Welcome to the Dr. Friday Radio Show! In this episode, Dr. Friday takes on the latest tax updates, answers callers questions, and talks over the following topics:
Tax Extension Deadline Oct. 15 To File Your Tax ReturnOperating Businesses Tax Extention Deadline September 15, 2021Current Capital Gains RatesAre The Latest Tax Changes Permanent?How To Sell Real Estate Without Paying TaxesWhat Are The American Rescue Plan Act and the Consolidated Appropriations Act of 2021?Apply For Forgiveness For PPP LoanTips On How To Lower Your TaxesTax Extension Deadline Oct. 15 To File Your Tax ReturnThe Latest Biden Campaign Tax ChangesDo You Have An IRS Issue That You Need Help With?Do You Need Help With Tax Representation?
and much more!
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 at 615-737-9986. So here’s your host, financial counselor, and tax consultant, Dr. Friday.
Dr. Friday 0:29
Good day, I'm Dr. Friday and the doctor is in the house and we are live here on Saturday, this wonderfully sunny, I guess if this properly term. It's a really nice Saturday outside. I've been working all day. But I did get a chance to go out earlier. And it's very nice. So hopefully you guys are enjoying your Saturday. And if you have any tax questions, we all know we're coming up on another deadline here.
Dr. Friday 0:50
Now, most of us already hit the I guess you would say the one deadline of August 2. Now the next one is going to be the true extension deadline date, which is October 15 for individuals. All operating businesses are going to be on September 15. So those are coming up. And you know, before you know, you also have your third estimated payment, which is going to be due on September 15 unless something changes. So making plans.
Dr. Friday 1:16
You know, there's a lot of changes every year. And I think this year, maybe more than some because of the real estate market here in Tennessee. I have had an outrageous number of individuals that have decided to sell either a rental property or a second home, a primary home. And so you're going to be looking at some tax changes that you might not normally have in your situation. So that would be one of those times when it's between the crazy seasons, to talk to your tax person. And make sure that you've set enough money aside for the potential of capital gains, you know, so that way we know.
Dr. Friday 1:58
Right now capital gains rates are zero, if you're in the 15% tax bracket, which is kind of now the 12 and then it goes to 15%, then it'll go to 18.8%, and then it'll go to 23.8%. And that is pretty much when you hit over 400 and some up 460, 000s when you're maximizing that for a married couple. So that will be something you need to be looking at making sure you understand. And if you have questions about that, or maybe you're just getting ready to start thinking about changes that might be happening changing of jobs.
Dr. Friday 2:33
many people are relocating to different areas, it seems like these can also cause some tax changes if you get a job that makes more money. It's a good problem to have, but it can't have.
Dr. Friday 2:44
And you can reach us here, the radio phone number is 615-737-9986. And we can take your calls here live. Again, if you're dealing with any of those. I took a meeting earlier this week. With someone that was–another thing– when you're selling real estate a lot of times in some cases, you might have a lot of leftover furniture Goodwill, per se, items. And how do you track that? And is it even going to be a tax deduction in the year 2021?
Dr. Friday 3:23
And so what we did do in this particular person's situation, they haven't been itemizing the last number of years because their mortgage is not, you know, $40,000, or even $20,000, and their property taxes. Even though we can double up and do it every other year, you still have a maximum on property taxes and sales tax for the state of $10,000 on the salt tax. So we can maximize the sales tax, we have the mortgage interest. So in this particular year, giving all the money to Goodwill, but also possibly maximizing at the same time, your standard charitable contributions that you would normally make.
Dr. Friday 4:01
And if you do that on an every other year basis, sometimes the audience or even whatever you do, it can kick into itemizing. Now this doesn't work for everyone, because again, going up to %24,000 to $25,000 for itemizing is going to make it a bit difficult for some individuals, even if they're giving their maximum charity, especially if they don't have mortgages. I do have clients that every year itemize because of their charitable contributions. But in many cases, that's not the case.
Dr. Friday 4:31
So you need to sit down and talk. Is there anywhere, any place in your taxes that you might be missing the potential of being able to put a few dollars in your pocket versus giving it to Uncle Sam. That's really the game we like to play. That's the understanding. We'd like to go after I'm trying to figure out what we have and where we have that information so that we can you know, kind of maximize it. So that was one side.
Dr. Friday 4:59
Another question. came in was about adoption credit. One of my clients was in the process of adopting a child. And they wanted to make sure that they would be able to qualify for the adoption credit and their case, they actually weren't able to because their income was over the $255,000, there is a cap on adoption credits. And the funny thing is, haha, it's the same for single people as it is for married. So anyone that tells you that there is not a marriage penalty.
