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In this episode of the Dr. Friday Show, financial counselor and tax consultant Dr. Friday discusses various tax-related topics, provides advice on business practices, and answers caller questions about specific tax situations.
Key topics covered:
- October 15th tax extension deadline and the importance of filing on time
- Quarterly estimated tax payments and penalties for late payments
- Business Ownership Information Act requirements and potential penalties
- Health insurance deductions for self-employed individuals
- Flex spending account carryover limits for 2024 and 2025
- Social Security benefits and taxation for those still working
- Medicare enrollment considerations and potential penalties
- 1031 exchanges and capital gains tax implications
- Employing children in family businesses and associated tax benefits
- Business mileage deduction rates for 2024
- Distinguishing between legitimate businesses and hobbies for tax purposes
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.
G’day, I’m Dr. Friday, and the doctor is in the house on this very rainy day.
If you want to join the show, you can at 615-737-9986, 615-737-9986, taking your calls, talking about
my favorite subject, taxes.
Right now, we’re in the midst of finishing up the 2023 tax returns.
They are due October 15th.
If you filed an extension, if you are not on extension, you’re late.
So probably makes no difference.
But if you are on extension, you do need to file that return so you don’t get failure
to file on time penalties.
It does not extend the money.
After all these years, it seems like I’ve said this a lot, but you need to realize it
doesn’t extend the money that you owe.
If you owe money and when you file in October, that money is going to have to be something
that you should have paid back in April or even May quarterly throughout the time to
do what you needed to do.
So it’s not something that you can just say, “Hey, everybody would extend it to October
15th if we didn’t have to pay.
I mean, everyone would wait to the very last minute to make that payment.”
So obviously, that’s not the case.
So I just want to make sure everyone understands that the situation is if you’re going to owe
money to the IRS, you should have paid it already.
And it should have been paid obviously by April 15th thereabouts or even estimates quarterly
throughout the year.
We’re just about through.
Well, we’ve already had our third quarterly, so we only have one left for the year of 2024.
And if you’re filing your taxes right now in October, then you basically haven’t made
and if you haven’t just went ahead and at least estimated based on the prior year to
the best of your ability, you’re now three payments behind on the current year.
So you haven’t actually paid your 2023 yet possibly all of it.
You also waited until that return was completed to make your quarterlies and you should have
been making them in April, June, September, and now January will be the last one.
So you need to catch all those up as well.
It’s not just, “Well, if I have it, I can do it,” or whatever.
It is a mandate as far as I’m concerned.
There are penalties that are assessed if you do not file quarterly estimates for anyone
that owes money or has owed money in the past.
So let’s say you filed your 2022 taxes and if you waited until October, whatever, and
you owed $5,000, that means it automatically says that you are going to need to make quarterly
estimates for 2023, right?
Because you owe 5,000, you’re supposed to be paying this as you go, not wait till the
end of the year and then make the payment.
Even if you paid it in full, there would have been a sweet little love letter that you would
have received that said, “Failure to make timely estimated payments.”
Now if it was your first year and that was the first time it happened, you may not have
received it, but if you’re a person that every year you file, every year you owe, then the
quarterlies are there.
Even if you’re W-2, we always assume that quarterlies really only has to do with the
self-employed.
That’s not true.
It’s the people that are retired that have to do quarterly estimates.
Now if we do it right, we can have the money coming out of their retirements in different
ways, so they don’t physically have to make those estimated payments because it can be
a real pain in your derriere.
But one way or the other, you do need to make sure that you’re paying in this money and
not waiting until October of the following year to make those payments.
You are giving the IRS penalties and interest and that’s just the way it is, right?
I mean, it is the way it is.
So if you haven’t done it, you know, I’m all about, let’s try to pay as little amount of
penalties and or interest than we can.
I just don’t want to give the money if I don’t have to.
All right.
So if you’ve got questions, maybe you’ve got a situation where maybe you’ve got something
that’s maybe a one-time situation or you’ve inherited something or you’re selling something,
then you might want to be able to see how that’s going to work and you can do that.
You can call here 615-737-9986.
Let’s go to the phones and hit Mark and see if he can add.
Hey Mark, what can I do for you?
Hey, Dr. Freddie.
I look forward to hearing your show every week.
Got a question.
My wife and I filing jointly, I always had a small business on the side, Schedule C kind
of a thing.
Now she has her own little business on the side.
Would it be better for us to be married separately and she does hers and then I do mine or will
they take two side businesses on the married joint and 40?
That’s actually a great question.
I don’t think I’ve ever been asked that Mark.
And it’s a good question because you know, you don’t think about it.
The answer is yes, you can both, you can stay as married.
And in most cases, and again, I don’t know your personal tax situation and it depends
on how much money you’re each making.
If there’s any kind of marriage penalty, but married filing separately is going to have
more penalty than married filing jointly.
So bottom line is it’s most likely still going to be better.
