a quick question. I got divorced in the last year and as a part of the decree, the two minor children were claimed on my ex wife’s tax returns. I was withholding one, but, I owed a tax bill of $1,000 this year. I ended up getting it back just because of some income things, but I was just wondering what should I properly withhold?
Dr. Friday: 13:03 Yeah, you shouldn’t be since even if you’re taking care of the children, you’re going to be single and zero for the purpose of this conversation on your W2. Okay, so you’re going to go single and zero unless you have a very large mortgage and it’s harder to itemize now than we’ve ever had. So my opinion probably better to save on the safe side. Get a small refund as long as you’re not going to be able to, you know, deduct the children. And obviously we know alimony is not deductible any longer and child support never was. So any of the money going out of your pocket is still not a tax deduction.
Caller: 13:33 Perfect. That’s exactly I think what happened. I got a small reduction or a small refund from the state and I changed my withholding to zero. Thank you very much. I appreciate it.
Dr. Friday: 13:44 No worries Bobby. Thanks. Bye. Bye. Bye. All right. You know I’m gonna try to hit Lou real quick cause that way they don’t have to hold through the long break. Then we’ll take a quick, shorter break. Hey Lou.
Caller: 13:54 Hi… [Inaudible]
Dr. Friday: 14:00 Lou? I’m gonna put you on hold if you’ve put it back on hold for me and then we’re gonna take a quick, quick break and when we get back, maybe we can get Lou on the line. We’re going to be right back with the doctor Friday show.
Dr. Friday: 14:22 Alrighty. We are back live in studio and we’re going to go right back to the phone because Lou was on on and I couldn’t hear. Hey Lou. Hi. There’s my girl. Yes.
Caller: 14:35 My question is this, if you owe back taxes, from 2004 for $1,400 and the IRS never contacted you nor made an attempt to collect them, how far back can they go to collect taxes?
Dr. Friday: 14:53 Well, the IRS only has 10 years from the date of filing unless the date had been stalled for collection reasons or you know, and they still have to notify you every single year of the debt. Even if that’s the case. $1,400 back in 2004.
Caller: 15:09 Go ahead. Well, like I said, there’s been no contact or anything.
Dr. Friday: 15:16 So did you did file the tax return though, right?
Caller: 15:20 Yes.
Dr. Friday: 15:20 Okay. Well at this point, 2015 that would have fallen off collections anyways. So it’s been gone for a number of years.
Dr. Friday: 15:30 There’s nothing for them. I mean, at this point you’re outside the collection cycle as long as you have filed and started that clock, unless there’s some reason it got stopped. You know, I mean like you went bankrupt or something happened in those times, you know, after that where they were not able to actually collect you because of a hold on your account then Lou, you’re in good shape. It shouldn’t be there at all. Whoops, I think I lost her. But just so you know, again, just as a recap in case you know, I didn’t answer it fully out. If you have filed your tax return, that’s why I’m always talking to people that haven’t filed taxes for a number of years because sooner we start the clock the better. So if you file the 2004 tax return, knowing that there was $1,400 due and the IRS never collected the money at this point, I’m 90% sure that it is no longer in existence on your, on your collections.
Dr. Friday: 16:24 They have wrote it off as bad debt. You will not have to worry about it. You know, if you have, if you’ve had refunds in the last couple of years, they may have kept them, but it should have fallen off in 2015 under the normal collection cycle. So you’ve had a number of years and if you’re not sure, you know, my secret would be take a, an hour or so out of your life. One of two things. If you’re a computer person, you not sure how much money you owe the IRS, there are online transcripts. You can pull them off of irs.gov take a look at those tax years, see if there’s anything out there that you need to address. If you’re not a computer person and you don’t mind spending some time on the phone, then pick up the telephone and obviously call the IRS at the (800) 829-1040. That’s a generic number for individuals and you can then ask them, are there any outstanding collections?
