Could a retirement payout trigger taxes on your Social Security?
Welcome to the Dr. Friday Radio Show, January 6th, 2024 edition! In this insightful episode, Dr. Friday, a seasoned tax consultant and financial counselor, navigates through the complexities of the tax season. The show delves into various tax-related topics, including the implications of real estate transactions, capital gains tax, and retirement account distributions. Additionally, Dr. Friday provides personalized advice to callers on issues ranging from tax deductions and inheritance taxes to Social Security and Medicare impacts. This episode is a treasure trove of valuable information for anyone looking to make informed decisions during the tax season.
Key Highlights:
Whether you’re a taxpayer seeking guidance on personal finance, a retiree grappling with tax implications, or a small business owner, this episode offers a wealth of knowledge to navigate the tax season confidently.
In this episode
- Depending on total income, up to 85 percent of Social Security benefits can be taxable; that percentage is not the tax rate.
- Traditional IRA withdrawals funded entirely with pretax money are taxed as ordinary income, including both original contributions and investment earnings.
- Spreading pension withdrawals across multiple years may reduce income taxes and the portion of Social Security benefits subject to tax.
- Before claiming old rental losses when selling property, review prior returns to confirm those losses were not already used.
- Partnership LLCs and S corporations have a March 15 filing deadline, so owners should prepare business returns before the April personal tax deadline.
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.
It is that time of the year where it’s going to start getting a bit more crazy.
Tax season is upon us and we have just finished up, it feels like, the last tax year.
So we will be talking mostly about
2023. Doesn’t mean that if you haven’t filed prior tax years or if you’re having tax issues in other ways
that there might be something that we need to still address as well.
But the important part of all this is we are ready to get going with
2023 tax season, which is going to be a crazy one.
Not a lot of changes from last year to this year to be quite honest if we’re looking at certain things.
You know, tax brackets always change a little bit and itemizing.
But I still have a large number of people that seem to be buying and selling real estate.
And so that does have an effect on us.
And different times and if you have some of that.
So that will be something we’ll take.
In fact, we’ve got a phone call from Pete in Clarksville,
which I think hits pretty much on what I was just going to talk about.
Hey Pete, what’s happening?
Yes, nice to talk to you. Second time caller.
You too. Thanks.
Earlier this year,
a few days ago,
I liquidated some stock that I’ve held for
oh, I don’t know, a good 20 years.
And that’s going to be
going to be held to capital gains tax.
And I do not understand quite the sequence
in which I would file the 1040 SE.
And maybe you can help me out.
And specifically,
do I do I fill out that form after I do my taxes?
And secondly, does the 1040 E
get its data from like
taxable income and earned income
from the my tax, my 2023 tax form?
Right. So 1040 ES just stands for estimated statement, estimated tax tax.
So you would use it for the extent that on January 15th,
anything that happened in 2023,
tax law says we’re supposed to make four equal payments
to not get hit with penalties.
In your case, it’s a one time situation.
So really what they’re going to hit you with is failure
to not pay 110 percent in if you wait till April 15th.
As far as the situation.
So we’re really looking at 2022 when we’re talking about 1040 ES
unless it’s just someone I want to make an estimate,
because we know they’re going to owe quite a bit more money
and they’re not going to file maybe until October, you know, I mean, or whatever.
So if you have your normal job and you had your normal withholdings
and normally you get a small refund,
you probably don’t need to worry about an estimated payment.
But if every year you usually do have to make a little bit of a payment,
we’re not looking to estimate necessarily your 2023.
What we’re looking to do is say, OK, you owe 10,000 simple math.
You owe ten thousand dollars total tax in 2022.
And so since we want to pay 110 percent more by the end of January,
by January 15th to keep you with any penalty situation,
you may need to make an extra thousand dollar payment.
So that way you paid 110 percent.
Is that helping?
We’re not looking to really estimate if this stock sale has generated,
I don’t know, a ten thousand.
I like that number apparently today, a ten thousand dollar additional tax
deficit for you.
If you file on or before April 15th, you’re really not looking at a big penalty
unless you haven’t actually paid in enough for the year,
because every year you usually end up writing a check
that kind of following through, Pete.
I understood what you said, but specifically for my case, I am retired.
OK, don’t have any earned income.
OK, nothing. Everything’s going to be capital gains.
Can you tell me if this capital gains is going to exceed more than 50,000
dollars of gains, not necessarily how much you sold, but of gains?
Yes. OK. All right.
So we are going to require to file taxes because there’s a zero percent
capital gains if it was under that. OK, so you’re retired.
So you have Social Security, I’m assuming, right?
I got Social Security, got a pension.
I got got a minimum distribution on 401k.