But that being said, I would, and I do this all the time for my clients that are both
self-employed.
I calculate the tax to the best of my ability to be able to say, this is how much Mark would
owe and this is how much the spouse would owe.
So you’re each making sure you’re paying in based on your own business, your business
of success when you’re paying your taxes is along with everything else.
Right?
So you don’t want, I mean, it’s all maybe the family money when it’s all said and done,
but it’s still good for a business to carry its own weight.
So I think at least, so at least that way you both can actually pay in your own quarterly’s.
You can pay them under your own social security numbers.
Then it would all merge together at the end of the year and you’d be good to be able to
do the other side of it.
Yes.
I would still most likely, I mean, again, you might want to, if you want a free consult
or whatever, we may just want to look at your numbers to make sure, but under most circumstances,
married filing jointly is still a better package than married filing separately.
Great.
Thank you so much.
Thanks for the call.
I appreciate that, Mark.
All right.
Really quick.
Let’s take Kelly and see if I can help.
Hey, Kel.
Hey, Dr. Farhadi.
How are you?
I am doing awesome.
How about yourself?
Hey, great.
Just wanted to let you know.
Hey, great.
Just got off of work.
I’m on the lot.
I enjoy your show.
I have a quick question.
Sure.
I’m building a shop at my residential, at my home, and I’m using a local company and
I was going to borrow $40,000 from my daddy and he was just going to write me a check
and I was going to deposit it into my bank account.
So I got to thinking, well, I don’t know if that’s a good idea to deposit that much money.
I mean, I didn’t really know what, what are your thoughts?
What should I do?
Should I do that or is that where I have to pay taxes?
I don’t think you have to worry about it.
It’s not like you’re taking $40,000 in cash because when you hear about issues, the bank
may have some questions if someone walked in with $40,000 cash and say, “Well, where
did you get the money? Who gave it to you?” under the money laundering laws.
But with a check, there’s no problem.
He’s got a bank account number.
You’ve got one.
They know who it is and you can either consider, daddy can consider it a gift alone.
It doesn’t make any difference.
That’s between you and him.
There’s no tax on that $40,000, at least not from your standpoint.
And there’s none from your father’s as long as he’s already paid tax on it.
So it’s really outside the tax code, but there’s no issue with you putting that money in the
bank and then using it.
The biggest question would be is how you depreciate the building when the time comes.
Because obviously it’s a work building, but it’s also on your primary property, which
we have some exclusions.
So we just have to figure out what’s going to be.
You may have some recapture of depreciation when you sell the house and that may be years
from now, but the building definitely needs to be added to your schedule C or E or D or
whatever you’re filing your business under.
Okay.
Well, I was just under the impression that like if I deposited over $10,000, I had to
report it to the IRS and all that stuff.
And that’s only if it’s cash, just so you know.
So if it’s a check, they already got your daddy’s information.
Okay.
Oh, okay.
Great.
Well, thank you so much.
I really do appreciate it.
No problem.
Thanks for listening.
I appreciate it.
Yes, ma’am.
Have a good day.
You too.
All right.
So those were awesome questions actually.
I mean, I think that’s the easiest way to do it.
And I can’t tell you how many times people have asked, especially about, I mean, we all
know if we put $10,000 in a bank, they’re going to say, who’s it from or whatever.
We don’t always understand how that exactly works.
And with new businesses, of course, we have the business ownership information act that
came out where if you own a business, basically the simplest way is any business owner that
is an LLC, a corporation, a partnership, anything registered with the state, you need
to now register with the foreign banking, which is also the same people that deal with
banking laws as far as money laundering.
And they’re just trying to find out from my understanding, I’m being a couple of different
calls because I’m like, why do we need to upload people’s driver’s licenses onto a website
where the government already has a lot of this information?
And we’re being told that basically it’s all coming down to, again, it’s money laundering
laws as well as foreign investors.
They’re trying to basically be able to figure out what the foreign investors are, where
they’re going and what that’s going to mean to people.
So again, don’t forget if you have a business and you’ve been in business for years, you
have to do this.
If you’ve just started the business in the last 60 days, you have to do this.
There are some exclusions if you’re into the insurance or different regulations, but for
most of us, they’re just ordinary businesses.
We’re required by this new law to do this.
And the worst is, and I haven’t seen any yet because the deadline hasn’t happened, but
the paperwork that they’re putting out is saying if you don’t comply with this business
owners information act, that they’re going to charge you $500 a day penalty for not doing
it.
So it’s one of those deals where a lot of people are like, what?
I don’t know anything about it.
How do I do it?
You can pretty much Google business information act or business owners information act, and
you can find out there’s a website that has to go in there.
But it is something that if you run a business, not a sole proprietorship, those are not required,
but if you run a single member LLC, any of the others, most of those are coming out as
we do need to file this information.
So I’m just putting it out there.
So you make sure, you know, you don’t just kind of let it go by and you might be up in
the business for 50 years.