Dr. Friday 5:25
In taxes, obviously does not file a lot of tax returns for those individuals that may have some unique or different situation. So again, if anything like that comes up, and these are usually once in a lifetime situations that you might be looking at, in you might need to figure out what is the best time for me to do something? How should I do it what you know, where's the breaking point. So I know, if I'm making over this, then you know, that's going to change or whatever else. So you want to make sure and of course.
Dr. Friday 5:54
I had a ton of people during tax season because they all worked from home, they wanted to be able to take that and deduct the home office. And that is not an opportunity for individuals to be able to do you cannot write off a home office, while you're actually working there. If you're a W2 employee, not something that can be done, not available on the tax code that dropped off in 2018. And may become available again in 2026. We are all waiting to find out what changes may be coming down. And if any of the tax changes we have right this second are permanent, or if they are not.
Dr. Friday 6:38
So again, if you've got questions, you can reach us here live in the studio at 615-737-9986. An email in right now just asked about alimony. I think they I don't know if there's something that's been in the news or something. Because obviously back, the tax cuts and jobs act of 2017, right? That one came in and was eliminated. alimony as income as of December 31, 2018. So if that's the case, then we need to be able to take care of what we have happening.
Dr. Friday 7:22
Sorry about that. I don't have anyone in the office with me, but my puppies. So we have to make sure we have that moving forward. All right. And so what we need to do next is to be able to make sure if you have alimony and you are divorced after December 31 2018, your alimony is not taxable income.
Dr. Friday 7:42
If you were divorced prior to December 31, 2018, it is taxable, unless you made some sort of deal somewhere else. It was the way the law. So again, many people seem to be receiving information or thinking that now that somehow as of December 31, 2018, all alimony became nontaxable, that is not the situation. And so we have to be able to make it work and do what we need to do and how we're going to do it. So, you know, again, that is the way that works.
Dr. Friday 7:42
If you're in the process of selling your primary home, sometimes people have that question. But the biggest thing is you have is you need to make sure that you have the exclusion, right? So if I purchased my home, and I've lived in it two out of the last five years, and I purchased it for 200,000, and I sell it for 450,000, I would pay zero tax on that because of the situation. But if I had brought them home at 200,000, and I sold it for 600,000, I then would have $150,000 tax due on that situation. So we'll be able to take you to know.
Dr. Friday 8:17
So you need to understand that's for a single individual. And the marriage exclusion or the credit for or for a married couple would be 500. So the same scenario, if you bought it for 200, and you sold it for 450, you would not. But you bought for 200 and sold it for 800,000. In that case, then you would pay tax on the additional 100,000 above the five plus the two.
Dr. Friday 9:16
So if you have questions on that or any other tax question that might be on your mind 615-737-9986 taking your calls, talking about all things taxes, making sure that we understand exactly how the tax is going to hurt or help us in these situations. Because, again, timing is everything when it comes to taxes. So really understanding where your taxes are and how you're going to be able to handle it is part of making sure the decisions you're making is good.
Dr. Friday 9:50
I mean, it may sound awesome. I, unfortunately, had a text client call and he had been living in his house for a year and a half and he had a great offer on the table and decided to sell. He did not ask me, because he might have been able to delay the owners of that house if they knew they could have it. Anyways, he ended up with long-term capital gains. And he could not take the exclusion because he had not lived in the house for two years out of five years. So he still made a nice profit. But unfortunately, the government was going to get a chunk of money that they wouldn't have had to get if he had just waited, it was like four months. I mean, it wasn't a huge wait. But it was like four months after the closing.
Dr. Friday 10:30
So, talking about real estate and its something I know that we talk about probably quite often on the radio, but the 1031 Exchange is a wonderful opportunity. But that is not for primary homes. So you can do what's called an Exchange or a 1031 Exchange, if you're thinking about selling some of your real estate, rental real estate, and you basically get a great deal, then you can turn around without paying taxes and reinvest it back in investment real estate again. So that way, you basically keep growing the money.
Dr. Friday 11:05
It's almost like being in an IRA, in essence, that the taxable dollars will grow with the money that you're invested in that way, then you'll be able to make it to that next level and take care of things, but very, very important that you basically understand how that works. And if it's going to be best for you. Because another conversation that many of my colleagues have been having on some of our internet sites is, is it better to go ahead and pay those taxes?