Dr. Friday: 17:17 That way, you know, it’s nice to sleep at night and know that you don’t owe uncle Sam anything for all of you that haven’t filed taxes though the IRS for unfiled taxes, criminal invested in a fraud generally will only go back. Usually we’ll only go back six to eight years. Okay, that’s, that’s the normal cycle. Now there’s an exception to that. The IRS in the, in that six year period has often already done the computer program on you. Individually. It came in, the husband had had a tax return already filed on him, but he’s married with two children. The government will file everybody. They’ll just run a test in there. If they see anything that doesn’t look right, they file Everybody as single zero, nothing is a deduction single and zero. That’s it. If they put it through the system and your return is luckily picked a randomly, they always say then you could owe the money in the old purpose of getting these letters normally is to get your attention so that you will file those tax returns.
Dr. Friday: 18:20 But if you have not filed taxes, the IRS basically has a rule, but there’s another, you know, there is a scary point to all this, the IRS does not have written in law that says they only have to go back six years, typically six to 10 years. I will put out there, maybe just say, you know, because this collection cycle, but there’ve been cases where they went back as far as 30 years. So you know, again that usually is because of a criminal violation. You know, someone’s been selling drugs for so many years and something has happened, whatever. But just going with the idea that you want to make sure sooner you file better for you. Usually they only go back six years for audits. All right, let’s go to Joyce. Hello Joyce. Thank you for calling.
Caller: 19:04 Thank you. I accepted a job and had been working with my current employer since March, 2015 and I enrolled in [inaudible] 401k and chose the Roth investment. If I qualify age wise to withdraw from it. I’ve read about the five year rule and I’m a little unclear on that is the earliest I can start to withdraw without penalty after March of 2020 which will be the five year anniversary or the calendar year 2021?
Dr. Friday: 19:38 No, it would be March 20th, 2020. It’s a five year cycle. So once you start putting it in and the, the data that, I mean it’s only the principle that you’re starting to withdraw. So you could go in today and let’s say you personally already put in $20,000, just as a simple number over that period you out of your check added up to $20,000. If you wanted to take that $20,000 out, you can anytime in a Roth, what you can’t take is the growth without penalty. But if you wait until after the five year anniversary and or 59 and a half, whichever is longer than you, you get the whole thing out tax free if you want it to.
Caller: 20:20 Right. And the employer’s contribution is also considered like growth.
Dr. Friday: 20:25 Yes, that is correct. Yes.
Caller: 20:26 All right. Thanks.
Dr. Friday: 20:27 Thank you. Bye. Bye. All right, great question actually. And you know, the Nice thing, I know a lot of people, and I am not a financial planner guys. Joyce was asking taxes, but as a financial planner, you need to determine if a Roth or an IRA, a standard IRA or a Roth Ira is better or 401k either one. So you want to talk to your financial person. I will tell you that when we have that conversation sometimes at tax time with my clients we will put it into the, the tax software and say, okay, well if I could tribute $7,000 or $6,000 to a standard versus a Roth, what’s it gonna cost me? And if this person is married making less than a hundred thousand dollars, they’re going to save 12% which you might actually want to do a Roth. Right? Because when you hit retirement, we’ll be lucky if we’re paying 12% it would be awesome.
Dr. Friday: 21:21 I think this current tax code we’re under is not going to last though because you know, 15 with Reagan was great compared to what we had prior to that. So I’ll be shocked to see taxes go down again. I mean in my lifetime at least. So in 2025 when this expires, you know, we’re all expecting it to go back to what the Reagans were or the prior tax code was, which is about 3% higher. So if you’re into a Roth right now and they’re making a hundred thousand or less, I would say you definitely want to talk to a financial planner, see if that’s a really good plan. Because just like when Joyce called, the fact is she could take the money out tax free when she hits either five years or 59 and a half. And there’s some times in life where it’s nice to have some tax free money cause it’s not a tax deduction.