I don’t need to do this.
Yes, you do.
All of us have to do it.
If again, if it’s an entity type, if it’s a sole proprietorship, no, you do not have
to do it.
All right, we’re going to get ready to take our first break.
You can join the show if you want at 615-737-9986, 615-737-9986, taking your calls.
We’re also start talking about some unique holiday gift ideas for your clients.
We have a company called Lolita Roasting offering some really cool, special personalized coffee
roasting just for your company.
That’s right.
They will roast your own brand of coffee just for you to be able to then customize this
and send it out to your clients.
And it’s a great way for you to have your own unique brand.
And we’re all talk a little bit more about that, but let’s take our quick break.
We’ll be right back with the Dr. Friday show.
All righty, we are back here live in studio.
You can join us live at 615-737-9986, 615-737-9986.
Let’s talk about a few things you can take off your taxes, especially the entrepreneur.
Entrepreneurs, did you know a self-employed individual may deduct 100% of their health
insurance premium as an above the line deduction.
It will not reduce your self-employment tax, but it will be a 100% deduction against ordinary
income tax.
So making sure that you have that kind of situation is always good.
FAFSA, the permit to carry over unused amounts.
That’s the flex spending account that some people will have at work, or you may have
your own individual, more of a plan of the health savings account.
But the flex spending account, you have to roll, you can only roll a portion.
So we’re getting announced the last quarter.
If you have money in that account, you can roll over $640 that can be carried over into
2025.
And for unused amounts in 23, the maximum amount you can carry over into 24 was 610
permitted to carry over.
So into 2024, you had 610.
They’ve upped that now.
So in 2024 to roll it over into 2025 is $640.
So if you have more than that sitting in a flex savings account, you need to go spend
it because you’re going to lose it or have to pay tax on it.
Either way, we don’t want to do either of those if it’s possible.
So your best plan would be is to be able to take those and move that money into where
you want it to go.
Also if you, a lot of people look, start looking now at donations.
I know I just actually cleaned my closet.
I got two big bags for charity.
Remember that you can contribute up to $250 more, but you have to have proof that those
donations are for more than that.
So if you just have a big old bag and you’re not itemizing it, you don’t have an appraisal
or anything like myself, you cannot deduct more than $250 even if you feel it’s worth
more than that.
All right, let’s go to Lenny in Brentwood.
Hey Lenny.
Hey, thanks for taking the call.
I’ve got a question.
I’m self-employed, have a business, been working all my life since I’ve been 14 years old.
So I’m 66, I’ll be 67.
If I take Social Security or can I take Social Security while I’m still actively employed
and making good income?
Perfect answer.
And I will tell you what, I am not, first caveat, I’m not a financial planner.
I’m going to give you my two cents on it.
You probably need to talk to someone that actually thinks a little bit more.
My opinion is yes, I mean absolutely you can.
As soon as you hit your full retirement, you can take your, I mean you can always take
it early but there’s limitations, right?
But once you hit the full, they can’t take back any of your Social Security.
You’re going to pay tax on up to 85% of whatever it is.
So if they give you $10,000, you’re going to pay tax on 8,500 of it if you’re making
decent money.
But who says you won’t pay tax anyways?
So just put that in the budget so you might as well pull it in.
Also you’re also possibly now on Medicare so you have to, oh you’re not, you still have
your own health insurance.
I do, yeah.
So you’re saying to me, I’m going to ask you a question, you’re saying that Social Security
is taxable even though, that’s crazy.
I know my friend, trust me, as one of my largest pet peeves in life, we paid tax going in and
now we’re going to pay tax coming out.
Only way it’s not taxable is if you have no income, right?
I mean if you make $10,000 or less, then you wouldn’t have to pay tax on it.
But you said you had a successful business.
So I’m assuming this is just gravy on top of what you’re already working and making
a decent income.
But some people say you can wait till 70 and you’ll make 8% per year in growth so it’ll
keep going up.
But the problem with that in my family tree is we don’t have longevity.
We don’t make it to 80 hardly in the last four generations.
So it’s like 85 before you even break even to doing something like that.
So you have to know a little bit more about your family tree and stuff to actually make
it worth it.
And to me, I’d rather take my Social Security and leave more of my other retirement because
people can inherit it than Social Security.
If I leave it on the table, no one’s going to get it besides the government.
So that’s my two cents on that one.
But yeah, but Lenny, don’t you at 65, didn’t you have to sign up for Part B or there’s
a penalty, isn’t there?
I think there is, but I just, I don’t go to doctors.
I don’t.
Oh, I hear you my love, but you paid for Medicare already.
I mean, it’s not like something new.
I mean, it’s something you throughout your whole life when you work, you’ve been paying
into Medicare tax.
So you might want to look into it.
I mean, why not?
I mean, you know, it’s up to you.
I’m not, again, not an insurance salesman, but theoretically I think at 65 we’re supposed
to all register for it.