Dr. Friday 11:33
Because under some of the new rules and regulations that Biden is suggesting, is basically eliminating 1031 making people go ahead and pay the tax before they basically reinvested? it? You know, it's an opportunity. So it's something to consider, is it a good idea? Taxes are low right now. And then another thing they're talking about is bringing capital gains tax up to almost 30%. So these are things we have to keep our eyes on and make really good decisions now, that will hopefully help you in the future as well as what we know right this second.
Dr. Friday 12:08
All right, so we're gonna get ready to take our first break. And you can join us live here in the studio, if you've got questions, maybe you haven't filed taxes for a number of years, maybe you're thinking about opening a small business, what type of entity should you be, at least based on the tax advantages? Those are the kinds of questions you can call the show with 615-737-9986. And we'll be right back.
Dr. Friday 12:36
All right, we are back here live in the studio. And we can take your phone calls. If you like you can join us here in the studio at 615-737-9986. And let's go ahead hit Jeff. Hey, Jeff, thanks for calling.
Hi, Dr. Friday, enjoy your show a question here. My wife died 21 months ago, towards the end of 2019. And I've heard that there's something called I believe a Reset Appraisal that I need to look into if I have the terminology right. We bought the house in 1993 for $140,000. And it's currently valued, I believe, at more than 500,000. So I've been told that if the information is correct, that I can get a reset appraisal back to the date of her death, and that that would give me a new floor for the capital gains If I ever sell the house.
Dr. Friday 13:41
No. Really, really smart. That's a great question. And very few people actually think about it. And yes, what happens is that you guys broke that jointly. So each of you actually had 70 and 70, let's say in the original purchase. Unfortunately, she passed away, but in the year or within the month or two of her death, if you have someone that can pull comps of your area, and then you would get that 50% step up on her side. So let's say it was worth 300,000 for simple math on my side, then it would increase instead of 70 it would be 150 her share and your 70 so bring you up to you know 220 versus 140 and simple math.
I see. Is there a time limit on when I can have this done? I've just learned of this. Am I running up against a clock deadline?
Dr. Friday 14:30
You are not. Really the clock is when you get ready to sell. But it would be good because you may not remember to do this later in you know people say. Usually when a lot of my clients sometimes it isn't but we have great real estate people we work with but sooner versus later put it in with your documentation. Because you know if you do decide to sell, then you'll need that or you may want that especially with the cost of real estate going up here in Nashville.
I see. So should I do Just contact an appraiser then or somebody that specializes in this?
Dr. Friday 15:03
You can do something, I mean, if you have anybody that is in real estate, a lot of times they can pull comps in the area around the time that your wife passed away that the houses were done. You can also hire an appraiser that would give you an official, or even maybe just something, it doesn't have to be a totally official appraisal, to be quite honest with you. It really just needs to be a comp that is similar to within so many miles of your house that that happened. So I hope that helps.
Okay. Well, thank you so much for your answer. I really enjoy your show. And you have a good weekend.
Dr. Friday 15:42
Thank you, Jeff, I appreciate the phone call. All right, we're going to keep moving forward here. But that is something that many times, of course, what happens is if you lose a spouse, the house gets the 50% step-up in basis based on the individual that passed away. And then of course, if both individuals pass away, and it's left to their beneficiaries, the house, we get a total step-up in basis to the time that the last person passed away whatever it was, and they inherited. So those are very, very important.
Dr. Friday 16:13
And I would probably touch base, if I mean appraisal probably cost you a couple $100. If you just ask for someone to do a comp appraisal for you, my guess. The last appraisal I spent on one of my rental properties to refi was a bit higher than that. But you're not looking for an actual dollar-for-dollar kind of situation. We're looking more for what was the common price going through. I would not use it, some people come back and say, "Well, here's the property taxes." But the problem with property taxes is, they are usually running behind. I mean, I know we all got new increases fairly recently. But a lot of them are running behind. And so it may not be the best price to use is all I'm going to say you might do better if you had better pricing.
Dr. Friday 16:57
So I do have one that came in right now. And it's this person's asked me about the PPP 2 draw, and they got it in February, can they get forgiveness? And the answer is yes. I know myself, with all my clients, we have now started put forgiveness in for PPP too. And if you have not gotten PPP one forgiven, unless you received it late. Some people when PPP 2 was out, were actually getting one and two at the same time because they didn't know they qualified. But in the case that if you get your PPP one, which is the payroll protection plan one, in let's say probably mid to late 2020, you basically needed to have that forgiven or it's going to turn into a loan. And that's the last thing anyone needs when you have something with a possibility of forgiveness.
