Welcome to the Dr. Friday Radio Show! In this episode, we have tax expert Dr. Friday take on the latest tax updates, answer the caller’s questions, and talk over the following topics:
- October 15, 2022, Is the Tax Deadline for Individuals for 2021
- IRS Encourages Using E-File and Fling Before the Payment Deadline of August 31, 2022
- Biden Is Hiring 87000 New IRS Agents and What You Need To Know
- How Do I Know What I Can Write-Off Business Expenses?
- Which Entity Type Is Best for Your Small Business?
- Sub S Corporation, LLC Partnership, or 1065, due September 15, 2022
- Dr. Friday’s Tips on Contacting the IRS
- How To Find Out How Much You Owe To the IRS
and much more!
Transcript
Announcer 0:00
No, no, no, she’s not a medical doctor, but she can sure cure your tax problems or financial woes. She’s the how-to girl. It’s the Dr. Friday show. If you have a question for Dr. Friday, call her now. 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day Dr. Friday and the doctor is in the house. So if you have some tax questions, and remember, October 15 final filing for anyone that has not filed their 2021 with a legitimate extension, if you haven’t filed, then you don’t have an extension? Well, you’re late, not much we can do about that.
Dr. Friday 0:46
So finally, more earlier, faster is always better. You know, I was doing some reviewing of corporate tax returns this last day will do with an extension. Again, I always say with extension, because if you didn’t file an extension, you’re late on any of the tax returns. But if you filed an extension, your 1065 was due on the 15th, which was last Thursday. And in reviewing a couple of them, I noticed a few people hadn’t been filing, some people are now required to file K 2’s and K 3’s.
Dr. Friday 1:16
And what you’re going to find that if one of it is the partner share of income deductible credits, some is for international won’t apply to many, many people. But some of it has to do with examination of extension and failure to if you don’t file it, you can get failure to file penalties even if you file the tax return on time.
Dr. Friday 1:39
So you need to make sure if you’re a Sub S or a partnership, and beginning in 2020, partnerships, returns should also include the K 2 which is the partners distribute distribution shares, international and K 3 for shares, deductions and credits, etc. For international some, again, this doesn’t apply to everyone. But it does apply to many people, they don’t always think about what they’re you know what’s going on. And so it’s very important that you make sure that whoever is doing your corporate tax returns.
Dr. Friday 2:09
I’m sure many people have very, very good edits. But I was like I said, I had a situation that we had to rush to do something on it because the K 2 was not attached. And it should have been. Also remember, if you’re prepared that we also have to include bases with all 1065 and 1120. SS, again, because if you have a loss, and you continuously take the loss, you may not be entitled to it based on the basis that you have in that company.
Dr. Friday 2:39
So making sure that you understand how that works. Because I had a situation with people that came in and they had someone filed the taxes and then the IRS came back and had sent them some love letters and some changes. And next thing you know, they’re sitting there going, “Wait a second, why are we getting in trouble because we didn’t file these taxes this guy did.” And the fact you have to remember, you know, you get a good reputable tax person that will stand behind their work.
Dr. Friday 3:06
And I’ve always tried my very best. And there’s a lot of other people just like me in the profession, that if there’s a mistake made or something’s done, you know, there’s no perfect, perfect person in the world. But how you react when something happens is how it’s going to go down. And this particular person, they decided not to answer their phone, these people get audited, the taxes were completely wrong.
Dr. Friday 3:28
And you end up with penalties and taxes. And they you know, they truly did not understand why they would have to be paying any of the money. And in this case, they had gotten money back that wasn’t there. So they’re paying back money plus the money that was due. And you know, guys, you have to sit back and say, if you see something on your tax return, you don’t understand, and this is not always this particular individuals were not proficient in necessarily an English but there was definitely their second language.
Dr. Friday 4:00
But anytime you look at your tax return a if you’re getting a refund, find out why you’re getting a refund, because if it’s child credit, and you’ve got three kids, and you’re a single mom or dad, and you work and make no less than $55,000 Yeah, you’ll probably get a tax refund every year until those children are 18 years old. But you might be paying him very little federal withholding and compensating for it on your paycheck.
Dr. Friday 4:25
So if you’re getting a refund, and it’s going, you know, coming back to you, you should always check to see why. Because in most cases, most people breakeven, maybe it’s the same very little you know, I mean, if you’re getting $5000-$10,000 back, you better know why you’re getting it in if it has to do with earned income credit and you’ve claimed a loss on a business tax return to get to that income bracket.