And then at 67 or there between 66, 67, depending on your age, birth date, you can start taking
your Social Security.
Okay.
Well, that’s the answer I wanted to hear.
Thank you.
No problem.
Thanks for calling Lenny.
I appreciate it.
Thanks.
Thank you.
And that’s a conversation we’ve all been having a lot of times.
Yeah.
Is, is, I mean, in meetings and things is when do people take, and I will tell you,
financial planners have these algorithms and different things that they will use.
Part of it is how long is your family tree?
What’s your, you know, what’s the longevity, what’s your expectation?
I have clients that their parents have lived past a hundred.
I mean, you know, so they have lots of longevity and theoretically if you’re working and you’re
successfully doing them, I mean, I hope to be working into my eighties to be quite honest,
if I can make it.
But you know, if you’re working and you’re making money, taking your Social Security,
let it grow by 8%, it’s better than what you’re going to get in the bank.
So why not?
But for many of us, personally speaking, I think take the Social Security, you can reinvest.
I mean, some of us, we have SEPs and things like that.
So we can theoretically turn that money back into retirement that would then not really
make it so taxable.
There are some games you can play like that.
And then, you know, take it in and then it’s in your name, not the government giving it
to you, but you’ve already paid for it.
So just again, I am a firm advocate.
The government has already taken it out.
I’ve paid a lot of money into Social Security and Medicare.
So when the time and the age and everything comes up, I will be the first in line to take
it at the age, I think mine’s 67 at this point.
And so I will be the first one there saying, yep, it’s time.
I don’t care what my income is.
There’s no reason not to take that.
Now there will be Medicare is means tested.
That’s the reason I was trying to get Lenny, but he’s he obviously is not worried about
that side of things.
But if you sign up for Medicare at 65 and I’m not an expert, it’d be interesting to
find out.
But what if I have my own health insurance?
I think I have to sign up for it at age 65 or there’s a penalty for not doing it.
But yet they will charge me more money because my income is more than one hundred and eight
dollars or whatever you’re allowed to have.
And then they means test it for anything above that.
So, you know, it’s going to be interesting to see how that all works, because, you know,
if I don’t have to sign up for it and I can just keep to my own health insurance, I think
personally speaking, I would rather that than signing up for Medicare.
But I don’t want to lose out because obviously, you know, you don’t want to leave money on
the table.
So that’d be a question.
Maybe I can get someone on here that can talk a little bit about Medicare.
I know it’s very confusing for a lot of my clients.
And I have some great sales people and reps that have been doing insurance sales as long
as I’ve been doing taxes.
And we may get them to come back on and do a show and ask some questions.
All right.
So we oh, before the last break, and I want to go through this one again.
If you are looking for a unique holiday gift for your clients, this is mainly for businesses,
but also if you’re having a wedding, a big family reunion.
Think about this.
Lolita Roasters offer something special.
It’s a personalized coffee roast made just for your company.
So they’re going to put a bunch of testing questions and say about different things.
And they’ll say, hey, this kind of coffee, maybe it’s a dark roast, a light roast.
Maybe it’s Colombian, maybe it’s Irish, you know, all the different things.
And they’re going to make a custom roast that shows your clients that you went the extra
mile, right?
That you actually took the time and you’re not just going and buying some cookies at
a cookie place.
You went the extra mile and made something memorable.
Each holiday box includes your custom coffee and a thank you note, memorable and personal.
It’s a gift you won’t forget.
So this year, if you’re looking for something that’s just totally different, something that
you’re like, Hey, my customers love coffee.
My customers love coffee.
Um, it’d be something that we’re actually doing.
And, and that’s why I got this idea.
I’m like, wait, if I find this to be a totally cool idea, why not tell other people?
Because it’s kind of a small branch.
So visit Lolita Roasters, L O I’m sorry, L O L I T A roasters.com and you can get your
order.
You can get on there and start putting your form.
There’s gonna be a bunch of questions.
Um, they put you through and they actually give you some sample roasts.
So I think it’s actually a really unique idea.
So I thought I’d share it with you guys again, lolitaroasters.com.
Um, and then, uh, just let them know that Dr. Friday referred you and we’ll see how
that goes for you.
And again, we’re doing it ourselves.
So I think it’s a unique way of just celebrating the holidays instead of just the typical,
we do a lot of the cookies or we do a lot of the different, uh, big brand stuff this
time.
I thought it’d be something just different.
I liked the idea.
So, um, if you have that again, lolitaroasters.com.
So we’re going to be coming back after this next break and we’re going to talk a little
bit about more of the things.
October 15th is almost here.
We’re going to be done with 2023, but at that point we only have a few more months to look
at 2024 and we’ve all talked a little bit about all of you that like to run out and
buy new big vehicles and how that may change in 2024.
If you’ve already done it, you may find out it may not be quite the tax advantage that
you had in the past.
And there’s some pros and cons to that.
