Welcome to another episode of the Dr. Friday Radio Show! In this podcast, Dr. Friday takes on the latest tax updates, answers callers questions, and talks over the following topics:
How To Audit and Proof Your Business DocumentationTax Extension Deadline Oct. 15 To File Your Tax ReturnTax Deadline Extension to Aug. 2 for Victims of Tennessee DisastersWhy You Should Pay Quarterly Taxes as an EntrepreneurCan I Make A Deal With the IRS?When Can I Apply For Forgiveness for Second PPP Loan?The Latest Biden Campaign Tax ChangesTax Returns Are Beginning to be DistributedReasons Why You May Not Have Received Your Stimulus CheckDo 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. So if you've got questions, remember, if you haven't filed your taxes yet, and you have a balance due, we have until, many counties I should say not every county in Tennessee, but most of the ones surrounding us, Davidson, Williams, and Murray all of us had till August 2, as a federal exclusion because of storm damage and things.
Dr. Friday 0:50
So if you haven't, now's the time to really try to prepare those taxes. Don't wait until October, which is when your extension is good. Get it done early. So maybe you can actually waive some penalties and not get hit as hard as it is. People are always so shocked by how much money can cost. I mean, I do a lot of people's taxes that we've done for six, seven years back most of the time, a minimum of six years, we have to go back. And you know, if you owe $3,000, you might as well figure in six years, you're likely to owe $6,000 with penalties and interest.
Dr. Friday 1:25
There is some possibility of waiving some penalties, but in most cases, there isn't a legitimate reason, you know, lifeless, difficult things happen. But there's really no reason why back six years ago, you couldn't have filed within the last six years. And so that's what the IRS is looking for. If there were some reasons that there's an explanation, otherwise, they may waive one out of the six years. But other than that, they may not because you may not have been actually even a good filer prior to that. So they're looking at people that you know, "Hey, you know, I made a mistake once I did this or whatever."
Dr. Friday 2:00
And yeah, they're looking at that history. But otherwise, they're looking at the fact that you might actually owe that money. And they're like, "Well, you have it, you paid it." And so often people come in and you know, I love the ads that are often running on the radio shows and things. And many of them turn around and they say things like, "Well, we can negotiate you 10 cents on the dollar."
Dr. Friday 2:21
Well, that is true, we've made some awesome deals, I've had people that are owed hundreds of 1000s of dollars, and paid minimally, I mean, like 1%, you know, I mean, less than $10,000 or $1,000. Um, but it's not the everyday situation. If you're sitting with a house, and this is fairly new, the last couple of years, the IRS has gotten a bit smarter. But if you're sitting on a house with equity, even if you can't get the equity out, it's possible that you won't be able to make a deal that you can afford, because the access that you have, because the IRS is saying, "Hey, you paid your mortgage, you didn't pay us. This was a choice you made." Even though most of us would think a roof over our head was probably pretty important.
Dr. Friday 3:02
Alright, let's hit the mark and see what he's got for us. Hey, Mark.
I'm a 1099 employee, and a company just sends me calls. And I can take them or leave them. But if I earn too much money during the three-month period, do I have to file quarterly taxes?
Dr. Friday 3:22
In theory, yes, if you're a subcontractor and the year before, usually you have the first year because you don't have any history. But after that, you need to pay at least 100% of what you owe the year before. Ideally, just working it out where you're paying enough so you don't end up with tax liability at the end of the given year.
Dr. Friday 3:41
Yes. You have to make anybody that's on a 1099 or any individual that underpaid their taxes, most of the time it is our self-employed individuals, but underpaid their taxes on the year before. So if I owed $5,000 this year, I would have to make quarterly estimates for next year, even if I'm on a W2 in theory.
I understand that and I take care of it at the end of the year.
Dr. Friday 4:08
Well, when you're paying a penalty, you're paying a 5% penalty, theoretically, .5% per month for not making proper quarterlies.
Gotcha. Okay, I'll start doing that. Thank you so much.
Dr. Friday 4:20
No worries. Thanks, Mark. An≠d it sounds like at least in his case, he is paying it. And that's, I will say fairly typical for many of the clients. A lot of times self-employed people have peak times and slow times, and sometimes it's not easy. But the law stipulates for equal payments, which is not always simple, especially in some industries where they have more seasonal and there are ways around or explanations but the law basically says four equal payments based on the prior year taxes.