Dr. Friday 4:50
So for example, you make $65,000 or $70,000, but you claim a $16,000 business loss to get you into the earned income I’m credit and and then now you get earn income credits. The IRS is looking at that. Okay, so if it’s legitimate fight every day, let’s do it. But if it’s not something, you weren’t a taxi driver while you were still working full time at another job and losing big chunks of money, then maybe you should ask, “What is this? Why do I have negative?” You know, even if you’re not a proficient in taxes, you need to ask those questions to make sure you understand what the system and how the system is working because you the person’s name on that tax return will be liable. Not anyone else.
Dr. Friday 5:40
So it really does come down to you making sure you’ve done it. And if you haven’t asked the right questions, then ask those questions. Because you do need to make sure you protect yourself. All right, you can join the show, maybe you’ve got a story to share, or you’ve got a question because you’re going to either.
Dr. Friday 5:57
And keep in mind, we’re in 2022 people, we’ve only got like four months left. So if you’ve got situations where you have sold some real estate properties you inherited, you’re thinking about selling you sold your primary home, you you reinvested some money in real estate, whatever your situation might be, you know, we need to make sure we have the answers.
Dr. Friday 6:18
We do know that the IRS is going to be hiring new people. Do I really see that as a big concern? No. And I will tell you, if you’ve gotten an audit letter in the last few weeks, it’s not because they have hired other people to work in the system. Okay, not something that happens that way. It’s more about what they, in my opinion, more about what the computer system has not matched their hazmat something up differently, the IRS is going to hire you know, for many of us, you’re sitting there going, “This might be a very good idea.”
Dr. Friday 6:54
It’s so frustrating to have someone come in and want you to help them. And we have absolutely no way of doing it. Because it’s like, okay, well, we’ll try to call the IRS anyone tried to call Iris lately? You don’t get through. And if you get fortunate enough to get through, the person either can’t help you or I love this one I called the other day get two and a half hours, get all the way through. Awesome. And guess what? The computer system wasn’t working well. So I ended up not getting what I wanted out of that conversation. So anyways, that was not a pretty day for me.
Dr. Friday 7:33
But if you you know there are I will put I don’t know how many times I probably say this, but the the tax advocate office in Nashville, Tennessee is probably one of the best. I am constantly using. And they have constantly resolved and helped and put a lot of taken a lot of pressure off my clients by by using them and getting. So they have an absolutely excellent staff out there.
Dr. Friday 8:02
So if you have a problem or question, I do suggest that I’m sure they’re probably wishing I would not continuously say but that’s what their job is. And they’re really, really good at their job. So, again, I would definitely suggest going to if you have have a question, you have IRS issue and you’ve been dealing with it for a year, because it’s the most my case is been over a year, and we still don’t have any resolution and the collection still keep coming and you’re trying to figure out what you can do, you need to do what’s called a 911. 911 is a form that you can use, and then you can fill out asking them to take a look in the system to try to help resolve the situation, whatever that situation might be. So it is it does work. I use it all the time.
Dr. Friday 8:51
And it’s something that I would definitely suggest considering if you’re pretty fed up with that whole situation. So, again, everything you want to go with that and we’re going to cover some of the other tax things, things that are going on in the world of taxes. But you know, to be quite honest, not a lot. Um, I have found that the tax court for reasonable cause has passed some some ruling about illness with taxpayers. Keep in mind, we have tried people suffering from cancer going through all kinds of different situations.
Dr. Friday 9:26
And the tax court or the IRS would always say it’s, you can’t use that for reasonable cause to show that they could not file their taxes on time. Here’s a text case where a man who filed his 1040s late tried to make an AR unit but failed the IRS imposed for delinquent penalties for 2011 and 12 and 13. He claimed his illness made it difficult for him to complete his task in a timely manner. The problem was his sickness wasn’t determined until 2019 nearly five years later so that was that case, but they are allowing more people that had suffered or went through things with COVID to you know, to have that.
Dr. Friday 10:03
So think about it. I am also a firm believer that if you don’t ask for forgiveness, you’re never going to get it. If you ask for what’s the worst that happens, they don’t give it to you, you then have to pay the penalties. So it is absolutely one of those important things that if you’re going to have many times something happens, I often find sickness or divorce is the two things that often come back to play at us. And in both those cases, it’s one of those deals where you want to be able to,
Dr. Friday 10:37
you know, if if that happens to be able to get penalty waivers because penalties can be painful, I guess his lack of a better term, very, very painful. And it’s a lot easier if you can actually request that waiver to do what you want to do. So if that’s the case, I have to do is again, there are forms that you can form, or you far as a waiver, in many cases, all you have to do is write a letter to the IRS along with the letter that has the penalties on it and request that waiver. And then they’ll either respond saying they don’t agree.