Dr. Friday 17:50
The second one is PPP 2, that one is a little bit trickier because we also have to show the 25% loss of revenue or income, I should say, in a period of time and one of the quarters. So, but those are both in a play and an existence. So it's very important that you're able to move that along and do what you have to do to get that to be free.
Dr. Friday 18:16
Because paying back I mean, even if the interest rates are decent, it's still not something you want to do so. And I do know, sometimes it takes a couple of tries. I know I'm working on one right now and they came back and they need additional information. But it again, it is forgivable if you're willing to take the time to make it work for you.
Dr. Friday 18:35
So if you need help with that, you can also call my firm. But right now if you want to join us on the radio, you can at 615-737-9986 is a number here in the studio. And so we'll talk a little bit more about what you need to do and how you need to do some of that.
Dr. Friday 18:58
If you are a new business owner, and you're sitting there thinking, "Hmm, what type of entity should I be?" Now I'm gonna give you the advice of a tax person. Attorney, it may have different advice, and you know, there's two different sides. When we're thinking about business, you have legal and protection, and you've got taxation, which one and sometimes they don't always go hand in hand. Sometimes they're a perfect match. So you really just need to figure out which one is going to be best for you.
Dr. Friday 19:27
Part of it also is what type of industry are you in? I mean, for example, my business I mean, it's a service business. I don't likely going to have anything that I do that's going to necessarily hurt somebody. So my liability for someone slipping and falling or getting hurt is less than maybe someone that is in the construction business where there's always tools and things sitting around where someone could trip fall or get hurt. So you have to take into consideration the type of industry you are in is the possibility of someone getting hurt.
Dr. Friday 19:59
The second thing would be is, is there more than one partner? Is there more than one member of an LLC or corporation? Are they both actually working or is one an investor and one actually is working? A lot of times you'll have someone that puts the money in. And the other side is sweat labor, you know, where the person is actually working to build the brand or the business and therefore, then they start making a product. And then at that point, they both will eventually get to an equal playing field. But at first, it's easier to see the person that puts money into a business because they say "Hey, I put $10,000 in. That's black and white, you know, you need to generate so many sales and profits to show that you've actually contributed this."
Dr. Friday 20:38
So that's the kind of thing you need to understand. If it's a single individual that's doing something very simple, I think you need to keep it simple. I know when you go everywhere, it's always LLC Corporation Partnership. And again, there are good reasons to have each one of those entities. But if you've never been self-employed, if you have employees, I would definitely suggest having an entity of an LLC or corporation, again, depending on the situation. But if you're a single person running a single business, and you really are running from your house, the likeliness of any kind of person coming to your home and getting hurt, I would say carry very good insurance. But the need to actually be something other than a sole proprietor, probably not necessary from just starting up.
Dr. Friday 21:26
Because when you start getting into LLCs, and corporations, there are also a lot more requirements in maintaining and making sure you're not piercing, the limited liability, making sure that the corporate shield is a corporate shield. And a lot of times small business owners are using the same card to go to McDonald's in the day, go fill up their gasoline, and then obviously going and, you know, buying supplies for the home as well as the business.
Dr. Friday 21:53
And that kind of crossing of personal and business does actually pierce the shield. It's that simple. You are not running it as a business any longer. You're basically using it as your private checkbook. And that's fine if you're a sole proprietorship or a single-member LLC. Not so good if you're a corporation or a multi-member LLC. And to be honest with you in all truth, we never really want to have somebody mixing personal and business because it's very difficult to have clean financial statements.
Dr. Friday 22:25
And I know everybody that is self-employed, guys, every one of you listening when you stop and get your morning Starbucks and then you stop and get your lunch and then you stop and get your candy bar because you're filling up the petro whatever. And you add all that in because it's all part of your workday, you're sitting there going "Well, it's written." No, it's not a tax deduction. Those are none necessities to getting your income. None of them are tied to your income.
Dr. Friday 22:52
If you were meeting customers at the coffee house, and you actually generated income from the meeting, I'm not just saying "Hey, I hand out cards every day I go to the coffee house." Not quite the same thing. But in the same thing, if you're buying yourself lunch, and then "Oh, well, I talked to people at the local diner," or whatever it is you're eating, and you say "That's what's going to create me that." Then maybe, but not really, guys, you're not truly generating income from those situations. So those are not legitimate tax deductions.
