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In this episode of the Dr. Friday Radio Show, tax expert Dr. Friday discusses various tax-related topics, focusing on inheritance, property sales, retirement accounts, and tax planning strategies. She provides valuable insights and answers caller questions on a range of financial matters.
Key Topics Covered:
- Selling inherited property and capital gains considerations
- Handling inherited homes among multiple siblings
- Spousal IRA inheritance rules and Required Minimum Distributions (RMDs)
- Cryptocurrency taxation and reporting requirements
- Tax implications of selling rental property
- First-time homebuyer credit repayment ending in 2023
- Importance of tax planning and adjusting W-4 forms
- Penalties and interest for underpayment of taxes
- Benefits of Qualified Charitable Distributions (QCDs) for seniors
- Tax deductions for medical expenses and charitable miles
- Importance of organizing tax documents throughout the year
Transcript
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.
Good day, I’m Dr. Friday and the doctor is in the house.
Just so you know, guys, I cannot see the screen for the callers.
I’m in there, but it’s just a black screen.
So if you want to join the show, you certainly can.
We take our phone calls live, 615-737-9986, 615-737-9986, talking about my favorite subjects, which is taxes.
Perfect.
You did great.
And we’re going to be dealing with any questions you might have when it comes to dealing with taxes or inheritance, or maybe you’re thinking about selling a piece of real estate, be that your primary home or a piece of rental property.
How’s that going to affect your taxes or your Medicare if you’re actually over the age of 65 and receiving Medicare?
Any of those kinds of questions may come in and it’s a great time to at least get you on the right track.
Make sure that you’re at least asking the right questions and most importantly, is it going to be taxable or not?
And if it’s taxable, have you set enough money aside to deal with it?
Because nothing worse than filing your taxes, thinking you had everything in control, then find out you owe more money.
Nothing worse than that.
All right.
Well, we’re lucky.
JR is already on the line.
So, hey, JR, what’s happening?
Hey, good afternoon, Dr. Friday.
Enjoy your show, believe it or not.
I have a question about selling rental property.
As I understand it, when you can sell rental property without capital gain, if you’ve lived in it for the last two out of five years, which I have not done, but I have an option of moving back there.
It’s my old house.
I could move back into it and stay for two years and then sell it and avoid, I guess, capital gains.
You could, yes.
How could that all work?
And I’ve also depreciated the house over the past 15 years.
Great question, JR, because that’s something that people do or do not understand.
Obviously, even if you can avoid the capital gains, if you decide to move back in, so two out of the last five years you’ve lived in it, you’ve turned it into your primary for those two years, you then turn around and sell it, there’d be no capital gain.
But there would be recapture of depreciation, which is ordinary income, not capital gains anyways.
So, you would still have to pay tax on that recapture, but it would still possibly, I mean, I guess sometimes I think, I’ve had clients that’s done this.
I’ve had clients that we’ve crunched the numbers and it comes down to, you know, so you make $100,000 in capital gains and let’s say that you’re in what I consider the middle.
So let’s just say you’re going to pay 20% tax, you’re on the higher side.
It’s $20,000 in tax versus none, but you know, you have to turn your life upside down for two years to do that.
And assuming the market’s going to be as good in two years or better than it is today.
I mean, there’s a lot of unforeseen questions in there.
So I guess the question is another alternative is also JR is doing a 1031 if you want to stay in the rental business, you could do a 1031 exchange and take all that money reinvested into another property.
And again, that’s some people that’s not an option.
They just want to get out of the real estate business that, you know, they’re ready to move on to other things.
But if you want to stay in it, then you could do that and just, you know, sell one and buy multiples or downsize them so that they’re not all worth maybe the higher end that you may be at at this time.
But yeah, I don’t have a problem moving back into it because this is going to be the result of a divorce settlement.
So I could move back into it.
And how do I know if I recapture my depreciation, how do I know how much I’ve depreciated over 15 years?
Well you would have on your tax return, there would be a depreciation schedule.
Whoever does your taxes or if you do them yourself through like TurboTax or something, there should be a depreciation schedule every year.
It just accumulates.
Otherwise, you know, we depreciate based on almost 30, 29 and a half years divided by, you know, you’d be halfway through the value of whatever the house was when you purchased it or listed it in your rental if it’s been 15 years.
Okay, great.
And then I’d recapture that at whatever tax bracket I’m in at the time.
You got it.
100 percent.
Yes.
Okay.
I understand, doctor.
Thank you.
Perfect.
Thank you.
Thanks for calling.
I really appreciate it.
All right.