Dr. Friday 11:11
Or they will say that they did waive got one the other day for one of my clients, they agreed, but it wasn’t based on anything but the fact that they had a good tax record up until this point, so not always will you make it but I always tell people you almost are always entitled to at least one waiver of penalty, because most people have always or you know, generically, most people pay their taxes and file their taxes on time something happens, and you end up behind again, many times it’s either sickness or death or divorce, that usually leads at least in my experience that leads to those kinds of situations.
Dr. Friday 11:46
So if you’re thinking about preparing your taxes for 2021, or maybe you’re working on your 2022, which would be a great idea, something you should be doing probably, then I would definitely consider hassling you know, think about some of the things and if you’ve got a question, you can join us here 615-737-9986. Taking your phone calls, we’re gonna take a quick break, and then we’ll get to your phone calls. We’ll also talk about some of the things that we might expect to see as tax changes coming up. And also maybe a few things you you didn’t take or you’re still entitled to when it comes to taxes. We’ll be right back with the Dr. Friday show.
Dr. Friday 12:35
All righty, we are back here live in studio. And we’re gonna head right to the phone lines. And if you want to join the show, you can at 615-737-9986. Bow in Spring Hill, my town, what do you have happening bow?
Caller 12:52
Hey, I’ve got I just had a question about required minimum distribution of an IRA. Okay, I just want confirmation. So if someone turns 72, this year, is it true that they have to do the RM required minimum distribution by that mark?
Dr. Friday 13:12
By December 31 of the year in which you earn you can push it to M think it’s like February or March but you have to take to that year. So okay, I ready? ability. If you roll it over, you can in the first year, you can take that you can put it in the next year and then take it twice. But theoretically we have to do it in the year.
Caller 13:34
Okay, so if you take it twice, it’s it’s both of them are income and that following year. That is correct. Okay. All right. Well, I didn’t know about the taking the second one. So that’s Yep.
Dr. Friday 13:48
No problem. Glad you call to thank you. All right, let’s hit jack in Franklin. Hey Jack.
Caller 13:55
Bear with me here. Just a moment. I don’t know what I’m talking about too much. But I hold the first mortgage on our son’s house. And I think he still owes about $100,000. I understand there’s a forgiveness, tax deal or law. Could you tell me what I’m trying to say on that?
Dr. Friday 14:24
Well, I think you might be leaning towards gifting. That’s the only kind of I mean, you hold the mortgage. So at this point, he’s paying you the first mortgage right Jack?
Caller 14:34
Yes.
Dr. Friday 14:34
Okay. So if you want to just gift him, I mean, if you if you if the alternative would be to be able to gift him that and you can do that right now under the current gifting laws, you could gift him that portion of the loan. And then you basically have to, I mean, you’ve already paid tax on the original mortgage money, because you took it out of something that you there, the bank or whatever you use to pay for it, and there won’t be any more interest. So there’s no taxable income to you. Go ahead.
Caller 15:08
See, well, now taking it up and getting away from each month, you know, as he pays, I, I’ve been paying taxes on the interest 3% Interest or something like that I have to grind man as ordinary income.
Dr. Friday 15:25
Right? You do. But if you gift, I mean, again, depending on what you’re asking, but you can forgive it, in essence, you can gift it to him, and you can stop collecting the interest, and he would have that money. And in theory, he could turn around and gift you $15,000 a year if he wanted to, um, you know, but you wouldn’t have to carry the note, unless you want to. I mean, if you want to use that as a way of generating interest income for yourself, or just to, you know, keep keep a lien against the house. Who knows? I mean, there’s sometimes there’s other reasons and financial reasons to do that. But if your question is that you’d rather just give him that mortgage, you can do that through a gift tax return, and it won’t cost you any tax dollars and won’t cost him any tax dollars.
Caller 16:12
I could give him actually clear the loan off completely the month, I say $100,000, and so forth,
Dr. Friday 16:19
right? You just have to file a gift tax return, but it’s not going to cost you anything besides the cost of preparing the form.
Caller 16:26
Okay. To do. Who do Who do I go to to? Do I go to a register?
Dr. Friday 16:34
Man? Yeah, you whoever prepares your taxes can handle it without a problem. Or they should
Caller 16:39
without problem. Okay, and I don’t see any repercussion on this there. You know, it’s not hurting less financially by giving him this money or so forth. I got it.
Dr. Friday 16:51
Exactly. I mean, it sounds like yeah, that’s it’s not something it’s a hardship. So at this point, he can then, you know, has the house clear. And you don’t have to worry about that collecting that money every month or that 3%?