Dr. Friday: 22:08 So just put that out there that there are two types of investments, standard or Roth. And in some cases I think people get hooked into just the regular 401k because it’s there. And some companies they say they won’t match unless they’ve got the 401k, but you know what, when it comes down to it, what’s best for you is what you need to go with and making sure that your financial guy you know, has that on top of it. If you don’t have a financial guy, give me a call. I’ve got several great ones. You guys here, Hank Parrot all the time on my show. I’m talking and you know what? He offers a free evaluation. It’s something you should take full advantage of because just like anything else, give you a second opinion. In my opinion is a great plan. So if you need a second opinion on that, we can give you that information.
Dr. Friday: 22:54 Send you over there, get a free evaluation. Works all the time. All right. So we’re here to talk about taxes, not financial planning. So let’s talk a little bit about taxes. Because when we’re working with taxes, we’re basically working with numbers, right? Percentages. How much do I have to pay in taxes if I do this, how much do I take from this? And one of my favorite part of taxes and at this time of the year is usually because a lot of my clients will come in or many of them and we will crunch numbers. What if I decided to sell this? What if I decide to do this? What if I want to take money out of a IRA and convert it into a Roth Ira? Very typical. And now’s the time of the year you really want to be doing this because it’s going to hit the holidays and we’re going to hit tax season again, right?
Dr. Friday: 23:37 September 15th and then October 15th, next six weeks are crazy. Then we’re, you know, basically into October. So you want to get in before that Thanksgiving time. If you, if your tax person hasn’t already sat down with you or your financial and figure out is there some wiggle room. Again, if you are a retired couple and you’re making less than a hundred thousand dollars, maybe you should consider if you’ve got a lot of money in an IRA, converting it at 12% might be pretty sweet. It doesn’t work for everybody, but there are many people that live solely off social security and take their RMD, required minimum distribution, but maybe they could take a little bit more and throw some over there. So even if they don’t need it, look at the gift you’re giving the next generation they would inherit that Roth Ira tax free. So even if at your income, you don’t need the money.
Dr. Friday: 24:28 It’s just growing in your IRA. Maybe taking a little bit in converting it every year into a Roth. By the time you know, you know, you pass away or whatever, that Roth would be an extra gift to the people you’re leaving your money to anyway. So, or if you need it, it’s still there. Either way, it’s something to think about. Talk to your financial person about because that’s what this is all about. So what we want to do is make sure that you understand taxes. Again, we are getting to the end of tax season. So first if you haven’t filed your taxes, make sure you do by October 15th if you have an extension, if not you’re late, file them now. All right, we got to hit another break. When we come back, we’re going to take your calls at (615) 737-9986 this is the doctor Friday show and we’re going to be right back.
Dr. Friday: 25:25 Live in studio. I’m Dr Friday an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. And so if you’ve got questions you can join us live here in the studio at (615) 737-9986 (615) 737-9986. Remember if you have issues, if you don’t even know if you have issues cause you haven’t filed taxes for a number of years or you think it’s just easier to stay under the radar, sooner or later you’re going to want to buy a house. You know your children are going to go to college. This is often reasons of why people walk in my office.
Dr. Friday: 25:57 So you know, the sooner you start the process. Because I will tell you, I have people that have you know, lived apart dating, dating someone that they really would love to get married, but they have issues, they have IRS issues. And the last thing you want to bring into a marriage is tax levies, liens, and you know, insecurity about the IRS. So, you know, if you have these kinds of plans sooner, you tack it sooner, you deal with it. So you’re not bringing this debt into the IRS or into your marriage from the IRS. And that’s very important. So if you have something or you’re not even sure if you do and you know, maybe you’re marrying somebody and you’re not sure, you know, those are the kinds of things you need to know people, and I hate to say it, but the first thing in my opinion, people need to talk about, you don’t have to give dollar amounts.
Dr. Friday: 26:46 Oh Wow. I’m sitting on this much money in the bank. In fact, it always makes me nervous when someone answers that kind of question. But talking about, you know, I’m up to date on my taxes. I haven’t filed taxes in eight years. I’m self employed. Just, just never had to file taxes. Really. You’re self employed, but you’ve never filed a tax return. Very, very scary. Right? you know, you’re going to be marrying this person, their financial, even though the IRS cannot collect money directly from the person that was not related to that debt, they do because they can come back at that person once you’re married and say, wait, your spouse makes enough money to support the household. So every dollar you make. And so you think you’re marrying someone that makes 60 $70,000 and now the IRS has levied them for, you know, they owe $200,000 so they’re taking their entire Paychecks and now you’re supporting someone physically on their own, on your check.