If you want to join the show, you can at 615-737-9986.
615-737-9986 is the number directly here in the studio.
And wanting to make sure if you’ve got questions concerning taxes or divorce, unfortunately that often leads to tax questions or tax issues.
So it’s another one of those situations.
And of course, inheritance is also one of those situations that sometimes we don’t always have a lot of control.
I had a client that his sister had passed away and left him many things.
And he was in the process of selling her house and he did not realize he wasn’t going to have to pay capital gains.
He was all prepared to try to plan that out and do it.
So we’ll talk a little bit about that.
But we’ve got Randy and Franklin on an inheritance.
Hey, Randy, what can I do for you, sweetie?
Yes.
Just have a question.
About a year ago, mom passed away and they left me and my sibling a house.
And we’re finally getting around to where we’re…
But my brother wants to live in the house.
So he is going to give me half the value of the house.
We had a competitive market analysis done six months ago.
And so he was going to give me half the value of that.
Is that something that now that six months later, been over a year, is that a problem?
Not tax wise so much.
I mean, obviously, depending on where the house is, theoretically, it’s an agreement between you and your brother.
The biggest thing is mom passed away a year ago, right?
Right.
A little over a year ago.
So whatever the house was worth when she passed away will be our basis or your basis.
So if that analysis six months ago was more than what it was worth when mom passed away, then you will be looking at a small potential capital gain situation.
If it was pretty much the same, when mom passed away, it was worth $200,000.
The analysis came back in, it was worth $200,000 or even a little less, depending on how old the house is and everything.
It could have depreciated a little bit.
But if it’s more, it was worth $200,000 when mom died and you’re getting $150,000, then you would have a hundred basis and $150,000 to $50,000 capital gains that you’d have to look at paying taxes on.
Got it.
That makes sense?
That makes sense.
Is that something if they are, so they’ll, will they ask on the tax form, like the houses that I have to have proof that the house is worth X at certain time, we need to keep that analysis I guess is back.
Right.
It’d be good for your tax records if they were, I mean, honestly, I’ve never in 30 years had someone come back, but I mean it can.
So you should keep the analysis just so you have some justification of how you guys worked out your, your prices.
Okay.
Got it.
Okay.
Thanks Randy.
Thank you.
Bye.
All right.
So again, if you want to join the show, you can 615-737-9986.
And Randy’s situation seems to be a fairly typical one that we see in our office.
Often where multiple children may inherit said property, but one of them wants to either keep it or live in it or whatever.
So usually they’ll come to a fair price of what the property is worth.
And then that way they can get brought out.
Most of the time it’s used at whatever value it was at the time of passing.
So that way, theoretically, the other spouses will pay no tax.
And then that person then owns it outright and they can do what they need to do.
So I mean, at least it works out.
Hopefully some families, they can’t agree on anything.
I will say if you have a big family, personal opinion, leaving anything, even a house that you’re, you know, leave it all in trust where you dictate exactly what you want done.
Because I have one case where there was like, I think 18 family members and there was a farm to this day, five, six years later, we are still playing with the idea that the farm someone to sell some don’t want to sell.
And of course you can’t, you know, it would have been better if they had taken and given each person so many acres or, or said a majority wins or something.
I’m not an attorney, but I’m sure there’s something that could have been written instead of having all these people inherit and then no one agreeing basically to be able to get in or out of this situation.
And that’s I’m sure that wasn’t what was meant to be.
But you know, people sometimes forget inheritance is truly a gift, not something that you are, in my opinion, entitled to.
So you know, looking that gift in the face is, is, you know, the best way to do it.
What’s best for everyone, not just always what’s best for yourself.
But thank goodness I did not go into law and I went into taxes and therefore I don’t have to worry about that once it’s decided.
In this case, the property is appreciating.
So all of them that may have wanted to sell it five years ago will now have capital gains, which I guess is a good thing to worry about.
If you, if you’re going to go that way, at least it’s not depreciating, which is not a good thing.
All right, we’re going to be heading here in a minute into our first break.
For all you that have never heard me, I am Dr. Friday.
I’m an enrolled agent licensed by the Internal Revenue Service.
No, I do not work for the Internal Revenue Service.
I am licensed by them to do offer and compromise, basically to represent and to do taxes.
That’s what I do.
So if you’ve got questions concerning taxes or if you’re getting love letters from the IRS or you’re trying to figure out how can, I mean, I had a gentleman that called me and he’s like, well, I can’t afford to pay the IRS.
But yet, you know, he was sitting on a fairly healthy dollar amount in his bank account along with a house that was completely debt free.