Caller 17:05
Right. Yes, yes. Okay. And I think it makes it a little bit clearer, it’s simple, actually, for me on that, like, I should go ahead and talk to my tax man about this prior to filing income tax this year, or
Dr. Friday 17:24
I would do that, because he’s just going to need your son’s name, social security number and the exact balance that you’re going to be giving him you know, and then obviously, you know, whenever the date is you stop collecting the mortgage, that would be you know, the interest would stop and everything else. So I would give him a call or her call and talk to them, they know your taxes a little better, but it won’t be a taxable situation. And if they have a question, whatever, you know, my number, so just have them call me.
Caller 17:54
Thank you very, very much. Thank you, bye,
Dr. Friday 17:58
Bye. All right. And see that’s I always love when people are thinking about outside of just, you know, our everyday, “Okay, we’ve got to work, we’ve got to have our payroll taxes, we have our certain situations.” I like it, when people go to the next level, I’m trying to figure out ways that we can helpful, you know, helpful ways that will, in the big picture, make life a little easier for everybody, if possible.
Dr. Friday 18:21
And I mean, again, I’m not saying that what this gentleman is talking, it’s going to work for every single person, Texas, our individual, there are a lot of times what I might do for one client, and we’ll save the money. Or sometimes it’s not always about saving money, either. Sometimes it’s about estate planning, or it’s about, you know, what’s going to happen five years from now, preparing for something that could go those directions.
Dr. Friday 18:47
So, just want to make sure that you know, when you hear these different options on the radio, or different discussions that we have, you know, mileage rate, yeah, we might be talking about something like that. That’s simple. Everyone has the same rate. I mean, unless it’s charity or business, but these different tax planning concept is out there. Hopefully it makes you think and say, well, this worked for me is this something I should talk to my lawyer or tax person or whatever it might be and deal with that just like I am not that gentleman’s estate planner or anything, so you know.
Dr. Friday 19:23
If there’s any thing that he needs to consider, I would definitely talk to my state planner, and I would talk to my tax person and you know, make sure all of that is not going to have any other effects from the tax standpoint, it’s going to save him money because he could be obviously even having his Social Security tax and different things depending on his income and what it’s going to go with on that. So just you know, again, keep thinking what you’re going to do, how you’re going to do it and what’s going to help prepare you or your situation moving forward. So you know, marking on on that.
Dr. Friday 19:58
So if you’ve got tax questions, call 615-737-9986. We are talking about taxes and different things that we’re going to do about how is the IRS going to hit certain deadlines? And oh, I want to remind you guys, it’s already the what the 17th? Yes. So you’re already two days late, I keep pushing the corporate deadlines. But all of us that are self employed also had our third quarter estimate. So hopefully you made it. But if not stop everything, go ahead and make your payments. So that way, you don’t have to worry about that coming back and sneaking up on you.
Dr. Friday 20:37
And you’re like, “Oh, I forgot.” Hopefully, you already made it. It’s not a big deal on the importance of that, but if you have a question, or if you haven’t made it, remember, you can always go to IRS.gov click “pay,” you can use a credit card or a bank account and pay your taxes directly on the IRS website, I usually do find that to be a bit easier than some of the other things. Other ways that people do it. We do do it when we’re filing someone’s taxes. But sometimes that does not always help or hurt.
Dr. Friday 21:09
You know, as far as when we file it, it’ll auto draft from their bank account. And it’s simple. But sometimes, we’ve had a couple of times where we had set up to do that, and it didn’t actually work right. So also always try to make sure my clients are watching their bank accounts, because it should happen happen very quickly, after we submit it within a day or two. And if it’s not, then we’re usually panicking and trying to figure out what’s next to, you know, move forward and do what we need to do.
Dr. Friday 21:36
Truckers need to file by August 31 deadline e-filing encouraged. This is something Washington just put out just a few days ago, who encouraged registration required registered larger trucking companies and bus companies. That’s the 2290. So if you are an over the road truck driver, and you haven’t filed your 2290, you are late. So that’s important. All right, let’s hit kin before the break when we hit kin are ready. Hey, Ken. I am good. What can I do for you on this beautiful Saturday?
Caller 22:18
My first question for you. I filed back in March. And I’m supposed to be receiving a pretty sizable refund of $1,800 as a matter of fact. And now that White House is turned upside down with what we should expect not to receive our refunds. I ran into a young boy who is a cook in Mcminnville Tennessee the other day and he said he filed two years ago still hadn’t received that tax return. So is this what we should expect?
Dr. Friday 22:50
Well, I will say I love the little town of lindo have some property out there. But I will say that if that young man hasn’t received it, then he is most likely needs to track it down because you only have three years. And if they didn’t, if they because that would have been in 2020. or there abouts when all the COVID it’s a possibility that his 19 did not get filed properly. So I would have him I know he’s listening, because he’s probably working. But I would have him refile. In your case, this was 2021 Taxes?
Caller 23:20
Exactly.