So you’re going to make sure that you understand what you have and if you need to think about
that and we’re also going to keep talking about the BOIR, which again was the business
owners information act, because if they’re charging $500 a day and you haven’t registered
and done what you need to do on the website, then that’s going to be a crazy amount of
penalties just because you’re going to say, I didn’t know.
And none of my listeners are going to be able to say that because I’m going to say, I’ve
been saying it for months now.
Um, so I want to make sure that you understand that that’s really important.
It’s basically just something that the government is using to track foreign investors, but they
don’t know if you are or aren’t until you sign up for this.
All right.
So when we get back from the break, we’re going to take your phone calls.
615-737-9986.
I am an enrolled agent licensed by the internal revenue service to do taxes and representation.
That’s what I do.
I’ve been doing it for almost 30 years here.
And so if you have questions, do you want to know how this is going to work?
I’m your girl.
You can also go on our website.
We’re going to be opening up our calendar so you can start making your tax appointments.
If you’re already an existing client, you should have already had that opportunity,
but if not, you’ll be able to go in there.
Make sure you have that going on.
We’re going to be right back with the Dr. Friday show.
All right.
We are back here live in studio and thank goodness we’ve got a few people.
So we’ve got, it looks like Mickey.
Let’s go with Mickey and see what I can help with.
Hey Mickey.
I’ve got your Medicare question.
So I just retired last year.
I’m a full age of 66 and a half.
I kept working until January of this year.
You do not have to sign up for Medicare as long as you have a qualified medical plan
through your employer.
The penalty comes in, the penalty comes in is if you don’t have a plan and you wait,
then they start charging a penalty for however long you wait.
You’re going to pay more of a premium each month and each year, but your employer will
send you a, they have some kind of document they send you that says, Hey, our plan meets
all the specifications and qualifications of, of the, of a Medicare.
You do not have to sign up for it until you quit your job.
Thank you very much.
Seriously.
I, it’s not my expertise and I know that I have two clients that I can think of that
actually both have to pay that penalty and I guess it’s for the rest of their lives.
So I’m always like, well, I don’t think they, anyone told them that, you know?
Yeah.
As long as you’re working and your employer will send you a document that says, Hey, this
is a qualified plan and you’re good to go.
Cool.
Thank you very much for calling.
Seriously.
I appreciate that.
Thanks Mickey.
Have a great day.
Bye.
And that’s good to know.
Cause again, most of us are kind of winging it sometimes.
All right, let’s hit Jim and see if I can help Jim.
Hey Jim.
Hi.
Hey Dr. Briney.
What can I do for you, sweetie?
Yes, sir.
Yes, ma’am.
I’m about to be quit clean deeded a large piece of prop, pretty valuable piece of property
from a corporation that I helped put another piece, part of the property together.
It was, I helped them get, acquire this property and through the process and everything.
And it was just, um, and part of the problem is part of my compensation.
They’re giving me part of the property.
Now I don’t really want to keep this piece of property.
I want to quit claiming it into another piece of property that I own that I want to buy.
Okay.
I have been told by my CPA that I have to keep it for a certain amount of time before
I can quit claiming it.
I mean before I can 1031 it into another piece of property.
And I’ve had other CPA say, no, there’s no law that says how long you have to keep it
before you can 1031 it.
What is your opinion?
Yeah.
I’ve never heard.
I mean, to be quite honest, I’ve never heard that there was a time now once you’ve done
a 1031 exchange, sure you have to hold it for two years I believe before you can do
something like re redo another one or whatever.
But I’ve never heard a quick claim.
It’s an interesting concept, but I’ve never heard of a quick claim that you couldn’t turn
into a 1031 exchange.
I mean, obviously we’re just delaying the taxes.
So I mean, eventually you’ll have to pay the taxes or somebody will if it’s inherited or
whatever.
Um, you know, I, I’ve never heard, I mean, it’d be something I would have to, to really
look into.
I’ve never had someone do it to be honest, but I don’t remember any tax law that says
that that there’s a time period on a quick claim.
There’s only a time period of a, on a 1031 you can’t turn around and buy a 1031 and then
turn around and sell it and buy another one.
There is rules on that one, but yeah, nothing as far as I know, right off the top of my
head that falls into that.
So I don’t, I think you, um, I, if you want, you can call my office Jim on Monday.
I have a 1031 attorney I use when I do mine and we can actually get the answer or, you
know, you’d be more than glad to help us.
I just want to make sure you understand they’re about to quit claiming to me this week and
I got another piece of property that I want to 1031 it into.
Now you don’t own the other property yet, do you?
No, I’m getting ready to quit.
No, no, but I’ve identified it, you know, and I’m going to put it under contract and
then when I get this property, I’ve already got it sold to someone else, but I’m going
to take the money and put it in my attorney’s thing.
Do the 1031.
So basically you’ve got a, you’ve got a quick claim.