I filed jointly.
That’s pretty much it.
So do you usually get a refund every year?
I mean, it sounds like you have to file every year.
So do you usually get or do you break even or what’s your scenario
normally before this stock?
I got I got bit
a few years ago in in having to pay a penalty
for not taking out enough tax on my 401k distribution.
By talking to you, I got that cleared up with the IRS.
They forgave me.
But the Achilles heel was there again.
I didn’t take out enough taxes.
But subsequent years following that, I made sure I did take out enough taxes.
And that’s scheduled.
And that has resulted that I
I have gotten a refund for the last five years or so.
OK. All right.
So in theory, assuming you file your taxes before April 15th,
then you’re not going to probably need to worry
about making a 1040 ES or an estimated payment.
If for some reason you think, hey, you know what?
Some of my clients, they just extend because it’s easier.
They don’t like to rush through the tax season.
So then I would say you need to make an estimate.
But in your scenario, you need to.
And can I ask ballpark is the capital gains?
Hundred thousand, one hundred fifty thousand.
I mean, ballpark of what your gains are.
Just the capital gains is like sixty eight thousand.
OK, so assuming that the rest of your income is less than one hundred and eighty,
then you’re going to have a 15 percent tax.
You probably know this, but just putting that out for everyone listening.
So that’s correct.
You’re correct. Your taxation will be 15 percent.
So you have two options.
You will not be mandated and you should not be penalized, Pete,
if you don’t make an estimated payment as long as you file by April 15th.
Of this year of this year.
Yes. If for some reason it gets extended because you don’t have all your documents
or whatever, I would send in an estimate or I would send in an extension
with that additional 15 percent of that sixty eight thousand.
OK, so I don’t have to burden myself with all this extra paperwork
on a ten forty.
Yes. If I file.
By the 15th of April, which I probably filed by the end of this month.
Yeah. And then and and as long as my
as long as my earned income
and not taxed or the taxable income.
Well, we’re really talking taxable income because obviously only 85 percent
of your social security is under one hundred and fifty thousand for joint.
Right. It’s actually to be under two hundred and fifty thousand.
Oh, I’m if I was two hundred and fifty thousand
on, I wouldn’t be talking to you.
Well, anyways, I appreciate the call is a great question.
Hopefully that helps.
OK, thank you so much. I appreciate it.
Uh huh. Thanks. All right.
Let’s hit Renee in Clarksville.
Hello, sweetheart. What can I do for you?
Hi. OK, I
accidentally deferred my taxes in November.
So from the last paycheck in November,
I get paid twice a week.
I’m sorry, twice a month.
So so for the past three paychecks, I did not have taxes taken out.
Now, I’m OK with that because
I’m single
and I I have a lot of I give I give a lot to my church.
So this year I gave about twelve thousand dollars to my church.
So regardless, I should be fine this year.
I was just wondering, should I do that again next year?
Should I do it like I’m well, actually this year.
Should I do it this year, like the whole entire year,
even though I know that I’m going to make enough that covers the standard
deduction, I’m estimating that I’ll make about thirty six thousand this year.
Now, I get 36 and you’re you’re single.
So much is yes, I am.
I’m a disabled veteran, 90 percent disabled veteran.
So I get a lot of non taxable income.
Right. So you get twenty three thousand.
And if you’re itemizing above, just keep in mind, I mean,
obviously just in the simple math, if you’ve got thirty six thousand gross
and you can itemize, which means you if you’re only giving twelve in charity
and don’t mean only at your income, that’s a lot more than that’s like
twenty five percent of your income, but of the taxable income.
Let me clarify.
Then then you have your do you have a mortgage, property tax, sales tax?
All those apply. I mean, I have a mortgage.
OK. Yes, I do have a mortgage.
OK. And well, hopefully I’m.
Yeah, so you I mean, you would still even if you have like twenty thousand dollars
that comes out of that, you’d still have about sixteen thousand dollars
that would be taxable income at the 12 percent tax bracket.
So, you know, you’d still need to be paying my suggestions, deferring,
which I’m not even sure you can defer.
I mean, you’re doing it, but I didn’t know you could do that.
Some employers may offer that.
I didn’t know I would probably either.
And I did taxes for years.
Oh, that’s crazy.
I didn’t know that was something that’s on the notes.
Asked me about that one.
But I would suggest actually, if you’re going to do it is like you did this year,
go ahead and turn it back on for January.
Do your taxes for this year. Right.
And, you know, and then if you find out that you still ended up
with a healthy refund, you could start deferring it again,
maybe in October or September, you want to do the math.
I would just be concerned with the whole year of deferral.