Dr. Friday 23:21
Okay. In your case, have you looked on the IRS website to see if it’s pending?
Caller 23:27
Yes, you go there and you get the same exact message every time. You call the 800 number and you get this same exact message.
Dr. Friday 23:35
Is the 1800 stimulus money that’s supposed to come to you or is it actual refund?
Caller 23:40
Some of it. A part of it the other half is actual tax refund.
Dr. Friday 23:46
Because that’s the ones I’m running into. And I don’t know. I mean, in some cases, they are getting letters saying that they’ve basically disallowed the stimulus and you know, here’s your rest of your refund or here’s your bill.
Caller 23:59
I do know I didn’t I didn’t take part in
Dr. Friday 24:04
here, like most of my listeners is like, I didn’t ask for it. But hey, it was on the return. And I’m usually the one filling it in for most of them. And it’s like, well, you know, it’s out there, you need to ask, but either way, it will get rejected out at some point. But yes, I think I mean, 2020-2021 taxes were the worst tax years and 25 years, as far as I’m concerned. As far as getting refunds, and getting any information from the IRS, it wouldn’t be so bad if we can call and they say, “Okay, well, we’re reviewing your taxes give us 30 or 60 days,” they say that, and now it’s 90 to 180 days, and there’s been no notification.
Dr. Friday 24:38
So it’s very frustrating for that reason. I know people are like, “Well, why do you want more revenue officers?” Because I want someone to answer the phone. You know, I really do want someone that I can call when something like this comes up and you know, I can actually get a human that will look at the account and say “Oh, this is why it’s held up. We needed you to send us a copy of your W 2,” whatever you know so we can get resolution versus that.
Dr. Friday 25:02
So answer to your question is, if it’s been more than six months, which you have hit because you said you march is back in March, really, you can file with the tax advocate office and see if they can track down your refund. So it may be something if you do. Do I do your taxes, Ken, are you just listener?
Caller 25:22
No, ma’am I’m just a listener.
Dr. Friday 25:23
Okay. Well, it’s called the 911. It’s easy if you have Google, and it’s really simple, you can fax the form in and usually within about 30 days, they will get back with you. Because in your case, or many, if your case is like some of my clients, we find out there’s something missing, and they just never got this, like they put in this pile and no one got back to it. And then we find out that it’s been held up all this time for something silly
Caller 25:46
I did man through TurboTax, it was a free service. And for much of us, it was just part time helping a friend out and he took all your tax dollars are out there. Right. But what they do owe me I’d like to have it.
Dr. Friday 26:10
Yeah, well, you I mean, again, if you go online and just type in the word “911 IRS Form,” you will find a forum that you can fill out that will at least get a human to call you within about 30 days. And then they will tell you they can they will go in and look and see why has it been held up. And if it’s, you know, whatever reason least, then there’ll be a reason behind it is all I can tell you, and you’ll have a human telling you, this is what you need to do to resolve this situation. That’s all you really want to know. How do I resolve it? You know?
Caller 26:40
Awesome. Hopefully I can see that fellow and tell him what to do.
Dr. Friday 26:46
You got it. Thanks, boss. Talk to you later. All right, we’re gonna take our second break. If you want to join the show, you can 615-737-9986. and we’ll be right back with the Dr. Friday show.
Dr. Friday 27:12
All right, we are back here live. On the Dr. Friday show this beautiful Saturday. And you can join us here if you’d like 615-737-9986, many of you guys may know who I am. Some of you may not, I am an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. I’ve been doing it for almost 25 years here in the Nashville area. And so that basically means that I do a lot of taxes, and I talk a lot about taxes.
Dr. Friday 27:46
And we deal with all kinds of tax issues from very simple IRS love letters that come in and just say, “Hey, we’ve changed your tax return, or we think we might need to change your tax return letters, to full out audits.” And you know, everything that falls between tax preparation for individuals and businesses, and trying to make sure with the new upcoming, what do we need to be preparing for I keep getting emails from clients as well as listeners that are like, “What should I be preparing for now that they might be hiring more realist, more IRS agents?”
Dr. Friday 28:20
And when they’ve already said basically those agents are going to go into the auditing side? Well, the answer is nothing different than what you should be preparing always, right? The numbers on that tax returns should have some justification, meaning you should have either receipts, or maybe you keep QuickBooks, but even if you’re keeping QuickBooks, and you’re just downloading office supplies, because everything you had from Office Depot becomes office supplies, you know, having those receipts to prove that you didn’t just go buy all your kids school supplies and Office Depot and write that off as your office supplies is not a legitimate tax deduction.