Dr. Friday: 27:41 So you took someone that you thought was making good money. Now they’re living off of your income because the government says there’s enough money being made on this side to pay for this. So you’re not paying the debt. Yeah, but my lifestyle was just interrupted because I thought we were going to merge and have a little better lifestyle, not the other way around. Now there are things you can do, processes you can go through, but it’s always easier when it’s just one person than it is when there is a married person, especially when that person is not part of the past debts. But it’s all doable. It just that it’s a lot harder to exclude that person’s income until she, if they make a decent income. So these are the kinds of things you need to consider. So here’s one of the questions that came in.
Dr. Friday: 28:22 Can I retrieve a tax refund if I’m currently making payments on an installment agreement? And the answer is no. If you owe the IRS money, you owe student loan, you owe back child support you owe state tax fees, whatever that may be from this state or other states you’re going to lose that refund. So your best bet is to try to manage your income to the best of your ability. I mean, I, I mean, I’ve had family members that have had tax issues and the first thing I said, even though you’re married with two kids or three kids, I said, you know what? Go single and zero on your check. Both of you and you know, get into a payment plan. But with a single and zero you’re bringing in less money. The payment plans could be based on that. You’re going to pay this off a lot faster.
Dr. Friday: 29:11 And they did. But it mattered on how much money was coming in. Life was a little harder. There was a little bit more stress in there for at first when you have to make that adjustment. But now they have huge savings and this was like 10 years ago. So now they still are on single and zero. They still have the children and the credit and now they’re, they’re getting refunds of five and $6,000 a year. Not that I approve of getting that bigger refund people, I prefer not the IRS to be my loan officer because they don’t pay any interest. But it is always nice because they take all that money and they put it into a savings and they just consider that and they’ve got a really nice nest. They gonna manage the buy a house and everything else. So this is the way you want to manage your money.
Dr. Friday: 29:52 I do not, again believe that you should actually get refunds that are in that kind of number unless it’s from earned income credit. We no longer have the ability to get advanced earned income credit. So earned income credit, child credit, the child credit, you kind of get when you claim. And let’s run through that really quick because there seems to be some confusion. So if you’re a married couple and you’re both making an income. And so people seem to think that if I have a wife and I’m married, I, should claimed married and one and I mean married to me and it seems self-explanatory, but just for everyone listening, married means two single means one. Head of household means one person supporting someone that is a minor or a parent or someone that they’re fully dependent on that person. And it’s a single person with a dependent.
Dr. Friday: 30:47 So married, if you are married and you wonder now sometimes you know, it works out fine, but it’s usually the middle of the higher income groups that ended up with this problem. So you want to basically make sure if you’re married and have no dependents, you should be married in zero, right? No dependents. You know, and if both of you are making more than a hundred thousand dollars, one of you may actually have to go single and one or single and zero depending on the situation. How much above that? Because the married thinks that you’re supporting a non earning spouse. That’s what married in zero tax code means. I am married and I have a spouse that is at home raising my kids or raising my dogs, whatever it is. Then of course that’s the problem. You’ve got two successful married people, they get married, boom, you actually go in, one person’s going to take the tax code up to married in zero, that’s going to exceed and that everything over a hundred goes to 22 so the first a hundred thousand is 12 the second hundred thousand is at 22, so if they’re both starting out with married and zero, they’re both getting their original first hundred thousand taxed at 12%. again, let me clarify, this doesn’t work.
Dr. Friday: 32:00 I mean if you’ve got two married people and one person is claiming married in zero, the other person’s married zero and one makes 50 and one makes 80 you probably not running into much of a problem. But if you’ve got to making over a hundred you have a problem that they’re probably either having to have additional withholding if you’ve done it right or you’ve changed to single and zero for one of you so that you have more withholding coming out. So this is a very big confusion because when everyone reads the w4 form it says, do you have a dependent, do you have this, do you have that, do you have this? And next thing you know you’re showing up as married in three but you’re really a single guy almost or you’re married but you don’t have all these other things because it’s very confusing.