Just to recap, Jim, you’ve got a quick claim that’s going to happen sometime this week
or thereabouts, and you’ve already got a new buyer for that property.
So you’re going to sell that property and do a 1031 into a piece of property that you’ve
already identified, but you do not own right now.
Correct.
Okay.
Then, I mean, all of that is a hundred percent.
So the only question you have is can you take a quick claim and immediately turn around,
sell it and make it into a 1031 exchange?
I’m not an attorney, but from the tax code, I don’t remember there being any limitations
on a quick claim turning it into a 1031 that I remember.
Right.
Okay.
I’ll call your office Monday.
Yeah.
We’ll see if we can get an attorney that handles that directly.
He’ll know the answer.
Okay.
Thank you, ma’am.
Appreciate it.
Thanks, bud.
Have a good day.
Sure.
Thanks.
It’s an interesting situation.
You don’t hear too many times that kind of situation.
So I always love something new in tax law and how it’s going to work.
All right.
So if you want to join the show, you can.
615-737-9986.
615-737-9986 is the number here in the studio.
And if you’ve got questions like that, I mean, sometimes, you know, obviously tax law is
like the size of 10 King James Bibles.
No one’s going to know all of them, every law, but you know what?
It’s who you know and the people that specialize in each of these departments.
So I would definitely suggest getting the expert.
The attorney, Notestein, is who I always use, and he will be able to at least tell us if
there’s anything that would hold that up.
I can’t imagine why it would make any difference to the IRS if it was quick claimed and then
turned into a 1031.
Now the 1031 he’s buying will have to be held for a number of years, but that’s a whole
different conversation.
All right.
So if you’ve got questions, you can join us here in the studio, 615-737-9986.
615-737-9986.
For all of you, I had someone just did a quick text, says, “What’s a 1031?”
Sorry, a lot of times we just assume sometimes, and you guys, I mean, why did you assume you
know tax law?
It’s not your thing.
1031 exchange is a like kind of exchange, so it exists that he’s going to be receiving
a piece of land or a house or dirt or whatever, let’s call it real estate, and he can then
turn around and instead of paying the taxes today, he can reinvest that money into something
like kind, be another piece of real estate, and now the capital gains and all that that
he would normally have had to pay, because his basis in this original piece of land is
zero, right?
I mean, he has no basis because they’re gifting him this basically this piece of land for
services that he did for them.
So when he does that and then they convert it over, you know, at some point that’s when
it will turn into a taxable situation.
There could be some gray area, thinking out loud, where if they’re using this land as
a way of not paying him for his time, there may be some gray area there, but I’m not his
attorney or his accountant.
So at this point, we’ll be able to go.
Let’s hit Lisa and Franklin real quick before the break.
Hey, Lisa.
Hi there.
What can I do for you?
So I own a piece of property that has a business as well as a house on the property.
There’s about one acre that’s dedicated to the business, and I’m in, fortunately, in
the process of divorcing, and he’s going to quick claim deed me his portion, and what
I want to be able to do is turn around and sell the business that’s attached to the property,
but I’m curious how the capital gains work if I make money off of selling that one acre
and keep the other portion of the property.
What kind of capital gains might I be looking at, or how does that work?
So I mean, bottom line is you guys jointly own this property.
I’m going to use some numbers, Lisa, that may not apply, but they’ll be basic numbers.
So let’s say when you guys purchased this, you paid $100,000 for everything, because
it sounds like it was all purchased at one time together.
So whatever that is, you’re going to have to get a split so that you can actually get
a basis for the one acre in the business compared to the house and whatever remaining acres
might be tied to that.
So you’re going to have to take the original amount.
Because he’s quick claiming his share over, you would have 100% of the purchase, the original
purchase price of this total property, whatever that was.
So I’m using 100,000.
So let’s just say that the business and the acres is worth 50% of whatever it was.
So let’s just say $50,000, and now you sell it for $500,000.
You have $450,000 capital gains.
I have not, at least, but you know the basic math here.
So it sounds good.
But if you have two options, I mean, one, if you’re getting it just so you can replenish
the bank account, because divorce is never easy, then you’re going to want to pay the
capital gains.
And you’re probably going to need to sit down once you know those numbers, once we can figure
out what roughly the basis for that one acre in the building is.
And you guys have treated it as a rental, right?
In the past?
Is it on your guys’ personal tax return as a rental property or no?
Yeah, it’s not.
Okay.
I was just trying to find something that may have had depreciation scheduled for you to
work with.
Nothing’s ever that easy.
Well, whatever that is, you’re going to need to figure out what you can sell for, what
our basis, and then we can calculate.
Theoretically, it’s up to almost 23.8% tax if it’s a very successful over 600,000 profit.
If it’s under, you’re looking at between 15 and 18%.
And so it’s just a matter of how much we’re looking at as far as the gain, because I don’t
know how long you’ve owned it.
If it’s, you know, you may have gotten a really good deal and now it’s worth quite a bit,
you know what I mean?