Dr. Friday 28:56
You know, one of the largest audited area is sole proprietorships. One of the reasons are, is because many of them are small business owners that run everything, including their personal stuff through one basic bank account, nothing wrong with it, nothing against the rules. But when you do that, when you don’t have a personal account, where personal things are done, and a business account where business things are done, and you have it all thrown together, and you’re doing your accounting, and some people I have met some of the most.
Dr. Friday 29:27
And I have to say, in most of the time, it’s a husband and wife, I know that the husband or the wife is the bookkeeper and the other person is the business owner in a sense, and they both work together to have a successful business. And many times I have found them to be very, very thorough in the way they do it. But sometimes you get the partner that’s like, “Well, I’m doing my best but I’ve never done accounting, so I’m not really sure if this is a tax deduction. Or you know, all my friends said that I could write this off.”
Dr. Friday 29:56
And so of course all your friends are tax experts, and I’m sure there’ll be there when the I IRS asked you the question is that a legitimate tax deduction and you say, “Oh, my friend next door told me I could write this off.” I will tell you more than once when people are doing their taxes, or they come into my office, and one of the first things they all come in, and they say, “Well, you know, my neighbor said, I could write off this and I could, I could start a small business, or I can start a farm because I could write off all of my chicken feed and all of this. And so therefore, I can, you know, it’s a business deduction.”
Dr. Friday 30:27
And yet, are you trying to sell eggs? You have three chickens that don’t, you know, I mean, where’s the business side of this? Is chickens that you’re keeping for your personal use, then chicken feed is not a deduction, okay? Common sense, the IRS is not going to give you a deduction for anything that is not a legitimate business. I have people that are bee farmers have, you know, 5, 10, 15, and they generate honey, and they turn that honey into something that they jar or they make into creams and different things. And then they sell those at flea markets or food markets, things like that. That is a business, right?
Dr. Friday 31:08
So now you started with something and you’ve got a product and you’re selling that product. I’m not saying you’re making a profit, I’m not saying that, you know, they’re making enough to get it into the black, but they’re trying and they usually have to have more and more hives to get to a point. Or I’ve got people that rose goats, right? Same exact thing, right, you could have 40 goats. And that can be a family that has just a lot of goats. That’s a lot of goats for a family. But usually, you know, in those cases, I have some that have just go out and they do land clearing with their goats, right? They have the little electric fence they put up and they do that, they send them out. And they do all that. And they get paid for the land clearing, and the goats do their job. And that’s a business.
Dr. Friday 31:53
And so then the feed and whatever else, the whatever you have to do to keep goats happy, is going to be a tax deduction. You putting goats in your backyard, and basically they’re running around, they’re cute, and they’re adorable or whatever. That is not a business. So mostly, what you have to also keep in mind is that most businesses are supposed to make money. The IRS does not have anywhere in the code that says, “You know what, we’re just going to let you keep losing money offsetting your taxes,” and what they’re going to call it is a hobby, because you want to continue to have goats.
Dr. Friday 32:27
But you’re not really you’re working 80 hours of 40 hours a week, and you’re doing everything else and the goats are just part of the family. But you know, it can be a farm. Well, just that’s the kind of things that people really need to revisit, when they’re looking at their taxes to me. Use some common sense, yes, it’s great, I have a $4,000 loss. And every year I have four or $5,000, I went and bought myself a Kubota Tractor and I have, you know, 40 acres, and I row hay every year. And that’s all I do. And the hay is not even sold, because the neighbors and everyone just kind of take it or I use it for something else. So therefore, it’s not actually a viable crop because you’re not selling it, or you sell $500. And you just bought yourself a $50,000 Kubota.
Dr. Friday 33:13
I’m saying that the IRS is going to look for some legitimate reasoning behind some of your purchases. If you are not in the business of cattle or crops or whatever it is that you are going to do, then you need to reconsider having a loss every single year on doing your business, they are going to look at that they’ve always looked at it three years of loss on a normal individual. If you three out of five years, if you haven’t produced income, you are likely going to be on the radar.
Dr. Friday 33:44
I had a guy that was actually legitimately in the auto racing business. But of course his son was the racer. And you know, it’s for years, he took him 10-15 years and the IRS eventually called them and said, hey, you know what, we don’t think this is a business. They audited them for three years. All in all, it wasn’t a bad turnout. But the fact is they disallowed his business, because he wasn’t just his son now was actually placed in fourth place in the state and all this, but they called it a hobby because it wasn’t necessary for his business to take on some of those responsibilities.
Dr. Friday 34:23
So you have to be a little bit more if you’re worried about being audited. Most people that worry about being audited are people that are maybe walking that fine line. And my suggestion on that is if you’re a person that’s been taking a loss on your tax return for the last 3, 4, 10, 12 years, you might need to reconsider that particular aspect. If it’s a legitimate business, you should be able to make money.