Then you may get hit with a penalty for not making proper payments
if you have to pay something.
Yeah, yeah, no, I wasn’t.
I do apologize.
I should have said that I would not defer for the whole year.
Probably at most six months, maybe even four or three months.
Right. Yeah.
So I would turn it back on and then do my taxes and then see,
you know, if you’re still in the refund, I’m all for the refund.
And like I said, I never heard anyone.
You can’t always reduce it.
A single and zero is single and zero.
But you could also claim single and one just because of your itemizing.
It’s as if you have another dependent because you give so much to charity.
You know, you could change your withholding.
But either way, I was doing.
I had no idea that I deferred it.
And I called them up. I’m like, why am I not paying?
Why am I only paying Social Security and Medicare?
And I’m not paying any federal tax.
And they’re like, well, I am like, oh, well, you deferred it.
And I’m like, well, how the heck did I do that?
I was trying to do single and one.
I mean, how did I defer this?
This is crazy.
I don’t know.
Sounds like they somehow put you as exempt.
But again, normally that that’s not as easy, you know, but somehow it happened.
But yes. So I think you’ve got the right idea, though.
I mean, I think the concept, again, not very many people fall into that.
But with the fact that you have,
you know, disposable income, it’s non-taxable that comes to you for your service.
And thank you for your service.
But, you know, it does work in your situation.
OK, so just keep on keep on keeping on.
Got it. Thank you. You got it.
I appreciate your help.
No problem. Thanks.
Let’s hit Jimmy and Woodmont real quick.
Hello, my boy, Jimmy, what can I do for you?
Yes, I started drawing Social Security in September
and I’ve draw September to December.
Is that income taxable?
I have to pay taxes on that.
You could, depending on your other earned income or if you’re married,
your spouse’s earned income and you claim and you’re filing married filing jointly.
Up to 85 percent of Social Security can be taxed.
Yeah, I’m single.
And I worked from January to September.
Right. So did you make?
May I be nosy enough to say, did you make more than like 15,
20,000 during those months?
Did I make over 15,000?
Yeah. Yeah. January.
OK, so most likely.
Go ahead, Jimmy. Sorry.
Yeah, I just started drawing in September.
See, I worked till I started drawing in October.
I worked to September.
So answer your question in the year in 2023,
since you have W2 earnings or earnings and then your Social Security,
it will portion of it will be taxed.
OK, so. But the money I made from September to December,
they will tax it from Social Security.
Up to 85 percent of it.
Not the amount, not how much tax you’ll pay.
Depends on how much your total earnings.
But they can they don’t tax 100 percent of it.
They tax 85 or less.
So just one of those weird things.
But yes, you plan to make sure when you file your taxes, you either
if you do it yourself or you give it to someone, make sure that
that information is there. OK?
OK. Yeah.
Social Security’s done sent me 1099.
So, yeah, they will. Yeah, they’ll send it out.
My friend of mine just received hers the other day.
So you should be getting it soon. OK.
OK. Thank you. Thank you, Jimmy.
All right. We’re going to take a quick break when we’re done here.
We’ll get back with the Dr.
Friday show in just a minute.
All righty, we are back here live in studio.
And if you want to join the show, you can at six one five three six seven
zero eight one nine six one five three six seven zero eight
one nine, we have Alan in Dixon.
Put my glasses on.
Hey, Alan, what you have happening?
Yeah, the reason I’m calling.
I’ve got a question in my.
Bowsers both on Social Security now, I’m sixty five and she’s sixty three.
And we’ve she worked for years and I did, too.
We’re not even doing that this year at all.
Do we have to send in some kind of form by tax form showing that or
do they just think we just.
We don’t want to have some not sent in and they’re going to wonder
what happened to us, that we’ve been so regular every year.
Well, yes, I know what happened.
Many clients that ask that same question, because in most cases
it is sort of crazy that they
that people have for 40 years you file taxes.
I, you know, I’ve always filed.
Answer your question.
No, there is nothing in there that you have to worry about.
So I got a one year.
Well, the reason why another reason I asked this is because every year when I
I was on disability before my wife quit work, but I still had to fill out that one
half of my income.
I mean, my social security had to go on that form.
Right. Because you were fine.
Did I pay on it?
Yes, you paid tax if you were filing on your wife’s tax return.
You may have, depending on her income, may have had to pay some tax.
But the fact that neither of you have earned income, only social security,
maybe a small pension, don’t know, then most likely you don’t qualify
for having to file taxes if it’s only social security.
You definitely do not qualify for filing taxes.
And then my wife is saying that she’s doing her insurance.
I guess they would her medical insurance.
They require that proven that she’s.
Making this or not working or whatever, and they write some kind of forms, so.