In those kinds of situations, even though you may not feel you can afford it, theoretically you have the means to pay off the IRS and they will pretty much, they can mandate you to borrow or make your life pretty miserable, seize your bank, seize bank accounts and stuff because you don’t feel that you can afford it, but you can.
So you know, there are ways of negotiating and having those conversations and really just getting the IRS off your back, which is what we like to do so you can move forward, build your wealth, build your, you know, your stability and not have the IRS in it.
And that’s always the problem is sometimes people just kind of play that ostrich thing where they put their head in the sand and they’re just, you know, ignoring it.
All right.
So if you’ve got questions, you can join the show after this break.
We’re live at 737-9986-615-737-9986 is the number here in the studio.
We’re going to take a quick break.
When we get back, we’ll get to your phone calls.
We’ll be right back.
All righty.
We are back here live in studio.
And again, you can join us live if you want.
737-9986-615-737-9986.
We’re live at 737-9986-615-737-9986.
We’re live at 737-9986-615-737-9986.
We’re live at 737-9986-615-737-9986.
We’re live at 737-9986-615-737-9986.
So first thing is, was he old enough to take what we call RMDs or required minimum distribution?
Yes, he just started taking it the previous year because he had retired at 23.
But he was in his 80s.
Perfect.
Okay.
So you’ll need to make sure that he did take his RMD for 2024 before anything has happened.
And then what’s going to happen is you have time then, there will be taxes if you decide to cash it all out, you would have to pay ordinary income tax, first thing.
Since you’re a spousal versus an inherited IRA, there are some different rules.
And I’m not going to say I am a total expert, but I do know that basically you’re going to roll that over into yours.
I don’t believe, and I’m trying to take a quick look here, I think you normally under the current law for most IRA inherited, you have 10 years to cash it out.
I am pretty sure that a spouse does not have to live with that same limitations.
You will be required to start taking RMDs even if you’re not old enough, you’ll have to take them because of his life expectancy.
But it will roll over to you and then you will continue to be able to take that off.
So I don’t believe Lynn, and I may have to double check that unless somebody is listening that as a financial advisor, Lynn would need to know, does she have the typical 10 years to cash that out?
I don’t think so.
I think inherited IRAs, yes.
I think spousal IRAs, you have your lifetime to continue to take that off.
But you would have to start taking your RMDs even if you wouldn’t normally.
Does that help?
Even if I’m still working and not taking my RMDs, I’m still contributing, I’ve got to withdraw the RMD that he would have taken, correct?
That is my understanding.
That is correct.
Once we inherit, we have to continue to take the RMDs under the life expectancy of the prior, not yourself under the current.
So yes, I think even though you’re still working and under yourself contributing to a 401(k) or IRA, you will have to take the RMDs out of that account is my understanding.
The IRS is doing their best to make us take out the money as fast as possible.
But I believe with the inherited limitations, you are not locked into some of them than you would normally.
It says, “Keep an inherited delay begins distribution until employer would have,” but that’s an inherited IRA.
So I will find out from my financial planner, Lynn, and I may, if you keep listening or if you want to contact my office on Monday, I feel like there might be some other limitations or advantages I should say.
Spousal IRAs are so much better if there’s got to be a good and bad in this conversation than like an inherited IRA because they give you guys a little bit more freedoms.
So I believe you’re going to have to take RMD and I believe you’re going to have to start taking it out.
I don’t believe you have to do it all in 10 years, but that’s my thing.
I need to double check that.
Be not an expert, Lynn.
I don’t want to lead you on the wrong path.
But if you want to call me on Monday or just text the phone number that you hear me give out the 615-367-0819.
That’s my direct line.
I’ll be more than glad to communicate you with anything.
I may not be completely leading you in the perfect direction and I don’t want you to think, “Oh, Dr. Friday said this,” and then I completely change my story on you.
So I want to make sure I give you good advice.
Okay?
I appreciate that.
I will have to do something with it, right?
I can’t just leave it there.
No, 100%.
It has to be converted into a spousal inherited IRA.
That part I know.
Gotcha.
Okay.
All right.
Thank you, sweetheart.
Okay.
Bye-bye.
All right.
I will have to check on that for Lynn.
I’ll make you a note here and see if I can find out better.
Because again, I know inherited IRAs, I deal more with inherited IRAs than I do with spousal.
But I do know there are certain limitations.
But I believe there’s also some rules that she can get away with.
I know she has to put it into her name under a spousal IRA.
But for some reason, I mean, some of these rules change, guys.
So hopefully someone might know the answer.