It has a lot of appreciation in it.
But anyhow, the first thing is to find out whatever.
And when he quick claims it to you, in the perfect world, Lisa, I would have him quick
claim it to you for the value, his share of whatever the value was originally.
That’s for zero.
People love to put zero on quick claim.
Okay.
Do you know what I’m saying?
So if you, again, if you paid a hundred thousand for the whole thing, have him quick claim
his share is 50,000 because you were married.
So each 50, 50 assuming, so you have his, and then you already retained yours otherwise.
And he wouldn’t have to pay the tax because that’s the basis he had.
So it’d be zero for zero.
I mean, in essence, a 50,000 for 50,000, it wouldn’t be any taxable implication to him,
but that way you have something that shows what his share was.
And then the original documents hopefully showing what you had.
Okay.
That’s a very good idea.
I hadn’t thought about that.
Thank you.
No problem.
And then if you get the rest of the information, you can always give me a holler and I can
always give you, I’m not necessarily on the radio, but you know, give you an idea of what
to set aside for taxes.
Okay.
Thank you very much.
Thanks for the phone call.
Thanks, Lise.
You’re welcome.
All right.
We’re going to take our last break here.
So if you want to join the show now, it’d be the time 615-737-9986.
615-737-9986.
We’ll be right back with the Dr. Friday show.
All right, we are back here live in studio.
You can join us if you want 615-737-9986.
615-737-9986.
Something I, I talked to a lot of individuals, small business owners, my bread and butter,
right?
And one thing I don’t hear a lot of, or it seems like they’re not too sure how it works
is employing your children.
I don’t know about you, but my father had an accounting firm my entire life.
Probably why I went into it as youngest of eight kids and all of us worked with our father.
I mean, we added up receipts.
Some people entered information and big old binders because this was pre Excel spreadsheets
for a period of time.
We would double check the math on tax returns.
We had an assembly line.
My father, you know, did, did taxes on the side.
He worked as a chief financial officer.
So we had a, all he said, a small bookkeeping firm, you know, raising eight children wasn’t
cheap.
So all of us worked with our parents and I’m not sure, I mean, I’m pretty sure it’s the
same nowadays.
If you own a business, a lot of times you will take your kids with you to do it.
And there’s a big tax advantage for taking your teenage son or daughter to work.
Wages paid to the children are fully deductible as a business expense for sole proprietor
or partner in a partnership, a family held partnership in which only you and your spouses
are partners.
You do not have to pay FICA, that’s social security and Medicare on wages.
If the child is under the age of 18, nor do you have to pay unemployment insurance for
children under the age of 21.
Child’s wages may be subjected to a lower tax rate there, or if you give them $12,000
a year, they’re going to pay zero tax on the ordinary income.
I’ve actually found it to be a great way for kids to start finding out how much it’s costing
for them to do their, um, let’s say they have a sports, right?
They’re cheerleaders, they’re baseball players, whatever.
Bats are like $250.
You pay them a fair wage.
Now keep in mind, you have to have a true job.
These children have to work, they have to have hours, they have to be paid just as any
other employee.
You just don’t have to withhold some of those taxes, but you have a job.
You can’t say, well, Hey, I’m going to pay him $500 a month or something like that.
They have to work.
Then you turn around, you pay them, they put the money in the bank and then they can then
pay for their private lessons, their education, their whatever out of the money that you’re
paying.
Also Roth IRA is a great idea for that age.
I’m not a financial planner.
I am saying my personal opinion is if you have a child and you can put $6,000, $7,000
a year into a Roth and it will grow even just from 15 to 21 while they’re still working
or 15 to 18 that money, if they don’t contribute any more, that’s going to grow throughout
their lifetime and it’s a tax free.
It will grow tax free.
So these are great things you need to consider.
Theoretically in 2024, $14,600 would be zero, zero tax, zero social security, zero Medicare.
I had a family that came in and they have six children from the age of 12 to 18.
And you know, all of those kids are doing something within the firm and the youngest
is actually handling the QuickBooks, the accounting side.
And then some of the other ones are going out and helping in the, in the projects and
things that they’re doing.
There’s no reason you can’t have this.
You just have to treat it as a legitimate employee and legitimate situation.
You can’t just say, well, I’m going to give Johnny $5,000 here.
And you know, he didn’t, he didn’t do because they have court cases after court cases where
parents did that kind of thing.
And then they disallowed the entire expense.
That’s a lot of money to be disallowed.
So you want to make sure you do it right.
Again, employing your children is a wonderful thing and it teaches them what does mom and
dad really do?
How hard is it to make a living?
I mean, you know, what’s the difference of you working for you versus going to work at
the fast food joint.
Now some people will say they’d rather have their children working there because they
don’t want to have to deal with it.
But a person that doesn’t have children is advising you to employ your children so you
can take that.
It’s great tax advice set up properly.
It is a wonderful way for you to be able to do things and for them to learn how to make
money, how to spend money, how to invest money.