Are they going to need some kind of.
So the way you’re talking, they need a tax form for her to do that.
Now, she in the marketplace.
For health insurance, so you’re talking about Alan, probably.
I’m guessing.
I think so, right?
You can tell them that you are social security only not required to file taxes.
And that should suffice.
I have, again, other clients that have that same exact situation.
So you should be in good shape.
OK, well, I appreciate your time and enjoy your show.
OK, thank you. Appreciate it.
All right. I’m not sure what number I put out there, but my eyes and ears.
I want to join the radio.
Get my tongue working. Six one five seven three seven nine nine eight six.
Join us live right now.
Six one five seven three seven nine nine eight six is the number here.
If you want to join the show and get your questions,
it’s a great way to get some of your questions.
And I love it when you guys call in, because I think a lot of people
listening sometimes have that same kind of question,
but not everybody really wants to do that.
OK, so I do want to bring up a couple of things.
Obviously, the end of the year has happened.
So happy New Year’s.
Now we’re looking at twenty twenty four.
But one of the first things we’re going to be filing, of course, is business tax
is due normally by the first of April or thereabouts.
And they have changed the limit.
So the limit is less than one hundred thousand dollars of taxes
obtained by a minimum activity.
You don’t have to pay.
So one hundred thousand dollars is for the business license.
And this is if you’re a contractor or an individual that works
in multiple cities or or counties.
So if you do less than one hundred thousand in a city or county,
then that business license is not required to be filed.
One thing I have to find out, don’t know if anyone else out there knows the answer.
Do we still file it as a minimum and basically put the information?
And it’s a zero tax, but we still have the minimum of fifteen dollars
county or city to have to pay that no matter what.
That’s what I need to find, because this normally most used to be like fifty
thousand and I didn’t have very many clients that made less than fifty thousand
dollars. So didn’t have a lot to deal with on that one.
But one hundred thousand dollars will will be good for many of my clients
to help make sure we have that information in the system.
And, you know, we don’t want to pay any more tax than we have to again.
So in some of these cases, you may just have a minimum tax business fee of fifteen
dollars instead of paying the point zero zero one eight six tax on your old business
license. All right, let’s hit Russ in Cookville.
We got Russ in Cookville.
Hey, Russ, what’s happening?
Hey, Dr. Friday, thank you for taking the call here.
I had a question here about traditional IRA.
I opened it. Oh, my.
It must mean maybe 30 years ago, you know, quite a ways back.
Anyway, I cashed it out this year.
It’s only around fourteen thousand.
But will I receive something from the bank?
Well, it’s been with about probably three or four different banks.
Now, do they keep track of track of that or what will I receive in the mail from
that? You should receive a form called the ten ninety nine R.
And it would be from the last one that did.
You said you received a distribution, right, Russ?
Right, right. Yeah, I just want to write one.
So that should be a most of those are in by the 15th, most of the time the 15th.
But they do have till the last day of January to get that to you.
But you will receive a form called the ten ninety nine R.
That will tell you how much is taxable, how much you withdrew.
If there was any withholdings, all that good stuff will be listed on that form.
OK, yeah, I would have 12 percent, but will I be taxed on like like I said, it was
probably 30 years. It’s been like 30 years.
I probably only put a couple of thousand in there.
Will I pay tax on that?
What I put in there also are just the interest I’ve earned or.
Well, assuming that it is a deferred like a 401k situation and back that many years
probably was, then you’ll pay tax on everything because you never paid tax on it
before. But if it was a Roth situation where you put money in and it just
grow into this dollar amount and it was paid with aftertax, then the whole thing is
tax deferred. So do you know if it’s a traditional or a Roth?
Do you have any idea? It was it was traditional.
Like I said, it was OK. Many, many probably 30 years.
So I just went ahead and put just put a couple of thousand in there.
And I think I just left it at that.
So. Right.
And so all of it will be taxed at ordinary income tax just to let you know.
OK, OK. Yeah, I would have 12 cents.
OK, well, I appreciate very much.
No problem. Thank you.
Bye bye. Bye bye.
So again, if if you and he did the right thing, I will just say Russ handled his
because a lot of times people take money out thinking, well, may or may not be taxable.
Well, it’s always safer because most of us have deferred something along the way,
mostly safer to to deal with that.
So make sure you take out at least 12, 15, 20 percent, depending on your tax bracket.
All right. Let’s go to Pat and see if we can get her in before the break.
Hey, Pat or him.
Hi. I am getting ready to take out a pension plan and I can do it all in one lump sum,
which I thought about.
But how what’s the percentage of federal?
I will have to pay on this and state for Kentucky.