Dr. Friday 34:49
How can anybody in business lose money every year? It doesn’t make sense. Why would you stay in business? That’s a legitimate question that the IRS is going to ask if you are ever audited? And you have that? Why would you stay in business? “Well, because I think I can make a go of it.” Well, if you haven’t what’s changing? Did you go and do something different? Did you hire someone new? What did you do that was going to generate income? These are the kinds of questions you’ve got to have the answers to. And if you don’t, maybe it really is a hobby or something you enjoy doing. But it’s not really a business. So that’s my two cents on being concerned with having auditors or more auditors. I don’t think any of us really need to be concerned. But you might need to revisit your taxes to see if you have been pushing it a little bit.
Dr. Friday 35:37
So if you’ve got questions on that, and let me say, again, not every business makes money every year, that’s just the truth. But if you’ve been in business the last five years and you haven’t made money, then the question will be, is it a legitimate business? Should you consider closing this business? Or is it something that you’re going to keep making and you know that the money will come, it’s just not something that’s happened yet?
Dr. Friday 36:03
If you’ve got a question on that, what kind of business entity might be best for running a business, we can take your calls 615-737-9986. We’ll take our last break. When we get back. We’ll go into your phone calls and any email questions that I might have. We’ll be right back with the Dr. Friday show.
Dr. Friday 36:28
All righty, we are back here live in studio. Oh, for like the next 10 minutes. So if you’ve got a question, now, it’d be the time to jump on the phone. 615-737-9986. And let’s go to Todd in nolensville. Hey, Todd.
Caller 36:50
Hey, how are you doing?
Dr. Friday 36:52
I am awesome. Thanks for calling. What can I do for you?
Caller 36:55
I have a question. I spent this year about $25,000 on recurring the foundation’s on a rental house. Now, is that can I take that off as an expense for the year? Or does it have to be written off as an improvement?
Dr. Friday 37:14
You got it. It has to be an improvement, it’s going to be deducted as a lifetime of the property. So basically 27 and a half years, you’re going to be deducting that because they’re not going to consider they’re gonna tie that to the home itself.
Caller 37:29
Okay, well, the way I was looking at it, I mean, the value, I guess in a way, the value of it would have been that much less. However, I still paid taxes and everything on Zillow wasn’t normal.
Dr. Friday 37:43
Right? Well, they would say that your your property improved by doing that, that theoretically, you increase the value of the home when you you know, when you fix the foundation. That’s what they would say. So. Okay, got it.
Caller 37:59
Okay, all right. Thank you. No, go ahead. Go ahead. Oh, I just wanted is, is there because of the amount of that is that affected? Or it let’s say I had spent only 2000. On that, would that have made a difference?
Dr. Friday 38:16
I think it would have in my my Tech’s opinion would be that that would have been more of a repair because a foundation, it probably wouldn’t have improved the property. You know, I’m saying because, I mean, that would have been a pretty minor correction for $2,000. Okay, all right. Thank you. Thanks. All right. Let’s hit William in Clarksville. Hello, William. How you doing, young lady? I am good. How about you? That’s good. What can I do for you?
Caller 38:50
I’ve got a better we’re gonna pop out. I got all second depreciation with RS and everything. And I had I had learned to read moments. And I had some bad tenants. So I just wanted to be a presentable, and maybe I’ll be able to, for some years. I just wanted there’s no way that I’m gonna report it. I just want to pay tax on it. Or can I get a forgiveness loan when I met with some of them?
Dr. Friday 39:14
Right? Well, in theory, you never depreciate it right? never showed up as a depreciating asset.
Caller 39:19
No ma’am.
Dr. Friday 39:20
Yeah. So but you did show it as a rental or no, it just never got on the tax return?
Caller 39:25
Never got on the tax return never put on. Yeah.
Dr. Friday 39:29
At this moment, you know, I mean, theoretically, they’re gonna want you to go back six years and put it on. I mean, there may be losses that you you know, while my rentals don’t show profits, and then they’ll go I don’t want you to recapture the depreciation and do the whole nine yards, William. But at this point, I would probably show it as a Schedule D, file it with explanation, if you have a tax person, it helps you and then see what they come back with in essence, ask forgiveness.
Dr. Friday 40:01
You know, basically say, “Here’s what the scenario is. I’m reporting the profit and the loss or whatever, you know, selling this property” and see what they say. I mean, in all honesty, it’s possible that they will let let it go, you know, I mean, they’re so busy over there who knows what they’ll find. But, you know, you’re telling, I’m just being honest that your tax person, but they really can only go back six years to correct three years for an audit. So likeliness, is they’re not going to go back further than that, if you chose to go ahead and want to add it to your last three years and then sell it, you know, your tax person knows you a little better than I do. But that would be your choices, just to stay in closer compliance.