Dr. Friday 4:50
And so 2020 was difficult for some people because their income based on 2019, they may have done better than they did in 2020. So if they couldn't afford to make four equal payments, so then the game is to hopefully pay 100%, at least of what you owe, so you're not likely to get hit with a penalty or as much of a penalty. And the same thing goes if in my scenario would be is if 2021 is turning out to be a lot better than 2020 was because in 2020, maybe you only owed 5000 or 6000 and quarterlies. And then in 2021, you know you've already made more money now than you did the whole year last year.
Dr. Friday 5:29
Then logic would be to increase your quarterly is you don't have to as long as you pay in 110. There's no penalty, but are the four equal payments on time. But no one wants that, at least as a tax person, I do not like to have to tell my clients, "Hey, guess what? You owe $10,000" unless they're prepared for it.
Dr. Friday 5:47
And I was talking to a group of real estate professionals the other day, I used to do quite a few speaking engagements with them because they're actually you know, they're all entrepreneurs, they're all 1099 individuals, and real estate has kind of gone wild, as we all know. It's gone a bit more crazy than most. So there's a lot of money being made right now in that profession. And many of them are like, "Well, how do I, you know, I know I have my miles, I've got this and this." And just as a basic rule of thumb, again, not every profession or every individual in that profession is the same.
Dr. Friday 6:20
But many of you that are in that profession, you need to be setting aside a minimum of 20% of your gross commissions. Because even with your miles, now I have some people that pay very large advertising and marketing. But on the other hand, they're also making quite a bit of money. I mean, we're talking about people paying maybe 60-70,000 to Zillow every year, but they're also making, you know, 600,000, thereabouts are there, you know, in gross sales. And there may be a team that they actually have working under them.
Dr. Friday 6:54
But you know, how much money you're making. And in most cases, the biggest expenses outside of marketing for most real estate professionals, this is not flippers or anyone, this is people just selling real estate for somebody is usually their miles and track those miles it is an ideal area for the IRS to open up and have a nice little look at your tax return because they know that a large number of people in that profession are not doing a very good job in tracking their miles. I'm still a big advocate for mileage IQ or digital tracking from your cell phone, at least it gives us a report that can be printed out. And if we ever have to truly generate we have the ability to generate every place you went that year, some of it'll be blacked out. And some of it will be and then we can at least use something for logical numbers.
Dr. Friday 7:46
Because guessing, "Ah, I think I did 30,000 or you know what? I believe I put at least 50,000 on my car last year. And all I did is work. I didn't take one trip to the grocery store." Come on people, the IRS are fairly smart people, you know, and they kind of know what the game is. So be logical, you know? Your cell phone can't be 100%. I have a couple of people that have a separate phone for their business versus their personal. But if it's not the case, then the phone itself, and the phone calls you make personally do you take a personal phone call from your children, your siblings, your husband, whatever. I mean, there are times you use that phone to call in a pizza order, therefore it's not 100% business is all I'm saying. And you need to take a look and make sure when you're doing your taxes, you're actually doing them correctly, and handling the situation the way it's supposed to be handled.
Dr. Friday 8:39
So if you want to join the show, you can. Call 615-737-9986 is the number here in the studio talking about taxes. Remember, it's tax time. It's still tax time for many of us, we haven't finished our taxes, or maybe you're an individual that's listening right now. And either you, family, friend, someone you know, is maybe up to date on their taxes. And they're like, "I don't know where to start. I don't know how to start." And that's what we can help you with. We can do a face to face.
Dr. Friday 9:13
We're local. So when you're talking about making a deal with the government talking about trying to get things straightened out, talking about how to deal with a situation, we're here where we can sit down, we can try to do what we need to do, and help. And I'll be honest, there are times when people don't like to hear what I have to say because they don't like the idea that they're going to have to pay a lot more money. They hear about these other situations. But you're going to get the truth. You're going to hear what's likely to happen, how it's going to happen, and what's best for you and what's the way to move forward.
Dr. Friday 9:44
The IRS wants to see progress. They don't want to see, "Oh, I've got a rental and I've got three other houses and I can't afford to pay the government." Not true. Do you know? I mean, you might as well figure out what's the situation. And then we have other people don't own a house, they pay rent, have a car payment work, you know, and maybe they would have a little better because there are no assets and as they go against, but maybe you're making $120,000 or 70 or 80,000 a year, and you owe the government 10, or 20, or $30,000.