Well, one, I’m not a financial planner throwing that out only because I’m going to say
I don’t think you should take the whole thing out at one time because we’re in a
progressive tax code.
So give me what.
Just give me a number. How much are we thinking that the total package is just.
Let’s say, for example, fifty thousand.
I’m 67 years old.
OK, are you married or single?
I am single.
OK, so you’re 60.
So are you on Social Security as well?
Yes. All right.
All right. So we have two things we have to look at.
We’ve got one, the means testing that can happen to Medicare.
If you take all 50000, it could theoretically kick you over 90000 total income.
If it does. And I don’t have the exact dollar amount, Pat, but then they may charge you
another year more money.
If it doesn’t, then you’re fine.
It won’t affect that amount.
You’ll be under that. It won’t be over 90000.
So. OK, so then we don’t have to worry about that.
Second, basically, as long as I mean, the first 50000 dollars is at 12 percent.
The next for simple math, the next 55000 goes up to 20 percent, 22 to be precise.
So and it’s progressive.
So it doesn’t just go from zero to twelve, zero to twenty two, whatever.
So you’d be looking at probably effectively probably I would just say 15 percent tax on
the 50000 dollars on the federal state.
I believe Kentucky’s around six percent.
I don’t do a ton of Kentucky.
I don’t have memorized.
But so you’re looking at probably 20 percent tax between state and fed.
I spread it out.
Yeah. And keep in mind, you’re met and your Social Security will be taxed up to 85
percent of it. So if you get 20000 dollars or whatever, 85 percent of 20000, whatever
that is, I don’t have my calculator today will become added income.
So, you know, so Social Security.
So if we could split it in two years, you might be able to get where your Social
Security is almost zero tax and you could spread it out.
So I don’t know if you have that option where you can defer half and take out half.
And then that way you’re maybe so that way you say I’m 12.
Now, right now, I got paid.
I get a Social Security and that’s like 1350 a month.
Right. So that’s the total.
So I’m not sure I thought I wondered if I could invest reinvested in a IRA or
something and then just draw interest off from it.
You definitely can do that.
You can defer it into a retirement of some sort.
Normally it’s an IRA and then take it deferred into the IRA.
And then that way you could take out a monthly draw of some sort and keep you at the
lowest tax bracket.
That would be my suggestion, but that’s something to think about.
OK, OK, because if I do it like that now, but probably I mean, I could draw a
monthly on it, you know, like 267 or something like that.
So well, I would not have to pay.
Sometimes your limitation you wouldn’t have.
But if you can do it in smaller increments and put it into an IRA where maybe you
have better investment options than you do in the pension, it might give you a win
win situation.
OK, now what did you mean about the Social Security?
When you earn twenty five thousand dollars, half of your Social Security plus
whatever you earn, if it exceeds twenty five thousand dollars, you’re going to start
paying tax on your Social Security itself.
Oh, OK, like if I took out fifty thousand and with my Social Security a year, if it’s
over twenty, anything over that twenty five thousand, I have to pay half of the
Social Security that I’m getting.
Exactly. Which you don’t I mean, you can control that if you do it the other way.
OK. OK.
Thank you so much.
Thank you. All right. We’re going to take a quick break.
When we get back, we’ll take more of your phone calls.
Six one five seven three seven nine nine eight six.
We’ll be right back.
All right, we are back live in studio, and I love the fact that everyone else is
excited about taxes as I am.
Because my phone line keeps going and this is so awesome.
All right. Let’s go to Rick in Nashville.
Hey, Rick, what’s happening, love?
I’ve got a question about a piece of property that I sold last year.
I purchased it in nineteen ninety nine and I sold it last year.
Obviously, I’ve got some capital gains I’m going to have to take.
However, I filled out Schedule E every year that I had it because it was it was a
rental property. I had some tax loss that have occurred over the years.
I never brought it forward on my taxes.
Can I go back and if I go back and create a spreadsheet of each year, what the tax
loss was for that year?
Can I recoup it now that I sold the property?
Well, in theory, yes, but it should be rolling over in your taxes, but since you’re
doing them, maybe you didn’t report it because it’s supposed to be rolling forward
every year, right? As a NOL that tracks through the system.
It’s supposed to, but I didn’t do it that way.
So what did you do with the loss every year?
Well, I didn’t have a loss every year, just had a loss.
But I think in 2006, it had a pretty substantial loss.
But in 2006, you didn’t take it on your tax return?
I took it. It’s on my tax return, but I didn’t roll it like you can only roll, I
think, like thirty five hundred or something like that over every year.
I didn’t do that.
Well, yeah, I mean, theoretically, you have twenty five thousand dollars depending on
your income. If you make less than one hundred twenty five, you can make a maximum
loss of twenty five thousand.