Dr. Friday: 32:41 So just look in the mirror, sit down one day and when you’re feeling out your w4 form, plain and simple, married, single or my head of household and again, head of house. So it means you do not have a spouse. So often I will have people come in and not understand why their taxes are wrong and they’re married and they’re claiming head of household and they’re claiming their spouse, their married other person as their dependent. Come on. People that doesn’t make any sense. Well I, you know, they don’t work. So I thought they would be my dependents. You married them. They’re not someone that you, you know, it’s not your mom or your dad or one of your children or brother and sister that you taken in to help support. This is someone you chose to marry. Therefore they are equal. So again, head of household you know, is head of household.
Dr. Friday: 33:31 If you’re married, you’re married and if you’re single, well that’s about the simplest thing in the world. You’re single. So if you’re not sure about that, and one of the reasons you may be getting yourself into some tax issues would always be that. And I guess one last word on that one would be is if you’re married to a person that’s an entrepreneur, a self employed individual schedule c, LLC kind of person where they have to make their own quarterlies, you may find that even though you’re married and maybe have one or two kids, the person with the real job, as we like to say, when we’re entrepreneurs, the person getting the W2, you might find going single and zero and having them reduce if they’re paying quarterlies properly because so often entrepreneurs are horrible at quarterlies. No, I have some that are top of the line people, but I will tell you percentage wise, quarterlies are not as good as they could be.
Dr. Friday: 34:21 So if they are married to somebody that has a real job, have them go single in zero, maximizing how much withholding that may give you a smaller amount that you have to personally pay out of your business, out of your pocket. It’s all coming out of the same pot in many cases. If that’s not the case, the wife says, no, no, you pay your on and I’ll pay my own. And then you guys file your own separate tax returns that doesn’t work. But if you are a joint team and you have people on both sides, you may find out that that works out a lot easier. I’ve even had a few that actually have the wife paying all the quarterlies, they, they get a very small check. But the, in this case the husband is entrepreneur, he brings home all the money from his job.
Dr. Friday: 35:01 You know, from being an entrepreneur. She pays all the taxes. She has a lot of additional tax withheld to offset that income. It’s all coming in the house, but then every paycheck it comes out. So he doesn’t have to worry about paying quarterlies. There are several different things you can do that way. Whatever works for you. The biggest thing is pay quarterlies. I have so many people walk in my office and say, I don’t think I have to pay quarterlies. Yes, the law stipulates for all of us that are self employed, we have to make four equal payments. That’s a keyword there for equal payments based on the prior year. So people that say, well it’s not quarterly. Well, no, it’s based on the IRS’s version of quarter. Remember, the IRS works on a physical year, so June is the end of their year, not December. So they basically do April 15th, June 15th, September 15th, and January 15th.
Dr. Friday: 35:53 That is their version of quarter. And we have to make four equal payments of that based on the prior year. So if you haven’t filed tax in a number of years, then just making some sort of estimate would be a really good first thought. Because if anyone ever comes into my office, you’ll find out I am anal about getting taxes paid moving forward. We can always deal with the past, but we must deal with the future. Stop the bleeding, get on the right path, then you can fix whatever happened in the past. All right, we’re going to take our last break here. So if you’ve been holding your breath, you’re saying, oh, I gotta talk to Dr Friday. Well, now’s the time to do it without a fee. (615) 737-9986, (615) 737-9986 is the number here in the studio. This will be our last break and we’ll be right back with the doctor Friday show.
Dr. Friday: 36:54 Alrighty. We are back live in studio. You want to join me? You can. (615) 737-9986 (615) 737-9986. All right, we’ll go right to the phone lines. Hello Lee?
Caller: 37:11 Yes, I have a question concerning the tax payment. Okay. We are filing jointly and are probably right around $130,000 but that’s before [inaudible]. Will we be taxed on everything at 22% or or what?