Dr. Friday 23:23
And you really want to make sure if you're going to do this, you won't be asleep at night. So when we get back, we're gonna talk a little bit about some of the standard deductions business owners can have explained a little bit about maybe business travel is meals, entertainment, transportation, so that you can you know, start preparing your records, knowing what you need to have and how it works versus not really having that kind of situation.
Dr. Friday 23:47
And also, maybe we'll touch a little bit on this email I got just a little while ago from the expenses reimbursement plan from an employer to see if that is something that you may have at the office and you don't even know that your employer has a reimbursement plan or it's not a true one. Meaning there are certain rules and regulations that go with it. And so, therefore, they cannot reimburse you for your homestay or fuel going back and forth to the office.
Dr. Friday 24:14
So if you want to join the show you can 615-737-9986. We're gonna be right back with the Dr. Friday show.
Dr. Friday 24:33
All right, we are back here in the studio and we are here to talk a little bit more about taxes. My favorite thing. I'm an enrolled agent licensed with the Internal Revenue Service to do taxes and representation. So that is what I do. So if you haven't filed taxes for a number of years or maybe you keep getting love letters, and you're trying to figure out how can I get this off my back it's not you know, it's not going anywhere. All it does is keep growing even though I'm sending in payments. What is your opportunity?
Dr. Friday 25:00
So if you want a fair assessment, a true assessment, I'm not one of those companies that you're going to hear on the radio or whatever that says, "Oh, if you owe more than $10,000, we can help you." It's not that simple sometimes. There has to be a true assessment made, not every one of you is the exact same. In some cases, we have gotten from $100,000s to pennies on the dollar. In other cases, we have gotten 50% less, you know, it really comes down to truly what you can afford, what the situation is, and what you have access to.
Dr. Friday 25:30
And nowadays, the law changed a lot with up until recently, we were able to take home the value of the equity in the home, kind of off the table if you weren't able to access it in an offer and compromise if your credit was just so bad, or you didn't have the ability to take on a bigger mortgage. But that rule has changed. So even though we have the Fresh Start program, it's still a great program. It's just that we have to make sure each person qualifies properly.
Dr. Friday 25:59
So if you're thinking that you might want to do something, we have options, you got fresh start or offer and compromise. You've got payment plans, you have a bankruptcy, all of these are on the table to find a way to get you out from under the IRS and making sure that you don't do things kind of backward.
Dr. Friday 26:16
I had a client who got an offer and compromise took care of it, they were doing good. They were still upside down on a few things. So they thought "Oh, it'd be better if I just go bankrupt." But when they went bankrupt, they messed up the offer and compromise. So you got to be smart, you got to be able to understand what the IRS and other government agencies are thinking so that you can move forward and do what you need to do. But if you have questions on that, or you have a friend or someone that might be dealing with it, you can very easily give us a call here right now in the station at 615-737-998. All right.
Dr. Friday 26:53
So a lot of my listeners and many of my clients, I do taxes for both regular individuals. But you know, I do love my entrepreneurs and business owners. And so what we actually have is under the Tax Consolidated Appropriation Act of 2021, in order to help the struggling restaurants and increase the business meal deduction for the cost of food and beverages provided by restaurants for 50% to 100%, in the year 2021, and 2022.
Dr. Friday 27:21
So let me reiterate that, right now, as a business owner, when I take my clients out to dinner, or I meet with a colleague, we can only deduct 50% of that meal. So if I pay for the meal, basically, I get to deduct usually what the other person ate. I would have had to eat anyway, according to the IRS. So that was the law. But under the Consolidated Appropriation Act of 2021, which came out in March, they change the deductions for the year 2021, and 2022.
Dr. Friday 27:52
So all my entrepreneurs, listen up. You will get a 100% deduction on meals that were qualified for the 50% deduction. Now, again, I want to reiterate that this has absolutely nothing to do with you going out to lunch, if you work at a local, you know, work right around here and do things. This is for qualified meals, which basically means meals that should be generating business income or associated with your business.
Dr. Friday 28:23
The recent change the tax looks into the 50% deduction limited to employer-operated eating facilities through 25. And after year 2025 employer operating eating facilities become nondeductible, which also means that if you run a restaurant and you allow your employees to eat normally that food is nondeductible, but right now it's running through 2025. Under this, they excluded it and extended that to go through there. So hopefully, that's information you can use.
Dr. Friday 28:51
Richard is on the line. Let's see what Richard has to say. Hey, Richard.
Thanks for taking my call. I'm currently paying back the IRS and back taxes on a monthly installment plan. And my wife and I may be selling our home in almost six to eight months. Can the IRS—I owe him about $12,000 right now. Can the IRS withhold what I owe and when we sell the home from the proceeds that we received?