Dr. Friday 10:15
Again, the IRS has 10 years to collect. So there is no reason they won't collect if it's a possibility. So just making a deal, because I have a client right now that came in and just said, "Hey, you know what, Frida? I've got enough money to pay the government a big chunk. Do you think they'll just make a deal and accept that money, versus me having to pay all these penalties and all this?" And you know, you sit there and you're like, well, logically, okay, you give them a big chunk, which is awesome, great. You've accumulated that. But they still have, in this particular case, they still have almost eight years to collect the penalties and interest. So why would they make a deal with someone that they can, they know, they can still collect the rest of that money from?
Dr. Friday 10:59
That's what you have to realize is that the government isn't sitting there, they're making a lot of deals, and there's a lot of people that have gotten pretty good situations. But you do need to realize, that is not going to happen for everyone, it's not going to be 10 cents on the dollar. I mean, in some cases, "Hey, I owe the government 100, and we get a deal for 50." It may be a perfect deal for that person. And maybe why not just pay 100? I don't have 50, any more than I have 100. So there are other options. There are partial payment plans.
Dr. Friday 11:30
In some cases, even non-collectible for a period of time to get you back on your feet, so that the government isn't seizing, living, or doing anything, but you're able to concentrate on what you need to do to get yourself into a place where you can start making some sort of payment. And most importantly, stopping the bleeding. This means, as of now, 2021, you're going to pay that tax year in full or at least 85%. Because we're already halfway through the year. And then in 2022, you're going to have it paid in full, they're going to see progress, therefore they see that, hey, it's not just another year, they're adding another year they're adding on. The IRS does not really appreciate that, and no one would if you're collecting money.
Dr. Friday 12:11
Alright, so if you want to join the show, or if you've got a question, maybe you're in the middle of trying to do a payment plan, or maybe you're trying to deal with your own tax issues. Give me a call at 615-737-9986. Share your story, because you know, sometimes the questions you ask a lot of other people would love to hear the answer to. And we're going to be right back with the Dr. Friday show.
Dr. Friday 12:44
All righty, we are back here live in studio, if you want to join us you can all you have to do is pick up the phone and call 615-737-9986. We are taking your phone calls, talking about all things money and taxes. That is what I love to talk about. I'm an enrolled agent, licensed by the Internal Revenue Service to do taxes and representation, which is exactly what we do. We help individuals try to figure out how to either deal with IRS issues or just help you file your taxes so that you don't have any IRS issues. And what we, you know, try to help people keep themselves so that's the stress. You know, it's just a crazy time sometimes.
Dr. Friday 13:27
And sometimes people are just over-stressed about, "How can I do this or that?" You need to just look at it as anything else in life, you need to deal with it, move on, and let it happen. So if you need help with that, or if you've got friends or someone that does, you can call the office on Monday morning, and we'll be more than glad to give you a free consultation to find out if we can even help you.
Dr. Friday 13:47
I'm not one of those companies that when you pick up the phone the first thing they say is, "Oh yeah, we can help you start paying us $500 a month or you know, this is gonna be $1,000 for this and then $250 every week." We don't work that way. We want to make sure that when we're dealing with someone for one, we're gonna be working together for almost a year offer and compromises are not something that's going to happen quickly. It just doesn't happen.
Dr. Friday 14:10
So if you've got a question or you need help with it, consider we're going to be extremely good friends by the time this is over. So you need to make sure you have confidence in the person that's going to be helping you deal with that issue. If you've got questions on anything else again, you can join us here in studio 615-737-9986.
Dr. Friday 14:30
So I got an email during the break and the person was asking about the PPP loans. Of course, a large number of my listeners and clients, many of them have small businesses. And you know I love my entrepreneurs. Hey, that's what I am. So when it comes to business and the PPP, PPP one, PPP two, both of them for many people, if you got your PPP two in early January, February, you've reached the 24 weeks. If you didn't get in until April or May or I think April because it ended in early May, I think most of those will be coming PPP two will be coming up for forgiveness sometime at the end of this month for most people.
Dr. Friday 15:09
PPP one, everyone that has PPP one should have already requested. As far as I understand, you should have requested forgiveness. Now I know a few people did apply for it later into 2021. But most people that got into the first draft of PPP one, you receive that sometime later in 2020. And 24 weeks are way past. And some people they got 10 months plus but you need to be looking and making sure if you're not sure how that works, you need to definitely contact whoever you got the PPP with, we can help if you need help give us a call. But you need to make sure that you've applied for that forgiveness on both loans.