Dr. Friday: 37:37 Yeah, great question. We’re in a progressive code, so basically it’s like the first $1900 would be, or $19,000 it’d be like 10% then 19 to basically a hundred would be at 12%. And in your case, you said $130,000?
Caller: 37:57 Yeah. Well, we’ll probably come down to about a hundred thousand probably what our taxable income will be after the deductions.
Dr. Friday: 38:05 Sure. And you’ve got the standard, the current standard deduction would be 24,000 so you’d automatically drop 24,000 so you’d be like at 106 before you have any other, I mean assuming you know, so either way you’re basically looking at potentially zero a 6,000 or so dollars at the 22% everything else would be there at 10% or 12%
Caller: 38:28 Okay. That’s what I need to know. For a second I was thinking that “Oh, the whole amount is going to be taxed at 22%”.
Dr. Friday: 38:34 Yeah, that would be a nightmare. I totally agree with you. Yes, that’d be a serious penalty. But yeah, you’re pretty much going to be at the average of probably, you know, in all honesty, probably in somewhere around 8 affective rate, around 8% or so because of the tax code. Eight to 10. Okay. No worries. Thanks. Great question because I know I often say this bracket or that bracket and when we say a tax bracket that’s like between write something between a certain dollar amount and another dollar amount. And in his case it would probably be beneficial to see if he could maximize, you know, if he’s only $5,000 difference between 22 and 12, I would try to maximize a 401k or put money into an IRA because you’d be basically making 22% on that money and that’s pretty darn sweet. At that rate versus if you say he pays 12, he still be making an additional 10% either way.
Dr. Friday: 39:33 So it would be something to look into trying to find a way of maximizing additional retirement if that’s not already been done to get ’em down to this number. But that’s the kind of game you want to play and you want to do that now, right? You want to think about how much money and projecting out say, well, so she, if you’re on salary jobs, unless there’s big bonuses, you have a pretty good idea. And if your income comes to 130, let’s just say 125 for a married couple, assuming you’re not itemizing, then basically you’re at the 12%, but anything above the 125 you’re going to be at the 22. And at that point, you know, if you can do something to make it 125 or less, that would be the game I would play. Or I wait, I am, I am fibbing here.
Dr. Friday: 40:24 It’s $100,000 is you wouldn’t be able to reduce it down. So the a hundred thousand dollars is already after, right? So either way, you want to make your number, you know, if you can get close to that itemization, then that would be the way to go to make it work for you. I needed to look at my tax code cause I think I’m just fibbing here cause I think the tax code says 89 to get to that number instead of the a hundred, I always say $100,000 a lesson. That would be after you’ve itemized tax brackets. Here we go. So we just want to make sure we’re in the right, not telling you wrong. So a married couple okay, so it’s 84 two plus the 24,000 that you would have would make you a little over a hundred thousand. So if you are making $100,000, so in his case, everything over the a hundred thousand make it $30,000 cause he’s at 130, that 30,000 would all be deductible or all taxed at a 22%.
Dr. Friday: 41:26 So he would have 19 two at 10% up to 84 84 to at 12% and then the remaining 30,000 at 22% didn’t mean to mislead you there. I knew the numbers in my head were saying one thing and my mouth was saying something else. So I just want to make sure we’re on the same thing. So he would probably be more at an average rate if he didn’t, if he’s not able to reduce down his income, he would probably be closer to the 12 to 15% effective rate. So if you’ve got questions and you need to calculate those numbers, there is some pretty easy ways of doing that other than on the radio. But we can always help you because that’s the kind of thing of saying you want to calculate out, you want to project out and say, okay, how much money am I making?
Dr. Friday: 42:11 If I’m going to be able to reduce down my income to $100,000, then I’m going to a hundred thousand for a married couple, I should be able to make it 12%. If it’s 130,000, what can I do to maximize that down without changing your lifestyle too much? Cause obviously you got to live and you don’t want to be borrowing money to put money away for taxes. That would be silly. So you just want to make sure your numbers are right and that you’re standing in there at the right place. But if you’ve got additional questions on that, you can contact us and we can do some serious number crunching with our calculators in front of us and make sure that we’ve got you in the right tax brackets at the right time. And if you’re gonna think about deferring some of the income that would be something to consider as well.