Dr. Friday 29:22
If there's a lien against the house, the answer is yes. If there's no liens, then they're happy with the payment plan, and they will not do anything.
Okay, yeah, there's no lien or anything like that. So we can sell it?
Dr. Friday 29:36
Without a problem.
Second, quick question for you. We paid about 170,000 for the home. On the market right now. It's about 370,000. But we're wanting to downsize and maybe buy a $200,000 home. Are we gonna be subject to capital gains tax?
Dr. Friday 29:58
Nope. That is the current tax. slaw is, is providing credit. So since you're married, you could sell that house theoretically for $670,000 and not pay $1. So you're well within the credit and you do not have to reinvest into another home to keep that credit. So you're perfect.
Okay, so since there's no lien, I don't have to worry about the IRS taking the proceeds that are what we get. Okay.
Dr. Friday 30:22
That is correct. Yes sir.
I love listening to your program, Dr. Friday. Thank you very much.
Dr. Friday 30:27
Thank you for calling. Appreciate it. That was a great question. So let's go ahead and continue here. I was talking about meals and how they change the law under the Consolidated Appropriation Act.
Dr. Friday 30:40
Transportation. That was basically kind of put back in under the Tax Law Act of 2017, which was the tax cut, right? The tax cut and jobs act that started kind of some of these things where income tax brackets and things came down. Business travel expenses are still deductible under the new law. This includes business travel between sites travel to temporary assignments, generally in one year or less, that is outside your general area of residential travel between primary and secondary jobs, and all other cabs, buses, trains, planes, and primary jobs then automobile expense.
Dr. Friday 31:16
Any regular commuting, this is the key word here, guys. This is how we lost 2106. As far as I'm concerned, that was the deduction where employees could deduct expenses. Too many people were taking. Any regular commuting expense to your primary job cannot be deducted. That's why you got a job. The government's not paying you to go to work. You have to go from home to work on your dime, not anyone else.
Dr. Friday 31:42
And if your home and work is the 150 miles apart, guess what? You chose to work and live in two different areas that is a choice, you may say, "Well, I didn't have a choice, I couldn't get a job anywhere else." That is still a choice, you could still move you can relocate. These are options the government feels you have. And so when it comes to just commuting between.
Dr. Friday 32:02
And this is especially important, even with my entrepreneurs. I have some that are maybe in the medical profession. And so they're an LLC, and they work as a practitioner of some sort. But that being said, that practitioner, can't work from home, so their home is never going to be a home office, it is going to be the first location where they actually work. So if that home office is or if that location is an office, I don't know they live in Spring Hill, then that first commute is not a tax deduction, even though you're operating as a subcontractor to that facility.
Dr. Friday 32:41
If you're going from facility to facility after the first stop, yes, the next one could be considered commuting, because then you went from a location to a location but your home is not the home office, therefore not the first place of business. So these are the kinds of things because so often I have people, and it's always the hardest is when one of my clients will come back and say, "Hey, an associate of mine is writing off all these miles and I'm not letting you do that." And so this is why you can put anything on a tax return you want. But the odds are sooner or later you're going to pay the piper. I like to sleep really good at night. So I prefer to put stuff on a tax return, that I have the ability to possibly, you know, justify, okay? Not possibly, definitely justify.
Dr. Friday 33:30
So that's the kind of conversation we want to have. You want to be able to make sure that you are justifying the expenses on your tax return not doing anything else, you want to justify it. And you want to make sure that works. So that's what we're going to do. So that's really important. Miles can seem to be an extremely confusing, frustrating situation for many of my clients, but we're going to try to keep it non-frustrating for you. Because if you're commuting, and that's one thing.
Dr. Friday 34:02
Let's say you have a job where you have to use your car to deliver and to go pick things up, and your boss does not have an accountability reimbursement plan. And so to be honest, those are the ones that got hurt when the 2106 or the employee deductions came out because they would have had a legitimate tax deduction possibly on those situations.
Dr. Friday 34:30
So the best thing to do is maybe have a conversation with your boss. He's wanting to give you some money, but instead of making it It might not just reimburse you for the expenses you can't write off anyways. But there are some things they would have to do, they would have to initiate an accountability expense program, a reimbursement plan. Generally, an accounting plan that is serves both the employer and the employee. You know, this is not something that's just going to be good for the employer, not just something it's good for the employee. This is something that's good for both.
