Dr. Friday Radio Show – April 26, 2025

Welcome to the Dr. Friday Show from April 26, 2025! While she might not have a medical degree, Dr. Friday is here to diagnose and treat your financial and tax ailments. In this episode, Dr. Friday dives into the significant Tennessee-wide disaster tax relief extension announced by the IRS, clarifying who qualifies and how it differs from state relief. She also tackles common issues like dealing with multi-year tax debt, the implications of tax problems on marriage and home buying, understanding the difference between a hobby and a business, and takes listener calls on Social Security income rules and self-employment tax. Get ready for practical advice on navigating IRS complexities and planning for the future.

Topics Covered:

• Federal Disaster Tax Relief for Tennessee:
  • All Tennessee counties qualify for IRS disaster tax relief due to various events (tornadoes, storms, flooding) over the past year.
  • Federal filing and payment deadlines (including quarterly estimates and payroll taxes) originally due around April 15th are extended to November 3, 2025.
  • This extension applies universally within TN, regardless of direct impact from the disasters.
  • Unlike normal extensions, the payment deadline is also extended without penalty for federal taxes.
  • This extension also applies to 2024 IRA contributions (usually due April 15th). SEP contributions are also extended.
• State Tax Relief Distinction:
  • Tennessee state tax deadlines (Franchise & Excise, business tax, sales tax) are not automatically extended for everyone.
  • State relief is granted on a case-by-case basis only for those directly affected by the disasters.
• Addressing IRS Tax Debt:
  • Importance of resolving past-due taxes, especially when facing life events like marriage or buying property.
  • Filing “Married Filing Separately” might be advisable if a spouse has pre-existing tax debt. IRS collection actions: liens (especially payroll) and potential wage garnishment (up to 100%).
  • High cost of ignoring IRS debt due to penalties (failure to file, pay, estimate, understatement – up to 25% each) and interest (mentioned ~12%).
  • Offer in Compromise (OIC): Possible but often not “pennies on the dollar,” especially with assets like home equity, multiple cars, or recreational vehicles (campers).
  • IRS may expect taxpayers to borrow against or liquidate assets to pay tax debt.
• Hobby vs. Business Income:
  • Discussion using Dr. Friday’s beekeeping as an example.
  • Hobby expenses are only deductible up to hobby income (no losses allowed).
  • A true business requires intent and activity level aimed at profit.
• Social Security & Income:
  • Caller question about interest income impacting SSDI/early retirement earnings limits.
  • Clarification: Passive income (interest, retirement distributions) counts for taxability of SS benefits but generally not towards the earned income limit that reduces early retirement benefits.
  • Proactive step: Requesting federal tax withholding from Social Security benefits (requires filling out Form W-4V, likely in person).
  • Potential impact of large income events (like stock sales) on Medicare premiums via IRMA (Income Related Monthly Adjustment Amount).
• Self-Employment and Early Social Security:
  • Caller question about structuring a mowing business when one spouse is collecting early Social Security (under Full Retirement Age) and the other is past FRA.
  • Advice: Structure business under the spouse past FRA. Pay the spouse under FRA as a 1099 contractor, limiting their earnings to stay below the annual limit.
  • Note: The earnings limit is prorated in the first year of collecting benefits.
• Self-Employment Tax Basics:
  • Caller question about SE tax calculation for a sole proprietor LLC.
  • Clarification: You pay SE tax (Social Security & Medicare) on business profits. Half of the SE tax paid is deductible as an adjustment to income on Form 1040.
• Tax Planning for 2025 and Beyond:
  • Uncertainty surrounding the expiration of current tax laws at the end of 2025.
  • Potential impact on tax brackets, estate tax, etc.
  • Importance of planning (e.g., Roth conversions, asset sales) considering potential future tax rate changes.
• Inheritance and Donations:
  • Importance of proper valuation and documentation for inherited assets, especially when donating non-cash items.
  • Large non-cash donations (>$5,000) generally require a qualified appraisal for tax deductions. Obtaining appraisals for inherited real estate is crucial for establishing basis.
• General Tax Advice & Services:
  • Importance