Dr. Friday: 42:52 Again, like I said, you really need to consider your brackets. This particular bracket that he’s got that last 30,000 is at 22%. Not so bad, but you know, the next bracket after that, of course, he goes from basically the 84 to 161 almost. That’s the 22% tax bracket. So he’s got some breathing room to stay in there so he won’t be exceeding that too much. But you know, you, sometimes you can control some of it, sometimes you can’t. So making sure that you understand where your money is, how much money you’re making and how much you can maybe defer or do is a way to put more money in your pocket. It still may be a good idea to defer as much as you can on the the retirement, you know, I push retirement because sooner or later guys we are going to retire.
Dr. Friday: 43:39 It’s that simple. And you, if you, you know, statistically I do a morning show on, on Friday, sometimes with Russ, I mean with Hank Parrot and it’s called the retirement report on news channel five plus. And he often has the statistics, you know, the average household has $500 in savings. The average household only has more than, you know, less than $25,000 saved for retirement. These are the kinds of numbers you hear and you know, it’s up to us individually for us to take the responsibility of doing our own retirement. I’m an a typical entrepreneur, meaning that we often put a lot of our own personal retirement into our businesses, you know, in, in hopes that the business will either create more revenue or, you know, be sellable at the time of our retirement, which in many cases is never the case. So, you know, started late to be able to really start packing more money into retirement to, to compensate for that.
Dr. Friday: 44:39 So you just need to make sure you know your situation because we don’t know what’s going to happen with social security, which is often the number one thing. People say, well, I have social security so I have some money coming in or I’m going to work until I die. Unfortunately we don’t always have control of that. So, you know, you need to make sure you have some other plans just in case figure out what you’re going to do and how you’re gonna do it to at least have options. And that’s why I always suggest, you know, making sure you have a good tax person. If you don’t have someone that is going to help you with your taxes and that person ideally is there when you need them year around to be able to call them and say, Hey, I’m going to be selling a piece of rental real estate.
Dr. Friday: 45:18 What’s the tax bill going to be on that? Because they have all the information, they’ll have the recapture of depreciation, you have to, they’ll have the original investment. So they’ll be able to help you get the best picture of how much money you’re looking at. Because a lot of times people will tell me, well I paid for 140 and almost sell it for 200 and then and it was rented and I, and they’re like, well how long was it rented? What portion of that was taken as land? And they don’t know the answers sometimes. So you know, there’s not an easy answer on my side. I can give you worst scenario and I can give you best scenario, but I’m not going to give you worse. The person that was doing the taxes would have your toll schedule e with the rental. With that appreciation, be able to kick it in and give you a much closer answers.
Dr. Friday: 45:59 So make sure you have someone that is there when you need them and they’re able to help you get the information that you have. And if you are a person that is going to a tax office that does close you know, after tax season you might want to make sure that they send you a complete tax return. Because I have found out many times that the tax returns do not include depreciation schedules and those have to be ordered through corporate headquarters. So, you know, it makes it a little harder for you to get things done quickly if you have to wait for someone to send you something. So this has been the doctor Friday show. I am an enrolled agent, licensed with the Internal Revenue Service to do taxes and representation.
Dr. Friday: 46:35 So if you’ve got tax issues, you’ve received love letters, you’re in the middle of getting a notice that says we want to audit you, we can help represent you kind of like a super woman between you and the IRS. I can be that little shield that we’ll make sure that we can help make sure you’ve got the best service that you can as far as representation. If you need help with taxes, all you have to do is pick up the phone. My office number is (615) 367-0819 (615) 367-0819 my email is Friday@drfriday.com and my website is Drfriday.com. Hope you guys have an awesome Saturday
Dr. Friday: 47:12 Talk to you later.