Dr. Friday 35:01
But there are plans out there where your employer can give you money that reimburses you for your travel, again, has to be legitimate travel. If they want to give you money to commute from home to work, they'll just give you a race, because that's the only way you're going to get that additional money.
Dr. Friday 35:19
All right, we're gonna take our last break. So if you've been listening, and you've got some questions, and you're trying to figure out Oh, should I call well be brave, pick up the phone 615-737-9986. We'll come back. And we're going to talk more about some of the deductions, some of the things you need to do to keep paperwork and how-to, you know, justify your tax deduction so you're not sitting there going, "Oh, I think I can do this, or I think I can do that."
Dr. Friday 35:48
If you're questioning if it's truly a tax deduction, I would definitely have a sit down with a professional. I'm obviously an enrolled agent, but it was somebody that is a good professional CPA that does taxes, because that's gonna be the important part. We're gonna be right back with the Dr. Friday show.
Dr. Friday 36:16
All right, we are back here live in studio. And we have two on the line, which I appreciate. Let's hit Ann first. Hey, Ann.
Hi, Dr. Friday. I had a rental house that was demolished in the tornado of last year. And it's almost finished being rebuilt, but I've added to it. Let's just say 100,000 now. And my question is if I sell it, will I have to, without renting it again, will I have to pay on the whole amount it currently is valued or what it was when it was demolished? And I did get the insurance money to equate the value that it would have been having I just not added to it.
Dr. Friday 37:08
Right. So you will have the new value you'd have whatever it was worth plus the 100,000 that you either put in cash and or mortgage, whatever. But you know what you put in so it would be the new value that you've put into it would be your basis for that rental.
So that could be quite a bit than what it was originally.
Dr. Friday 37:30
Well, originally, you got the original. So let's say it was originally before the storm, you bought the house, how much did you pay for the house? Just give me a rough number.
Let's just say 150,000.
Dr. Friday 37:41
Okay, so you paid 150,000 for it. And then after the storm, they basically rebuilt that plus you put another 100 in so you're gonna have a 250k basis. If it sells for 500, you'll make 250k.
Right? But yeah, so I'll have to pay taxes on all of that, then?
Dr. Friday 38:01
Only on what's above the 250,000 in our scenario. So you paid 150 plus you put in an additional 100. So your new basis is going to be 250,000. So whatever you sell it above that will be what you're going to pay capital gains on.
Dr. Friday 38:19
Yeah. Now, I will tell you if this was a rental property, there would be another thing called Recapture of Depreciation that may come into play.
Oh, right. Yeah, no, I know that one. Okay. Well, yeah. I think that's all I probably need to know then. Because I'm deciding whether to rent it or just sell it.
Dr. Friday 38:40
Right. Well, that's a big question this year, I mean, seriously, I mean, with the prices as what they are, I mean, there's no guarantee you won't sell or go up or anything else. But these are the highest we've ever seen in the 20 plus years, I've lived in Tennessee.
Dr. Friday 38:54
And so it's hard to walk away from almost doubling our, our income, you know, our profit, but, you know. Just keep in mind, you probably need to consider what the tax is or do a 1031 and buy something else, which is a lot harder said than done. As far as I'm concerned. It's just not a lot that I would want to pay the value for at this moment personally.
Sure. Okay, well, okay, anything over 250 is capital gains, that's all I needed to know.
Dr. Friday 39:19
And that's just in this scenario. So whatever you paid like 150 plus the 100. That's how I came to the 250.
Dr. Friday 39:26
Okay. All right. Thank you so much.
Dr. Friday 39:31
Alright, let's get Marcia. Hey, girl. Marcia, did I lose you?
No, I'm sorry. I didn't know you said my name. Right. My daughter died this year and I'm gonna have to file taxes in the end year for her. And I'm sorry. For the 401K I received, would that be on my income tax my money or would that be on her?
Dr. Friday 40:00
That would be a yours. They should send you a 1099 R from the distribution, and it should have been sent directly to you if you were her only beneficiary.
Okay, and I don't have to file taxes on the insurance, do I?
Dr. Friday 40:19
Most likely the insurance, no. And if she had any real estate, there'd be a step up in basis, so no. The 401k or whatever she may have had a 403 B, that would have been probably the only thing that she may have had deferred the taxes.
Her house, she and I owned the house together. And we had it in the title where if one of us died it automatically transferred to the other one. So I don't have to do anything about that.