Or I can get to Hank Parrott, who is my financial advisor, and get a better answer for Lynn on what she should and shouldn’t be doing with that.
Especially since she’s still working and doing all of that.
So we’ll make sure we get her a good answer.
All right.
Let’s go to Doug in Nashville and see if I have a little better answer.
Hey, Doug, what can I do for you?
Oh, common theme.
And I hear a puppy dog.
Yeah.
Sorry.
Those Great Danes have pretty big mouths and they’re right outside the door here.
But anyways, we’ll pretend they’re not here.
Go for it, Doug.
Another inherited home.
I have inherited a home along with my three brothers.
What are the options for retaining the home?
We want to keep the house.
What’s the option?
So you’re all wanting to retain the home or just you?
Well, all of us.
We have title and all four options, please.
Yeah.
Well, I mean, the good news about that is if all of you guys are on the same page and you’re wanting to all stay, you know, keep the home, are you going to think about keeping it as just like a family property?
Just out of curiosity, or will we be turning it into a rental?
Mostly the former.
We each live there occasionally when we’re in town.
I mean, we don’t all live in the same town.
So when we’re there, we have holiday meals there, blah, blah, blah.
Right.
So, well, I mean, obviously the nice thing about having any property that you have would be nice if we can even just like Airbnb it enough to take care of it.
Right.
It doesn’t have to be rented every day or every weekend, but just enough.
And then you guys could use it when you come into town or whatever.
So what the biggest thing is when you guys inherited it, whenever that was, you guys need to get some comps or an appraisal, something from a real estate or appraisal person that will say, this is the value of the home because five years from now, 10 years from now, you guys may decide you’re ready to sell it.
And we need to know what that basis is to know.
I mean, most likely it will appreciate, you know what I mean?
So it’ll be worth more five years from now than it is today.
So if it’s worth 200,000 when the parents or whoever passed away that you received the house from, and then, you know, that way we know you’re one third of that, that’s your basis and then if you guys have to put some money into it, all that, if we’re not renting it, then that will add to basis or the repairs, you know, major repairs at least.
That’s the nice thing about being a rental is that you guys could split it three ways and have the utilities and different things that are maintaining in that property to do.
But yeah, so the biggest thing is, is getting that appraisal or at least comps, something that gives you the value of that home when that person passed away.
And then you guys all need to save that.
Got the appraisal.
The problem is two of my brothers are not numbers people.
And what about property taxes and insurance, which could be substantial each year?
Should we set up a thinking fund or something?
That’s my confusion.
Yeah.
I mean, ideally you guys set up a house fund and then you calculate roughly kind of like our mortgage companies do, right?
They say, well, here’s your escrow account.
So you sit down and say, this is roughly how much each of us will have to put.
Somebody kind of just puts that in there and then you can auto draft the property taxes, the insurance, the basic repairs and maintenance, the utilities and try to, I mean, the first year will be the hottest in some ways because you’re not absolutely sure what, I mean, be nice to actually have a little bit of a fund that you could build up because sooner or later something big may need to be repaired.
A roof heating and air conditioning.
Those are always for my rentals.
The big ones that, you know, the surprises.
But the best thing would be just to have a joint bank account.
All three of you guys put money in and then anything that goes with that house goes out.
So that way you can track, you know, whatever’s just for that home.
Not, you know, versus someone just giving you so much money and you run it through your personal account.
This way everyone can see what went in and out of that account.
Cause all three of you would have signing privileges.
Even if they don’t want to go in and out, they still have the ability to.
Gotcha.
Sounds, that’s what I need to hear.
I appreciate it.
Hey, no problem.
Good luck on that, Doug.
Okay.
Thank you.
Thanks.
All right.
We’re going to get ready to take our second break here for the show.
And if you want to join the show again, 615-737-9986.
615-737-9986.
Sounds like my girl has stopped talking in the background.
Always nice for a live radio show.
But if you have questions, inherited, those are always great question.
Cause sometimes they’re not always as black and white as we like to think.
And then again, I want to make sure Lynn, if you want to call or text this number, 615-367-0819.
That’s my direct number.
615-367-0819.
I will definitely get you any information that’s needed, at least for making sure that you handle the transition of your husband’s loss, you know, from his IRA to you the best that we can.
Then what else do we have here?
We want to make sure we’re also covering anything for first time buyers.
Back in 2008, I’ve been doing a number of back taxes this last week or two, and I’ve had two and the people forgot all about it because let’s be honest, they kind of forgot about filing their taxes.
So they didn’t think too much about telling me about the first time home buyers.