So I would say the first thing is if you want to go back and track and see, because
the problem will be is proving that you didn’t already take that loss in the year or
the following year that you had it.
Because normally if we don’t get it, it rolls to the next year.
If there’s any profits, it zeroes out those profits and it gets eaten up, so on and so
on until the losses or gains exceed.
Like myself, I have losses on my real estate.
I can’t take those losses because my income, but it will roll forward.
So every year if I make a profit on one of them, it will offset the loss.
So I don’t I mean, I don’t it’s not a black and white answer, unfortunately, on that
one, because those losses should have been offset against the gains in the years that
followed. And if you didn’t do that, you know, theoretically, they’re going to go
Those are all claims on my Schedule E for that property.
I believe it’s Schedule E for that property.
Yeah, no, you’re 100 percent.
Schedule E sounds I would go back and see since you purchased it.
I mean, if you can go back to ninety nine, that’s impressive in the first place, Rick.
But if you have those, I guess the first answer would be is go ahead, do the Excel,
take the positives and the losses and see how they were tracked on the taxes and then
see if you have any NOL available.
And theoretically, if you have one, you could argue the point that it’s available.
Yes. OK, thank you.
Thanks, buddy. All right.
That was an interesting question.
I’m not too sure.
You know, I don’t think I mean, I don’t think a lot of my clients could go all the
way back to to twenty nine or nineteen ninety nine and find their tax returns to come
up with that. So I’m already impressed, Rick, that you have the ability to find your
tax returns. I know this listening that say I have every copy of every tax return I’ve
ever filed. And I know my father passed away.
I found that was one that was filed in the in the 60s.
And I thought it was cool because it was it was so small, the tax return and so
different than what we filed today.
But OK, so if you’ve got questions, join us live here in the studio.
Six one five seven three seven nine nine eight six six one five seven three seven
nine nine eight six.
There’s also for for new members of LLCs, make sure you go to Tentap.
They have a new where we have to fill in all the members of your existing business,
LLC or corporation.
Sometimes when people file the annual report, they don’t always list all the members
and it is a mandate.
So you might want to go back and just check and make sure when filing annual reports or
your information on on Tentap that all the members of your LLCs are listed so you
don’t get hit with a penalty or a fine.
Again, business licenses are coming up due soon.
So that one you want to file on or before April 15th.
And if your business made less than one hundred thousand dollars, you may not have to
file anything but just the return from that setup.
And then just making sure that you have all of your information.
And keep in mind, nowadays, the IRS does still I mean, they are not the IRS.
Tennessee Department of Revenue is really good about putting in email notifications
if people want to have those.
So it does help a lot with what’s going on in the state side.
Federal IRS will never email you guys.
So if you get an email from the IRS, you know it’s a fraud.
They’re not emailing you.
They may use e-fax to be able to do something, but they’re never going to fail.
They’re never going to email you or anything like that.
So just make sure when you’re getting ready, if you’re making a little list of things that
have to be done in the first quarter or I consider it the first quarter, basically it’s
before April the 15th.
Keep in mind, you’ve got your annual note for this is for businesses, your annual report
usually on April 1st, your business license, April 15th, your franchise excise, April
15th, your first quarterly for the state or franchise excise, April 15th.
Obviously on the federal side, you also have your personal or corporate returns.
Now, remember 1065s and 1120s are due March 15th.
So if you are a small first time business filer and you have started a dual, a
partnership LLC or an S corporation, those deadlines are March 15th, not April.
March 15th.
So these are deadlines where I’ll keep hitting out there because it’s very important
that you actually have that information.
You know what you got going, you know where you’re going with it, and it’s just
important to be able to get.
No one likes to pay penalties.
I dislike penalties.
I hate making mistakes and and I don’t like having to pay a price for it when I do make
the mistake. And so if I can help you guys figure out what you do or do not need to
file or if there’s a way of getting around it, that’s what I like to do most.
But if you have, you know, if you’re a small business owner, especially when you’re
small, I mean, most of us are so often wearing more than one hat.
So, you know, we’re sitting here doing our accounting.
We’re also doing the sales or we’re doing the work where, you know, and so sometimes
dates and things can slip by.
So it’s really important that you actually just know what you need and put them on the
calendar so you’re not late and get them done.
I mean, you can file your business license today if you know your sales.
For January through December, get it done.
It’s out of here. If you have an annual report, same thing.
Easy to do. Get it filed.
Move it on. Don’t have to worry about it.
And then you’re able to just make sure you have the right forms and the times.
But on your annual reports this time, make sure you list all members.
Otherwise you could end up with a situation.