And let’s be honest, it’s always better if you have that in your wheelhouse as we get
older because some of us, you know, to be quite honest, I didn’t even know what the
stock market was when I was younger.
I mean, it wasn’t something brought up and it wasn’t something easy.
But nowadays you can easily invest from your cell phone on a Charles Schwab account and
you can teach the next generation to be even more efficient with their money than what
we were.
All right.
So the next thing was miles.
I just want to cover that in 2024 it’s 67 cents per a mile.
That’s business miles.
Right.
And then if you’re military, you will get 21 cents per mile for moving.
Only people that qualify for moving expense are people in the military.
We do not have it for anyone else.
Medical expenses, 21 cents and charity is 14.
So if you work, maybe you do things at the church, you deliver things, you help out when
you’re looking at your charitable contributions, add the miles.
It’s a great way of making sure that you have what you need and where you need to go.
Another thing we have to talk about a business.
What is a business is a business just because you’re out there and you’re like, okay, well,
you know what?
Once or twice a year I go out and I try to sell some art or something like that.
And every year you’ve been having on your tax returns and you’ve lost money.
You’ve spent more money every year in trying to be in business than if you are.
The IRS is saying, wait a second, business losses, big old difference.
You can have an NOL.
You can carry your loss forward, but you have to do three out of five year thinking.
So if I’ve lost money in the last three years and this year, 2024 will be the fourth year.
Is it truly a business or is it a hobby in which you’re trying to say, well, I was a
real estate agent, but I didn’t sell anything in three years.
This is the fourth year and you still didn’t sell anything.
And but you have a real job, you have a W2 job.
And so, you know, the IRS is saying, no, you’re not really trying to make it a job.
It’s a hobby.
You may keep your license, you can do all that, but you can’t write it off your taxes
anymore.
So you need to be able, and this is probably one of the hardest things in my world, because
when I see tax returns, I mean, usually when you come in, we’ll all see two, three years
in a row and you see these losses every year.
It’s, it’s, it’s kind of obvious that you’re using it for the purpose of a loss.
The IRS is going to come back and bite you and they’re going to say, wait, we’re disallowing
all this.
And there’s a reason for that because no one can afford to be in business for three years
and lose 20, $30,000 a year, even five or $6,000 a year, depending on your income.
Who wants to be in business the three years now, that being said, there are some farms
that I have had a loss for eight, 10 years because farming sometimes it takes them eight
years to even develop the first crop with certain plants and trees and different things
like that.
But normal business owners, we don’t go in and we say, Hey, we’re going to sell this
product and for three years we keep losing money.
And then it turns into a situation where it’s really not a viable business.
So I just want to put that out there because more of the cases we take on as an enrolled
agent, many of the cases I take on as representation in front of the IRS.
So you’ve got a love letter, they’ve come up with a problem and you don’t agree with
it.
And then we go in and we handle the audit, which is fine.
But sometimes let’s be honest, you knew you were pushing it.
Maybe you’ve listened to me for the last 14, 15 years on the radio or, or the tax person
that you had just kind of put numbers on a tax return.
They didn’t have this conversation with you.
It’s important to have those conversations.
It looks great.
You got a refund.
Everyone’s happy until the IRS comes back and questions it.
Now sometimes you’ll get letters.
I got a client, they got a letter today.
They get a letter and says, Hey, we’re changing your 2022 tax return.
But everything on that 22 tax return was already on the 22.
So just because you’ve gotten a letter that says things are changing, doesn’t mean the
IRS is correct.
What it means is you need to evaluate what the situation is.
How can we deal with it?
Is there a problem and what do we need to do to make it, you know, in a sense, go away,
right?
What do we need to do?
So, you know, if it’s, if everything like in this particular case, they’ll send you
a change.
Do you think you need to change your tax return?
Do you really think you need to change it or not?
And if they do, then we need to deal with it.
All right.
It looks like the show is winding up.
You can reach us at 615-367-0819.
615-367-0819.
You can always email Friday at drfriday.com.
Again Friday at drfriday.com.
If you have no idea who I am and you just were driving in your car, it’s rainy and you
turn the radio on and you’re like, Hey, who is this person?
You can always check me out on the web.
It’s just drfriday.com.
D R F R I D A Y.com.
Easy and that way drive safely.
You can always remember it.
It’s pretty much rhymes.
And then you can always contact us if you’ve got questions.
Try to contact us before you go do something because afterwards it’s very hard to correct
anything.
If you’re going to sell something, you’re going to do something like that.
You need to know the information before it happens.
Try not to wait till after and then then we’re really just telling you what the taxes are.
There’s not a lot that we can do to help you out.
We hope that you guys are enjoying this extremely rainy weekend, but it’s been a good Saturday.
I appreciate all the phone calls and I think that when you need help, you just need to
pick up the phone.
It’s 615-367-0819.
Call.
See you later.