Caller 40:44
Okay, sounds great.
Dr. Friday 40:46
Thank you, buddy. Appreciate the phone. All right.
Dr. Friday 40:50
All right. Great question, actually. And I mean, the fact is, no, but again, I don’t want to ever sound like no one’s perfect. And I’m the last person to say that I have never made a mistake on a tax return, never had an error that was, you know, that needed that the IRS finds out and corrected, because in 25 years, I guarantee you. Heck, one that I know of a couple of weeks ago, or a week ago that came in because of a typo.
Dr. Friday 41:16
So the advantage was, most of the time, at least, it seems like that I have someone watching me in this particular case, the type of got the taxpayer back more money. But I think you’re I think the IRS always looks at the situation as they went back to try to fix it. So if this guy was my taxpayer and my client, I would probably go back three years, I would put the tax, I would put the rental on and then I would sell it in this 2022 year. And then that way, you did the best to comply with the situation, you don’t need to go all the way back to the first day you had a rental IRS is not going to be able to audit that anyways. So you know, no sense in being crazy.
Dr. Friday 41:58
So but that would be again, if each year was a loss, and it really wouldn’t benefit to do it. I mean, you would have, if it ever came up for an audit, you might have the justification that the additional loss wasn’t necessary, and you can probably have that conversation with your tax person. But, you know, all we can do is try to move forward, we can’t go backwards if we could. It may be great in some cases, but most of the time, let’s be honest, who we are today is who we are because of what happened in the past.
Dr. Friday 42:28
All right, so we are winding now we have to about about four minutes to the end of the show. So let’s cover a couple things that’s coming up, we have the October 15 deadline for individuals. For any reason, if you are one of my clients, and you have not filed your 2021 taxes, you had best email or text me and let’s make sure that we have you on the agenda to prepare those returns. And if you have already provided to you, that’s why I’m here I’m working in the office trying to get those done.
Dr. Friday 42:59
And then for anyone that needs help, or you know, you need to file you have file taxes and a number of your keep in mind. If anyone’s ever do a deal with the IRS or you want to get straight with the IRS, the very first thing you have to do is get into compliance. Compliance means you need to have filed at least the last depending on everybody’s situation, but most likely a minimum of the last six years tax returns, then you have to make a payment plan you have if you’re self employed, you need to be making quarterlies moving forward because again, if you’re going to deal with the IRS, you want to be eventually done with them, which means you don’t want to be adding to a payment plan every single year. That’s not a win win situation.
Dr. Friday 43:44
So again, you need to if you’re going to need help with trying to figure out I don’t have any idea where the last six years worth of paperwork is, we can help you do that we’re very good at getting that information. Helping the IRS does allow a portion of recreation and they also do have a lot of your W 2’s and 1099 and mortgage statements, student loan interest, all of the things that are turned in are on the website. So we’re able to help get you with some of that we can get you straight get you in and then we can talk offer and compromise payment plan partial payment plan non collectible, but you can’t do any of that unless you’re in compliance.
Dr. Friday 44:21
And that’s the important part. First thing you’ve got to do is file the taxes. I had a gentleman who had filed for six years 16 through 22 or 21. And every year he had a refund. Those are the ones that hurt the most guys because you left money on the table. We can only go back what three years and get refunds. I mean, now he did make a payment to 2016. So we had to go back to 16 because he made the payment in the last few months and we are able to refile that one hopefully and get the refund because it was paid in the last three years. Otherwise we can’t do anything with it.
Dr. Friday 44:57
You know, I mean, even all the money that he has and The sad thing is he kind of owed money in 2020. But he had all these refunds. And you know, it worked out but he left a lot of money on the table. And so if you’re an individual you work, you have a real job, you have a W 2 or you’re self employed person. Either way, you need to file your taxes, get in compliance, then figure out how you’re going to make it and then especially as a self employed person. If you’re a self employed person, part of your job is to pay your taxes every month. That’s why I like to do it every, you know, quarter, whatever, not every year ideally because that’s a hard thing.
Dr. Friday 45:32
When you owe $10,000, $12,000, $14,000 at one shot, it can be painful to come up with that money at the last minute. So you need to be paying it in so that you can have a more timely filing. Also, you don’t have such a pain in the derriere with deals with everything else with the IRS. If you want to reach my office on Monday morning 615-367-0819. You can also email friday@drfriday.com. Check me out on the web if you have no idea who I am drfriday.com. I hope you guys have an awesome Saturday. I’m enjoying it. I’m hoping you guys are getting ready for the holidays. I see a lot of Halloween stuff going up so hopefully you guys are enjoying this. As we always say in Australia, call you later.