You know what? If I take Bill right now, I’ll end up hitting the break.
So why don’t we take a quick break just a few seconds early if we can.
That way, then when I get back, I can hit Bill and we don’t have to worry about cutting
them off really quick. We’re going to take a quick break and we’ll be right back with
the Dr. Friday Show.
We are back here live in studio and we’re going to go right to the phone lines and hit
Bill and McMinnville so I can hopefully get his questions.
A good one.
Hey, Dr. Friday, my sister’s husband passed away this last year and he had a farm.
He had some a couple of hay barns and some cattle and cattle working equipment.
She’s been told that she needed to set up a basis on the day that he passed of the
value of that property because she could set up and depreciate that.
Is that right on a house?
So theoretically, yes.
I mean, in answer to your question, so she inherited the farm?
Right. She’s selling the equipment.
Well, she’s still we’re helping her take care of her cattle and stuff, so it’s still a
functioning farm. She has income.
OK, so what she does, she needs to have an evaluation no later than 60 days after the
person passed away.
I mean, at least the values, because then she can use that as her basis of what she
inherited at.
And it does need to be from an outside party.
I mean, something like this, in my opinion, it needs to be either an appraisal or auction
company, someone that can come in, put the date, you know, the listing of the valuation,
the fair market value, you know, all of that needs to be listed.
And there’s a lot of little things that she has, you know, I mean, and big things.
Hay barn, even cows.
I mean, you know, depending on the market, you know, those those prices can go up and
down quite a bit.
So if she’s going to keep it or even if she decides later to sell it, she needs that
basis. Otherwise, she inherited at zero if she doesn’t do this.
So she needs to take that time, either get somebody from the area that knows how to,
you know, maybe Google is my best answer to see if you can get an appraisal for farming
equipment or existing farms, you know, because you’re not looking at a house appraisal,
really. You’re looking more at a farming appraisal.
And, you know, there is the thought of maybe calling in.
They may give it to you. And I don’t know.
But there’s a lot of when I go to auctions and things, many of them have a lot of
farming equipment and different things like that.
So they may be able to help with that as well.
Well, our father also passed away last year.
Now, we both inherited some.
She had a rental house and a farm on it from our father.
And then I’ve got equipment and cattle and a couple of hay barns on property that he
left for me. Is that I need to set that up for a deduction?
You need all of that. And they need to go back to the within 60 days of the date of the
person passing away and then using that as their date to pull it up in their databases to
get appraisal for how many heifers, how many cows, if it’s dairy cows, babies, whatever,
along with barns and equipment, you know, and the land, because all of that has a basis.
And without it, you know, you what do you have?
And then eventually you’re either selling it or even if your children inherit, there
still needs to be an original basis.
OK, I just want to share.
I know I’ve bought property with barns and buildings and stuff.
And I know if you buy it, you can set it up to depreciate it because you have an expense
on it. But I didn’t know about inheritance.
Yep. Same thing. You actually have a value because you get a step up in basis.
So whatever that property, everything included was worth, part of that will be
depreciated as a working farm.
OK, OK, I appreciate it.
No problem, buddy. Thanks.
All right. Let’s hit Bruce really quick at White House.
Hey, Bruce, thanks for holding.
Hello, I got a granddaughter, 31 years old, last year.
Oops, looks like we lost him really quick.
I don’t know what happened, but Bruce, if you can call back in the next minute or two,
I will try to get you back on.
But it sounds like he has granddaughters and he wants to know at 31 if he can claim
them. And if you’re listening, Bruce, I’m going to answer that particular question just
to see if it helps.
OK, so first, are they really a dependent?
Are they making less than five or six thousand dollars a year?
If not, if they’re actually 31 and not working, not too sure.
Maybe there’s great grandchildren they’re taking care of.
But if they’re living in your house, you’re providing more than 50 percent of their care
and they’re not working to make any money on their own, then you can claim them.
But if they are making five, six, seven thousand dollars, then they are theoretically their
own person. I don’t know how they would live off that dollar amount.
That’s not the point. The IRS says it’s time for them to be on their own.
And therefore you would not.
You would get a credit of five hundred dollars.
So the the adult credit or the dependent credit is five hundred dollars.
That’s what you would be receiving on on those children or those people.
And you have to I think you have to have earned income because if it’s if you’re living
solely off Social Security, I’m pretty sure it won’t kick in because it’s not a
refundable or fully refundable credit.
So I would do taxes both directions.
But if your granddaughter is living with you and she’s 31 years old, maybe she’s going
through a divorce or something, then they have to live with you six months in one day.
So they would have had to move in last June.