Remember that was a 15 year, $500 a year situation, which I believe is ending in the 2023 year.
But up until then you had $500 each year that you had to pay.
So in there, they’re making changes to these tax returns.
So if you, for all of you that may have gotten that, you should be done hopefully with that situation.
So that will be good news for all of you that had the first time home buyers back in 2008 and had to pay it back.
All right, we’ll take our second break.
We’ll be right back with the Dr. Friday Show.
All righty, we are back here live in studio.
Sometimes I have to really watch that.
And we will be taking your call 615-737-9986, 615-737-9986 live here in studio.
So if you have any questions, keep in mind the 15th of September is the due date for all corporate and partnership returns.
So if you have not filed it, you are basically announced the last eight days.
I believe it’s the 16th actually Monday that we have to actually file them.
But just keep it simple.
So if you have not filed, and this is only for individuals that have filed extensions.
If you have not filed an extension on your business, well, then you’re late anyways.
And the sooner you fit the button, the sooner you’ll be at least back in compliance.
So very important.
Also I had an email during the break and they wanted to know about cryptocurrency.
And again, cryptocurrency is just like any other kind of property, stocks, anything you have.
The difference is with crypto, you have to convert it back into US dollars.
So when I buy IBM stock or Tesla stock, I’m buying in a currency, the US currency.
Therefore in my case, if I sell it, I’m selling it.
So the biggest conception or misconception with crypto or lithium or any of the other crypto, Bitcoin is that if you’re buying it, and let’s say you’ve converted your US currency into Bitcoin, then you take Bitcoin and you buy, you know, lithium or one of the other brands, then you’ve already converted.
So when you converted Bitcoin into lithium, then you now have a purchase.
And then when you sell lithium to go buy something else, there’s a sale, right?
So you sold Bitcoin to buy lithium, there’s a sale price, there’s a lithium to something else as a sale.
And then you have to convert that back to US dollar as you’re doing it and report that onto your schedule D. So in any sense of the word, you really do want to track it as much or as currently as you would any kind of stock purchases.
Like I say, a lot of times people are thinking, well, no one really knows that I don’t, you know, no one’s tracking.
So I brought this and then I sold this and I did it all in the world of crypto.
So no one really knows that I brought and sold.
I like to think that you’re correct, but I’m also seeing more and more audits that are leading due to the fact of cryptocurrency.
The IRS has really put a whole team of people out there dealing with cryptocurrency and trying to find out, you know, who’s got it, where it’s at.
More and more companies are releasing information.
So again, it’s not so much they do or don’t know.
It’s a lot like when people come up and say, well, how does anyone know I gifted somebody money?
Well, it’s only when someone gets audited that it’s often known.
You know, I mean, if you go walk and give someone $10,000 cash and that person receives as a gift and you took it out of your bank, no, probably not.
But if you go give that person $100,000 cash, that may wave some flags.
Hey, how did you get the cash out of the bank?
Was it something that was reported?
Then it triggered somebody else looking at it.
Normally the biggest reason that people get audited, a lot of that is lifestyle.
So you know, you report that you’re making 30, 40, $50,000 a year, but yet you have two houses, you have four cars, you’ve got two kids in private school.
Lifestyle can tell a lot to the IRS and almost all of that is reported in.
When you buy a car, your car is reported in license.
Licensing gets reported to the IRS.
When you buy a house, that information is reported to the IRS.
I don’t know about private schooling, but I have had it come up in audits.
So I’m going to make a guess that there is something in there, either a way of them running it under social security numbers.
I don’t know.
I do know all your bank accounts and any kind of investment accounts, anything with our social security numbers on them has that ability to be tracked by the IRS.
So we’re not hiding.
So you know, you could get away with something, but you know, I’ve always been the kind of person to be quite honest with you, no matter what, I always like to pretty much not have to worry about tomorrow in a sense, Hey, I don’t want to be doing something that I have to look back and be, Oh my God, this is going to happen.
Oh my gosh, this is, you know, they could catch this.
It’s easier to just do it and then move forward.
I mean, again, like I was saying, sometimes people worry about saving money and I think money saving is great, but also you have to put into consideration how much are you really saving?
You’re going to turn your world upside down or you’re going to do something.
Now I’m not an advocate guys for paying off your mortgages by cashing out your 401k, but I mean, I do understand cashflow.
And sometimes if you do that over a four or five year, maybe a bigger, but keep you into a 22% tax bracket or something and paying it off before retirement, I can relate to that.
I’m not a financial planner guys.
I’m not an attorney.