Dr. Friday 15:51
The whole purpose of this guy is, is the money is supposed to be forgiven so that we don't have to take it on as a loan. If you haven't done that, then you need to seriously make sure whoever you're working with your tax person, your bookkeeper has got that handled because the last thing you want is to start paying on something that should have been free.
Dr. Friday 16:09
Alright, so Dennis, I believe is on the line. Let's see what Dennis can add for us. Hey, Dennis.
Dr. Friday 16:16
Okay, my question was, if I sell my house, I live in Florida. I don't know how different the laws are. I'm just passing through Tennessee. Anyway, so I sell my house and I make a profit. Do I have a certain amount of time to flip that into another property before having to pay capital gains tax?
Dr. Friday 16:39
That is an awesome question. And I appreciate your calling because this is a big misconception. years ago, when I first started, I've been at this for 2020 plus years, when we first started, we had a law that you had to sell your home within 24 two years reinvest it into another home, that law went away a number of years ago.
Dr. Friday 16:58
The current law is if you're single and you sell a house, you're going to get whatever you paid for plus 250,000 free money, and then anything above that would be taxable. If you're married, they double it. So whatever you paid for plus 500,000, and then anything above it would be taxable.
Dr. Friday 17:15
So in most people's cases, they actually would not owe any tax at all on the houses. But right now, I have got a few people that have actually sold their homes for you know, like 300,000 above what they paid for it, and being single, they ended up with small amounts of capital gain.
I could just throw the numbers at you. I paid 925. Today, it's worth 197.
Dr. Friday 17:40
Right. So your perfect single or marries, you've got about $100,000 of equity or you'll sell $400,000 profits. And so, you know, either way, you will pay zero tax on that.
Dr. Friday 17:55
Yeah, and you don't have to reinvest it into another home.
I was going to anyway, but okay, that's good to know. I thought I'd have to pay something.
Dr. Friday 18:04
Yeah, that was a great question. Thank you for calling. Appreciate it.
Dr. Friday 18:09
Thanks. Yeah, I probably get that call oh, least once a week, probably somebody. And there's nothing, I mean, let's be honest, it's not something you deal with until you have a house. Now, this is different. I should have clarified in this case, I believe he was talking about his primary home. And we are talking about primary homes. If you have rental property or a second home, that exclusion does not apply. You must live in the home for two out of five years in the current period.
Dr. Friday 18:37
So two out of the last five years, you've had to live in it to get that exclusion. And you can't have taken that exclusion within that two years. So the bottom line is, you pretty much need to if you do the first one in two years, I tell most of my clients, the next one would have to be done in three years and three years from every time or then two years or whatever. It can flip-flop. Some people will do that, theoretically, especially if they're trying to get out of their rental real estate. They'll live in those rental properties for a number of years, and then they'll sell them. And there's nothing wrong with that you will have recapture of depreciation, though.
Dr. Friday 19:11
Another good thing to look at is to consider not on primary homes that may clarify for investors, especially right now, where real estate is kind of gone a bit wild. But as always, I mean, one of the biggest ways that wealthy people have gotten wealthier in many cases is plain and simple. They are taking the money that they make on a home sale. Let's say I sell one of my rentals and I have quite a bit of gain, I can go buy another like-kind property and roll that gain into that property so I won't have to pay taxes until I actually stopped selling or upgrading my properties. And that's a great way to keep the money from the IRS as well as your own money working. So 1031 exchanges would definitely be on the table.
Dr. Friday 20:00
Again, especially right now, when people are making very large profits on their rental properties, it may be time to consider. And you can buy two to three properties with the sale of one property. And we'll see if we can get one of my attorney friends on to talk about 1031s in the next few weeks. Because it is, again, a wonderful subject as well as I think a lot of people could benefit, at least know or understand the difference of what that is. Because let's be honest, it isn't something that you really would know about. So you need to make sure that you have that information and consider it.
Dr. Friday 20:37
I mean, if you're not making a lot of profit, it may not be enough to worry about. If your income is really low. And even though you're making 60 or 70,000, but you're married and only have maybe social security and nothing else, you might still be in the 0% capital gains rate. So it may be beneficial not to do 1031, even if you want to go back and reinvest. So you need to sit down with your tax person, make sure you've crunched the numbers to the best of your ability, and understand where those numbers are coming from and what they are. But that's the best way to do it is to make sure that you have all that proper information so that you can make the best decision.