And then you need to give them more than 50 percent of their care, meaning that they
didn’t bring any money into the household to help take care of themselves.
If that’s the case, you can’t claim them.
But 31 would seem like they’re a little bit older, but they may not have been able to
work. And if that’s the case, then and they did live with you for more than six months
in a day, then they would qualify as a dependent of yours most likely.
So hopefully I didn’t see you back.
And I’m sorry, Bruce. Sometimes that happens.
But hopefully that answers your question.
If not, you can always contact my office on Monday morning at 615-367-081.
That’s the direct number 615-367-0819.
And I can answer your question directly to you off the radio.
Not everybody likes to be on the radio.
And, you know, sometimes those questions can be difficult for what you have.
So another caveat back to Rick, who has all the farming.
I did look up in the IRS does require a fair market value based on the IRS ruling.
Or regs, I guess you’d say under 26, which basically says it has to have the market value,
any changing of hands or anything that’s happened, selling, etc., etc.
So you I think if you inherited all this, you may have the attorney that handled the
estate. If there was an attorney, they may have already done some appraisals or listings
to do it just to make sure the estate was under.
But right now, with the estates being over what, 11, 12 million, most people don’t have
to worry about those appraisals as they were, or if they bring them back down to the
one million dollar mark.
That will definitely create a whole different conversation in our lives.
All right. So let’s cover what we need to know.
If you’re a business owner, you need to start thinking about getting a few things filed
out of the way because you know how crazy it’s going to get.
So doing business licenses, annual reports.
Don’t forget those annual reports.
It’s so easy to do, but it’s an easy thing to do.
Just go to Tennessee Secretary of State right on the front page.
This is file annual report.
Click it. Put in your number or look up your name of your business.
File the annual report.
Make sure you put in all members of it so that it’s all up to date and properly
recognized. And then you can go from there and do what you need to do.
Then the next thing, obviously, is start getting your paperwork together.
I already know Social Security has sent out.
Maybe not all of you have received it, but I know for a fact that Social Security has sent out
their statements. So some if you haven’t received it should be coming out very soon.
W-2s. And if you worked at multiple locations, take a few seconds, put an envelope, a
manila envelope together, write down the places you work to make sure you have all of the
W-2s before you go out and try to file your taxes.
Because what we’re going to do, we’re going to get a letter back that says, hey, we’ve
changed your tax return because you didn’t report something.
And that usually happens when someone has either worked a job that they forgot was the
first part of the year, whatever, and they don’t remember it or that they actually sold
stocks. That’s a huge one.
A lot of times people think, well, I paid on taxes already, took money out of a 401k or an
IRA. And since they withheld taxes, a lot of times people think they don’t have to report
those taxes. Not the case.
Everything eventually almost, I mean, from my world, I mean, I’m sure there’s not
everything, but anything that’s a taxable source, even if they withheld taxes, needs to
be. 1099Cs where they’ve actually done collections and maybe you negotiate with a
collection company.
Have one on my table right now where they didn’t realize it was going to become income.
They saw the form. They just didn’t realize that that was a tax form that they need to
file. It is it is taxable.
So sometimes when you make these deals and it sounds like so great, you know what?
I owed fifteen thousand dollars to the Visa company and negotiated down to a thousand
dollars. So I save fourteen thousand dollars.
And then guess what? Wham!
At the end of the year, you’ve got a 1099 for fourteen thousand dollars.
Now that puts you in an income situation instead of only a credit card company, which
really has a lot harder time collecting as far as I’m concerned than the IRS.
It is much easier.
So be smart. Don’t just make a deal with somebody just to to think that you’re saving
money. Make sure you think about how much this is going to cost me in tax dollars.
And do I have that to pay?
Because do you really want the IRS as a loan officer?
I can guarantee you the answer is no.
All right, guys, we’re winding up the show.
So if you want to reach my office, 615-367-0819, 615-367-0819, direct
number to my office.
You can always email Friday at DR Friday dot com.
That’s F-R-I-D-A-Y.
That is my first name for all of you that wonder about Dr.
Friday. So it’s DR Friday at DR Friday dot com.
Or you can just check us on the web.
DR Friday dot com is the website that you can go in.
And then, of course, if you’re an existing client, hopefully you’ve went in.
But if not, you’re just remembering.
Set your tax appointment up now.
Go ahead. The calendar’s in there.
Go ahead and set up your tax appointment.
So that way we can make sure that you’re on the books for me to do.
Other than that, guys, I really hope you guys are in.
It’s cold outside.
So stay inside.
Enjoy. Get your paperwork together.
Organize everything.
And then that way, when the busy season, the forms start coming in, it doesn’t
get so crazy.
As we always say in Australia, cop you later.
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