So I’m not saying that’s the best thing to do, but I can say that there are ways of trying to keep the price down and then paying off big chunks to your mortgage.
So when you hit retirement, you don’t have a mortgage payment that would make life a lot easier and your cashflow would be so much easier than having to have, you know, a couple thousand dollars a month having to go out for a mortgage.
So you know, I mean, common sense comes into play with that.
That’s all I’m saying.
So understanding how it works and how money’s tracked through is perfect, but let’s also make sure that you’re doing the best you can with keeping as much money in your pocket.
Again, I know financial planners are sitting there basically probably stretching their head saying no, no, no.
And I get it.
I mean, if you’re earning 6% and you got a mortgage at 4%, why would you want to cash out the account when it’s making 6% to pay something off at 4?
Why not just take enough every year to pay your mortgage?
You know, and use that.
So there is two sides to all of that.
So I mean, each person has to do what’s best for themselves.
So anyways, that’s often had a couple people come in this last month wanting to talk about that kind of stuff.
So wanted to bring it up and make sure that you were trying to track your information the best way you can.
Also if you’ve had, I mean, we’re already what, through, we’re in the September.
So we’re through August into September.
Have about four months left of the year.
And one of the things you do need to consider when you filed your taxes, and some of you may not have filed your taxes yet.
You have until October 15th for individuals that filed extensions.
So if you haven’t filed your taxes yet, you won’t be able to answer this.
But if you have filed your taxes and you owed money, I had a gentleman come in just the other day and the last couple of years I keep telling him to adjust his W-2 so that more taxes are coming out because he’s big in investing and he has got a number of rental real estates and all these different things.
But when we just do his taxes based on his W-2 and his wife’s W-2, they’re already short.
And it’s like, you know, you need to be paying in enough on your actual earned income before we worry about all your exterior situations.
And that can be done with estimating if you want.
But he ends up writing a pretty healthy check and then pays penalties, right?
Because he’s not paying enough.
So you know, this last time, just this on Thursday or Friday last week, I’m like, you need to consider go in and put single and zero and pay in enough taxes.
We’re already what, eight months into the year.
We’re not going to do any good for 24 anyways.
And he’s still waiting to file 23.
But we need to get a head start on all this.
No, don’t get me wrong.
He always pays the taxes.
I just don’t like paying penalties that can be controlled with at least being enough money coming out.
So if you’re looking at your tax situation every year, you have to write a healthy check.
Consider how much money you’re paying in penalties and interest.
And right now the IRS interest rate is almost 12%, 12% people.
So I mean, there’s, it used to be for a while there.
So my clients are like, well, Hey, I can make more money when I didn’t pay that.
I didn’t pay my quarterlys cause I can earn six, eight, 10% on that money.
But now you’re paying interest alone.
That’s not the penalties.
This is interest alone, almost 12% to the IRS.
You can’t earn that.
I don’t think, at least I can’t.
So put that in your, your cap and think about that and figure out what you’re going to do and how you’re going to manage it.
But paying quarterlys estimates as we like to refer to them, estimated quarterlys for individuals that are self-employed or individuals that are retired and or employees that choose not to pay enough taxes.
And anybody that owned more than $500 theoretically is required to file estimates for the next year.
Now if it was a one-time situation, something happened, you had a big stock sale or you sold something.
And then the next year, that’s not going to happen.
I get it.
You’re not going to make estimates based on that, but they do base our quarterlies in our estimates on the prior year.
So whatever happened in 2023, whatever you owed is total taxes.
The IRS is expecting you to pay that much in again in 2024 without penalty.
Now if you pay too much, then obviously that’s not a problem.
If you underpay, then there’s penalties and interest.
Penalties can be as much as 25%.
I was looking at gentleman’s transcripts.
He owed $215,000 in 2016 for some taxes.
And now 2024, he owes $560,000.
He owes more now twice than he owed back in the time when he actually would have had to pay the taxes.
So again, keep in mind, penalties and interest can add up and bigger the dollar amount, obviously bigger the penalties and interest.
So this is the kind of things you need to understand if you’re going to make the decision not to pay the IRS on a quarterly, even a monthly basis, then understand that there will be also consequences of penalties and interest.
And a lot of people are like, well, we can get that waived.
You can only get so many penalties waived.
You cannot get interest waived unless you can prove the IRS did something wrong, which honestly in most cases, you didn’t pay the taxes.
You didn’t do it.
The IRS didn’t do anything wrong.
Therefore the issue is you can’t get that waived.
All right, we’re all get ready to take our last break.