Dr. Friday 21:14
What the whole plan is here is for everybody to keep as much as your money in your pocket than it is to just give it. I mean, I have some great clients, I'll be honest, I get to learn from them. But also, I had a situation where a divorced couple had a child and he was in college, and it's a 50/50 the kids go back and forth. And they both are either could have claimed this child. But the husband basically said "no, no, no, you go ahead and claim it, it's going to be you know, more beneficial. And you'll, you know, you'll be able to claim this or whatever." And, and the child lived in the house actually the whole year with this particular client. So it was not a question that she was supporting. It really was just the fact that without a question, sometimes divorce and marriage, I'm not going to tell you, I'm far from being an expert on any of that.
Dr. Friday 22:04
But I could tell you that one of the smartest things people do or should do is think about how much you're giving to the IRS just to diss your ex, I guess is the easiest way for me to put that. You know, if you're actually sitting there trying to find ways to make their life miserable, you'd rather pay the IRS, okay, cool, go for it, that probably works for you. But if you're really looking to see how much money you can save by working together, and maybe getting you more money in your pocket, under the IRS laws, that might be something to consider versus just "Well, I don't want them to have anything, I don't want them to get this."
Dr. Friday 22:41
I mean, I have people not file taxes, because the money in the first stimulus was going to go to their child support. Really? I mean, you rather not get free money and give it to your children because it goes to your ex-wife. So again, taxes can be colorful and interesting. In my life, I always tease I think I could probably write a book. But if you're in a situation, again, nothing to do just if you're in a situation where you have maybe think about consulting not only with the attorneys but with a tax person, because you might find out there are some advantages to doing things in a certain way that might benefit you more than just saying, "Oh, this is why I want it." And it's not necessarily beneficial only to the IRS, that's all I'm going to say. Because I've looked at a couple of these things. And it's like, really? You know, did you really think about or where you really just looking at "I want to take as much as I can." Totally can relate to that guy. But on the other hand, I just really hate it when the IRS wins that.
Dr. Friday 23:40
Alright, let's see if we can hit Josh real quick before we hit the break. Hey, Josh.
How are you doing? Ah, I'm sorry. I can't hear you.
Dr. Friday 23:54
I'm awesome. Go for it Josh, you're good.
Okay. The government sent me 250 a month on the tax credit, but they're saying you have to pay it back in the first year. When you get you know when you do your taxes. So I'm wondering if, you know, if I'm in decent shape financially, should I take that? Or do I even at this point have that option?
Dr. Friday 24:21
Well, you do have the option you can go to the IRA, there's a website out there IRS website that you can opt out of. I am telling some people because they're finding it very difficult to go in and do that. And if you're married, you and your spouse have to both figure out how to do it. Set the money aside in a savings account. 99% of all of you getting it or maybe I should say 90% that are getting it are most likely gonna have zero issues. It's just an advance on what you would normally get on your tax return. So you may end up with a smaller refund. But it doesn't make a difference because you get the refund one way or the other.
Dr. Friday 24:55
But no, I was just gonna say if you're one of those people at the end of the year, you don't normally get a refund because maybe you do some workout and like a 1099 or something. And the credit ends up paying some of your tax bills. So you're not having to write a big check or whatever, then I would set the money aside, so we have it to pay the IRS if necessary.
Yeah, okay. Well, I'm a widower and a single parent. So that sounds like sound advice. Thank you very much.
Dr. Friday 25:24
Great question. Thank you for calling. I appreciate it.
Yes, ma'am. Bye. Bye.
Dr. Friday 25:29
Bye. All right, we're gonna take our second break. When getting back we can get back to more of your phone calls. And also your emails. If you want to email a question you can at firstname.lastname@example.org or you can reach us right here in the studio at 615-737-9986 is the number. You can join the show. And we're going to be right back.
Dr. Friday 25:51
All right, we are back here live in the studio. Again, the number in the studio is 615-737-9986. And we're going to go right to let's just do online one. Yes, Diana, or Dana?
Dr. Friday 26:20
Hey, Diana, what can I do for you?
Well, I called in about a month ago asking where on earth was my refund. And if anyone else was having trouble collecting theirs, I had filed on March 14. You told me at that time that you had about 70 or 80 folks that were waiting on theirs. You knew the boat I was in.
And I just wanted to report back that last week, which was almost that exactly four months, I did finally get my refund. It just kind of popped up out of the blue and I got it. So if others, you know, if others are still without hope, I just wanted to give them hope. And hopefully that the cog that was in the pipeline is kind of letting go and, you know, easing now.