Dr. Friday 40:46
Right. But you're going to be similar to a married couple to the extent that when you guys both signed and brought the house maybe a number of years ago when she passed away, you're now entitled to a step-up in basis on her share. So just like the gentleman that called earlier, I think it was Jeff, that his wife had passed away, it's the same scenario with you, if it was a joint tenant with you and your daughter, her share would be whatever it's worth, at the time of her passing, not what it what you paid for originally.
Dr. Friday 41:15
So you may want to talk, you may call on Monday or whatever, but there's some real estate people you could call and get some comps. Because at some point, you might decide to sell this house and that would save you some tax dollars by having it done while you have it.
Okay, all right. Thank you.
Dr. Friday 41:33
No problem, sweetheart. Thank you talk to you later. So this has been the Dr. Friday show. And if you had some questions, well, I think you missed the window, we only got about four minutes left there about.
Dr. Friday 41:44
So we're going to make sure that you understand tax season is not over yet, for 2020. We will if you've extended if you've done an extension, you're good till October 15, 2020. If you did not file an extension, you're late. So you know now the caveat to that is if the government owes you money, there really isn't a late filing, you know, to be quite honest.
Dr. Friday 42:10
Late filing really only applies to individuals that owed money and did not pay their money. If you paid all your money back in April and the IRS owes you a refund likeliness is you'll have no penalty for failure to file. Now my opinion is file it on time, get your money, get in line, get everything squared away and taken care of. That's the smartest and the fastest way to make sure.
Dr. Friday 42:33
I have filed a couple tax returns lately through E file. And they seem to be somewhat on target. Now I will say each one of these did not have any stimulus money tied in it. So that being said, I think that is also one of the things that is holding up a lot of people's tax returns is the stimulus.
Dr. Friday 42:55
If you have not received your stimulus if you haven't, and you haven't filed, you need to file to get your stimulus. So 2020 is the only way that you're going to get stimulus one and stimulus two, you have to file a tax return. If you don't have a file, if you don't have any income, you still need to file a tax return. If you did not receive those stimulus checks, the third stimulus is going to file on the 2021 tax return, which we're hoping that maybe the system will get a little better. But we don't have any guarantees on that.
Dr. Friday 43:30
So we're going to keep our eyes open and keep you up to date on any of the current tax laws or current tax changes that are happening. Because we have had three tax changes in the last pretty much the last year we had the Tax Act of 2017, which kind of went into effect on the first of 2018. And then we had the American Rescue Plan, which was in I believe 2020. And then we had the Consolidated Appropriation Act in 2021. And they are working right now on the Family Act, I believe it's called. And that one is also coming through some tax changes.
Dr. Friday 44:06
So we are trying our best to stay on top of all these tax changes that have happened in this last year or two, if you've got questions, if you haven't filed taxes, if you're trying to figure out what's the best way or where do I start, the easiest thing is to set up an appointment because our initial appointments are always free to make sure that we are all on the same page.
Dr. Friday 44:25
There's no sense in charging somebody if I can't help them. And to do that, all you want to do is pick up the phone and call 615-367-0819. That is our direct line into the office. If you call that number, we can set up an appointment and see if there's something I can do to help you if you have family or friends that are behind that. You know, if you haven't got a payment plan.
Dr. Friday 44:48
And I know many of you were in payment plans but then COVID hit and now they don't seem to be able to get payment plans to reset up. That's something we can help you with or we can see if there's a better situation for you. It really just depends on your individual situation, how much money you owe, and how much money or assets you have to your name. Those are all very important questions.
Dr. Friday 45:09
So if you want to get an appointment again, 615-367-0819 is direct to the office. You can also check me out on the web. drfriday.com is the website. You can find out who I am, who this crazy person is, what an enrolled agent is, what we do.
Dr. Friday 45:30
And I do not, someone just sent me a question, "Do you work for the IRS?" No, I don't work for the IRS. I am licensed by the IRS to do representation and taxation. So basically, to prepare taxes and to represent you in front of the IRS. But you need to have representation because sometimes it's kind of like trying to fix your own car unless you're a really good mechanic. And then if you can't get through the phone lines, or if for some reason you're traveling, it's just easier.
Dr. Friday 45:56
You can email me Friday, like the day of the week. That is my first name firstname.lastname@example.org. Or call me 615-367-0819 is the phone number here. And so I hope you guys are having an awesome Saturday and I hope that you guys will continue to enjoy this weather and don't forget to prepare your taxes. Get ready, come September for your next quarterly.
Dr. Friday 46:25
And if you've sold something recently and you need to make an estimated payment, don't wait until the last minute make sure you're sitting in your money so there's no additional penalty for not making a proper quarterly or proper estimated tax return calculator.