If you want to join the show, maybe you’ve got a question or a situation, 615-737-9986 is the number here in the studio.
We’re going to get back to taking some of your calls.
I am an enrolled agent licensed by the Internal Revenue Service to do taxes and representation, which is just what I do guys.
I talk about taxes all the time.
I do my best to get you guys at least to be thinking about it.
Keep in mind, no one person’s situation is the same as another.
So the advice you’re hearing is just typical standard advice.
You need to talk to your tax person to get the exact numbers, that situation.
You may have something different than the person that called in, so the information may change, but the advice is there.
You want to be thinking about taxes before you go do something, then after.
Afterwards, we can’t fix it, right?
I mean, if you sell the house, we can’t do a 1031 after you’ve already received the money.
You can’t go backwards and not sell the house.
So now you need to think about those things.
If you inherit, if you’re going to deal with something, all of that is a perfect idea, but doing it in advance versus waiting till something happens doesn’t work very well from the tax standpoint.
Again, number here in the studio, 615-737-9986.
Taking the calls here live, inheriting questions.
If you’ve got questions on not filing taxes for the last five, six, 10, 12, 15 years, I can help you with that.
It’s not that complicated.
We’re going to be right back with the Dr. Friday Show.
All righty, we are back here live in studio.
I did want to put a quick note out.
If Lynn, you are still listening, I did get a quick text from a friend that is a financial advisor.
They said that as a spouse, the most common thing for you to do from an inherited is to transfer those funds to your own IRA.
So a spouse passed away, you can transfer those funds into your own IRA, or you can assume it and then continue to take the IRA RMDs once that has done.
Either way, again, I would definitely suggest probably talking to a financial planner or whoever’s the custodial of your husband’s IRA to just make sure that all of that’s being done correctly because the biggest thing is I know from the tax standpoint, if RMDs are not taken properly, they can take 50% of that RMD as penalty.
That is something we don’t want to have happen.
So I just want to make sure that that part is correct.
And I do know about that as far as what’s the best step for you and your IRA.
I think probably talking to a good financial advisor.
Hank Parrott is a great one in case you don’t have one and you can always call my office.
I’ll be more than glad to refer you to some.
Okay.
So if you have a question, you can certainly join us here in studio.
We have about, oh, five, six minutes left at 615-737-9986, 615-737-9986, taking phone calls, talking about my favorite subject, taxes.
All right.
So we’re going to be looking at tax planning.
One of the things you want to do is obviously check out your W-4 form, making sure you’re doing that in accordance.
If you have an expected income that is not subjected to withholding, such as obviously social security, a lot of people do not take out taxes.
Sometimes they’ll take out money.
Then doing the quarterly estimate is the best thing or adjusting other ones.
Like sometimes I’ll have people that have maybe a small pension, but then they take money out of their RMDs or they have social security.
Social security will take out taxes, but sometimes it’s just easy to calculate it and have it coming out of one source and controlling it versus having everything paying in 15%.
You may be paying way too much in in taxes.
I’m not an advocate for the IRS to be my banker.
I want them to have enough that keeps them from doing any kind of penalties.
I do not want them holding on to … I mean, I have people, a new client that came in and she … I don’t know how she’s … She is very up and down.
She’s very vested into the market, so she can have high or low capital gains.
But in all honesty, you don’t want them holding $50,000, $60,000 just as an overpayment to me.
That is just a little too much.
As long as you’re meeting the criteria of estimated taxes, that is all you need to be doing.
Again, if you have questions, you can join us here.
You can also call my office at 615-367-0819.
That will get you right to me and we can talk about setting up a question if you have one.
If you need help making sure that you are dealing with the right kind of tax advice for yourself.
Also dealing with if you’ve got real estate and you want to sell it, maybe talking about the 1031 as an option.
Also wanted to bring up, obviously some of you guys are at the age of taking RMDs, required minimum distributions.
Always talk to your financial advisor about qualified charitable deductions, QCDs.
Those are, in my opinion, one of the best tax deductions for seniors because you guys are always good about giving to charities, giving to help others.
There’s nothing wrong of doing that through your RMD money versus taking it directly from your bank account.
The big difference is you’re losing money.
If you take it from your RMD, you do what’s called a charitable qualified deduction, then that would be perfect and you can do what you need to do with that.
If you are taking it, putting the money in your bank and then you are writing the check to your charity, now you’re hoping to itemize and many of you don’t meet the standard deduction.
You’re not getting any deduction for all of that charity.
If you do it through your RMD, we get dollar for dollar.
If you give $5,000, you’re going to reduce your income by $5,000.