Dr. Friday 27:04
Thank you so much for calling seriously, because I still have some we have found a few people, or we've got more love letters in the last maybe two weeks or so, where they're explaining why there've been some changes to the returns. And several of them didn't think they had received stimulus. But the IRS is saying they did. So changing their refunds. But other than that, thank you for calling, because I think there is still a lot of people waiting for those refunds.
They never told me there was any mistake or anything that made it you know, checking on, they just all of a sudden sent it to me. Which that was my main fear was "Hey, what did I do wrong?" So, you know, hopefully.
Dr. Friday 27:42
We always think it's our fault, don't we? We always it there and think we had to do something wrong because I didn't get my refund yet. And see it was really just the IRS taking their own time to do something. Again, appreciate you taking the time out of your day to let us know.
You're very welcome. Thanks for taking my call.
Dr. Friday 27:57
Thanks, no problem. All right, let's see about Steve. Hey, Steve, what's happening?
It's hot out here. How are you doing?
Dr. Friday 28:07
I know it's hot outside. I'm doing well. Thank you.
Yeah, so I have a neighbor who is a little bit older than I am. I'm 68. We're talking about required minimum distributions. And he said something about he was giving some of the money away? I don't know. Can you just do a general?
Dr. Friday 28:29
Sorry, go ahead. I didn't mean to cut you off.
He did just a general outline or idea about what to think about a few years out from the RMD?
Dr. Friday 28:39
Sure. One thing, for anyone that used to think it was 70 and a half, they changed the law. And all of you guys will be 72 before the requirement will kick in. The second thing, what he's talking about is a qualified charitable deduction. Once you hit 70 and a half, you can actually start taking distributions, even though you don't have to require, then you can start making your qualified charitable deductions as long as you're taking out the minimal amount that you need to. So it actually kicks in earlier than the RMD does. But to keep life simple, you can take up to I think it's $100,000. So you know.
Dr. Friday 29:17
But basically, what your RMD is, you can go to your fiduciary person, whoever's handling your IRAs, at this point, it could be a 401 K. And you say, "Hey, instead of sending me the check, I want a check made out to my church for tithing for this dollar amount," and then they'll make the checkout, they'll send it to you and then you can still put it at your church in the when they pass the bucket or whatever, and drop it in there. And the same thing for any other major charities you'd like to do.
Dr. Friday 29:47
So it is a great way. And keep in mind whatever you do give to charity is 100% tax-free to you. We all know that under itemizing, first, you have to qualify for itemizing in 20 20 they added a whopping $300 additional charitable contribution on 1040. Not a huge help for a lot of people. This would be, say you get 3000 or 5000, or 10,000. And you're at the even at the 12 or 22% tax bracket, you could be saving 1000s of dollars in taxes, and you're going to give it to the charity anyway, normally.
Dr. Friday 30:22
So, Steve, I'm a big advocate for people that are at that time when they are starting to take required minimum distributions to definitely maximize the qualified charity. It's a no-brainer, as far as I'm concerned, because most of my clients are also very much into giving anyways.
Okay, I just had one other. If you gave your child or your daughter-in-law, say $10,000, each, are there tax consequences for you or them out of that RMD?
Dr. Friday 30:58
So they're not a qualified charity, unfortunately, we like to think our children could be I suppose if I had any, but they are not. So when you give it, it's called gifting. And so it would be taxable to the person giving the gift.
Dr. Friday 31:12
So if you had money in the bank, you've already paid tax on and you want to give $10,000 to your daughter or daughter in law or whatever, there'd be no tax for either of you because you've already paid tax on the money in the bank and receiving a gift is never taxable. If you took it out of the RMD, you would have to pay tax first and then give the gift to the child. It would not be the same as giving it to your church.
Perfect answer. Thank you so much. Have a good afternoon.
Dr. Friday 31:37
Thanks, Steve. I appreciate you. Alright, let's hit Frank. Hello.
Hey, how are you doing Doc?
Dr. Friday 31:44
I am awesome. What are you up to?
I have a question. I applied for the PPP loan and I was approved for the loan. But I have an online bank, [inaudible] so when the money was sent to the bank, the bank would refuse it and they had to send the money back. But since then, I have not gotten it yet. So my question is, do I still have to file for forgiveness if I never got the money and the bank refused it?
Dr. Friday 32:19
Well, that's a great question. I can't say I've ever had that happen. It would be interesting. I think what you need to do at this point would be to contact the SBA because the SBA may be holding that money and they want to give it to you. You need to follow up because otherwise, the SBA may say, hey, he didn't take it, but we approved it. So he's got the loan. I mean, it's theoretically, your money, even if the bank refused it.
Dr. Friday 32:42
So I would I mean, logic would be as the SBA basically said, It bounced back, we're basically going to null and void it and give the money to someone else that needs it. But they may not have done that. And I would say the first thing you need to do is contact the SBA and give them a call. So you know exactly. You know what they're talking about because you were approved. And if you never got the money, you need to call them and find out what the situation. Who did you go through? What bank did you go to?
It's online [inaudible] and then I got approved. And then my bank refused the money because my bank is an online bank and it couldn't accept banks. So I opened a new bank account with Ascend Credit but I never got the money. So I'm trying to figure out whether I still have to file for forgiveness, or what am I going to do next?
Dr. Friday 33:44
Well, I will tell you, do you have a pen where you're at?
Yes, I can get a pen.
Dr. Friday 33:53
Yeah, the only reason I'm going to give you a phone number to contact the SBA and anyone that may have had some issues with this, this contact number you can use the column and find out about the economic EIDLs or they should be able to contact also about the SBA as far as the PPPs because.
Dr. Friday 34:16
The phone number is 800-877-8339. Give them a call and see if that number works. That's the number that I have on my paperwork. See if that works and see if you can't call and get some they maybe have to connect you with someone else. But at least get the ball rolling to find out what happens to the money and where you need to go.
Okay, thank you very much.
Dr. Friday 34:45
No problem. Let's hit Ron. Ron is on the line. Hey, Ron.
It's me again.
Dr. Friday 34:54
It's all right. I like it.
Yeah, the qualified distributions. From a, from an IRA. Just a little bit of something I got involved in and had to had to get to the bottom of.
Dr. Friday 35:14
Ron, we lost you can you stop walking? I lost you. Try again.
Okay, they're going to get 1099 at the end of the year for the entire amount.
Dr. Friday 35:27
And that can be misleading. There's going to be a box on there that says 1099 or taxable amount not determined. And that's where they could stumble.
Dr. Friday 35:47
Ron, that's why they need us. I'm not trying to give all of our secrets away. No, I'm just joking. Just so everyone knows that Ron is also a tax person. But you're right, there is a box, the 1099 R is going to show 100% and then in the box, and then in there on the application I use, I use a TurboTax version. But on the Pro Series, there's a place for us to put our QBI or you know, a qualified charitable distribution QCD, I guess it is. And then that rolls out and will automatically deduct it from the gross on my system. But you are correct. If they just use the form and think that it's somehow already come out, they're going into paying tax on the money they should have gotten us free.
Thanks for taking my call. Good to talk to you.
Dr. Friday 36:36
You too, sir. I appreciate your listening. Thank you very much.
Dr. Friday 36:40
And Ron's Right. I mean, in all honesty, but these are the kinds of things that, you know, I mean, I'd like to say but you know, you do need to sometimes make sure that you're doing it correctly, you may need to double-check and make sure you're using someone that understands that you need to use some verb professional.
Dr. Friday 36:55
I mean, Ron has more than once. And I truly do appreciate it because I like to tell you, I know everything about the tax code doing it for 25 years, but I don't. There's a lot of areas and they're changing my tax code from all all the time. So it's always good when I have other listeners to make sure because those are the kinds of things.
Dr. Friday 37:14
You would think on a 1099 R, which is what you would get your distribution from on an IRA, that it would basically have what first boxes total distribution, second boxes, taxable, you would think they would reduce the taxable automatically for the individual to account for it. They do not. They make us do it on the tax forms themselves.
Dr. Friday 37:34
So again, just making sure that if you doing the qualified charitable deduction that you're doing it right and taking full advantage of it. So you know, us a tax person that knows what they're doing. Alright, we're gonna take our last break. And when we get back, we'll take a few more of your phone calls, as well as answer a couple of the emails coming through. You can join the show at 615-737-9986. And we're gonna be right back.
Dr. Friday 38:13
All right, we are back here live in studio. And again, if you want to join the show quickly, you can 615-737-9986. Let's got Mark on the phone. Hey Mark.
Yeah, I got married, I don't know six years ago or so. And I owned a condo, my wife owned her house. And about the time we got married, her mother-in-law became ill and she ended up having her move in and taking care of her. So we basically haven't lived together.