It’s a much simpler, much cleaner situation than the other way.
Just making sure that you’ve done it and you’re tracking it and all that is going the right direction is such an easy way.
It’s such a great way for you.
You can even give more money to charity if you want to be tracking the advantage or not, but really no one gives for the tax advantage.
I get that, but what’s the difference of taking the RMD, putting it in your bank account, turning around and writing a check or having your custodial write the check out of your RMD and saving those tax dollars?
It doesn’t make any sense to me.
Make sure you talk to your financial advisor about it.
They’ll all know what it is.
It’s not a hard thing.
It really starts at anybody at the age of 70.
QCDs start at the age of 70, not 73.
You theoretically could start doing your required minimum distributions and giving to your qualified charitable deductions at the age of 70.
So again, just putting that out there, making sure that you’re on the right page.
Every dollar saved is another dollar you can do something fun with.
Let’s see, what else do we need to think about?
So you have basically what you’re going to do if you do have loved ones in a continued care hospice, any of that, keep in mind that sometimes you’re having to cash out retirement accounts to cover that.
And in those cases, most of them will give you a number, but those are deductible.
If you’re in a hospital, I mean, if you’re in a hospice or something, it’s because you’re unable to take care of yourself, usually two or three out of the five main things.
And so if that is meeting those criteria, that is a medical situation that is not just the housing situation.
And therefore you can make sure that you’re not paying taxes before you get that deduction.
And in most people you’ll be able to itemize because it’s such a large amount.
I mean, sometimes people have 30, 40, $50,000 deductible for that allowance.
So just saying you want to make sure you have that set aside for yourself and just tracking it.
And if you are a person that itemizes, also don’t forget your charitable miles and your medical miles.
If you’re able to take medical miles or medical expense, then you can actually add in.
And every time you had to go to the pharmacist, every time you go to the chiropractor, every time you go see a doctor, all of those are going to be tax deductible for you.
So again, win-win situation, you’re already maximizing.
Why not take those last couple steps and make sure you get every dollar that you can be entitled to.
So if the show’s going to be winding down here in about two minutes.
So if you want to reach my office, you can Monday morning at 615-367-0819.
We will be getting ready soon to open up our calendar.
We also have brought in some additional, another additional EA in our office that we’ll be introducing.
He’s going to be taking on a couple of the basic tax returns.
So we’ll be able to help a few more people here and hopefully get your taxes done in the way they should be and answer all your questions.
So we’ll be covering more of that.
But if you want to get in and review your taxes before the next year and make sure we’re all set up to help you out, you can.
First thing you do is call 615-367-0819.
You can also check out the web, drfriday.com, D-R-F-R-I-D-A-Y.com and check and see what we have going on and we’ll be again, very soon we’ll be uploading the newest tax organizer for us.
So we’ll be able to help you get organized.
If you are, I mean, we’re eight months in, you guys should have a nice big manila envelope, nothing probably tax wise coming in yet for 2024.
But I would suggest on the outside of that envelope, if you’re receiving interest from banks, write down the names of the banks that you expect or you want to check.
If you have investment advisors from TD Ameritrade or just a company, you know, one of Dave Ramsey’s people or Hank Parrott or any of them, make sure that you have that wrote down on the outside because you’re most likely going to have some statements, 1099B especially from investments, interest statements.
And then also your retirements, right?
So social security, if you have a pension, if you took money out of an RMD, start putting all of that on the outside of that envelope.
So that way when the documents come in, you can just check them off.
And then, because so many times nowadays, most of these companies will be doing through email, right?
They don’t do it through the good old fashioned way, which was mail or anything else.
A lot of them will send emails.
And then we’ve had a couple of them this last year where things were not sent in the year.
And then they later found out that there was something they should have been reporting.
And that just creates a lot of headache more than anything else.
So we want to make sure that that’s all taken care of and moving forward properly.
So if you just take the time now when it’s quiet, write down where you’re getting your money every month, who’s paying it, where you should be getting.
And then that way, when it comes time, you can put all those in there.
Because a lot of times there’s miscellaneous stocks that you’ve owned for years.
And every year they may send you a small dividend check, whatever it might be.
You just want to make sure you’re tracking that information to stay organized.
Staying organized will make tax season so much smoother for you, trust me.
All right, so this is the end of the show.
So if you want to reach us in the office, 615-367-0819.
You can also email me directly, Friday@DRFriday.com.
That’s Friday@DRFriday.com or check us out on the web at DRFriday.com.
I hope you guys are enjoying this Saturday.
And as we love to say in Australia, call.