I sold my house, with the market being what it is in the like last year in the last year. And of course, has the gain and all that didn't have to do anything with it. I took my proceeds, including my gain, and basically used it to liquidate the mortgage on the other house. So my question is when we go to sell our new house that we will eventually live? What will happen tax-wise with any gain when we sell that house?
Dr. Friday 39:29
Well, theoretically, if you lived in the house that was yours and you said your wife stayed in hers and you stayed in yours at this moment. You claim that as your primary home you've lived in it two out of the last five years. And so you took the $250,000 exclusion against that home.
Dr. Friday 39:44
That's all you'd be entitled to because your wife will have the 250,000 exclusion on her home. Now you may have more if you live in that home for three years together. But you guys bought a house together. Are you living at her home now?
Well, I'm actually living in an apartment because of the situation with her caring for her mother. I guess I could be in effect that's kind of my primary address is her house, but I don't physically reside there.
Dr. Friday 40:14
Well, the law basically says you physically have to live in it. So you need to either build a room on the back. No, I'm just joking. You know, so at this point, the exclusion would be for her a 250,000 above what she paid for it until you guys buy it together someplace in both lived there for over two years, then you guys would qualify for the 500. But both but right now it's 250 on you and 250 on her.
So even if I didn't use the 250, the full 250 on mine.
Dr. Friday 40:41
Doesn't make a difference. Yeah, like the gentleman called earlier, we brought the house for 92 and selling it for like 195, he won't use the full exclusion. But basically, you've used the exclusion. So you have to wait another three years theoretically, to get the next exclusion for yourself.
So the fact that I rolled in, and we've done a lot of improvements on the house, I guess that would increase the basis.
Dr. Friday 41:09
Absolutely. So I mean, if you bought it for 100, but you put another 50 into redoing the kitchens and the floors, and whatever your basis would be 150.
Yeah, yeah. So we'll make sure we add all that up and see where we are. Okay. That's what I wanted to know. Thank you.
Dr. Friday 41:22
That's awesome. Thanks. But that is a, and not the whole living separate thing. But a typical situation where so much so often, you know, somebody's living one place, and then amazingly enough couples seem to be able to make that work. Probably the last person since that kind of concept works very well.
Dr. Friday 41:43
So if it does, and like I said, if he was able to move into her house and live there for two years, that would give them both the possible exclusion on that, but not gonna probably work until you know, while she's having to take care of mom. So pretty cool that he's working with that whole situation.
Dr. Friday 42:00
So if you've got questions, and you're not too sure what the next step is, what you should do, and you need help, maybe you haven't filed taxes in a number of years, or maybe this year is just a really crazy year, and you're leaving someone to help you figure out "Do I owe taxes or not?" Because, guys, that's kind of what I want you to know before you file the taxes, especially if you're going to reinvest and pay off a mortgage. And if there are capital gains involved in the sale that home may or may not be, I'm just saying, you don't want to reinvest that money into something else, because you're going to owe it to Uncle Sam.
Dr. Friday 42:30
So make sure you save enough to pay Uncle Sam if you owe him. If not definitely reinvest into either another home or paying off the mortgage to take the stress off the situation. Whatever works best in your life, not a financial person. But I will tell you, we want to save as much as we can in taxes. So if you've got a crazy year, and you need to do some tax consulting, crunch some numbers, maybe it's a year that you're thinking about changing jobs, retiring, moving, whatever, and some of those things can have tax consequences.
Dr. Friday 42:58
So sit down, make sure we have a plan. We got some pretty cool little ways of maybe deferring or reducing income when you have an influx of income from somewhere else. So you might want to consider some of those plans s you're not paying Uncle Sam, all the money that you're doing.
Dr. Friday 43:15
Alright, so if you want to set up an appointment, the easiest thing to do is probably just call me Monday morning is the easiest way. My phone number is 615-367-0819 that is my direct line 615-367-0819. You can reach me Monday on that or email email@example.com. Sorry, I didn't get to all your emails, but I will respond to them. firstname.lastname@example.org. You can email us and then that way we can help you get whatever information you might need to get everything straightened out.
Dr. Friday 43:48
And if you need to know who I am, because you're like, "I have no idea I just caught this person on the radio. Who are they?" I am Dr. Friday, I'm an enrolled agent, licensed by the Internal Revenue Service. Let's clarify I have never worked for the Internal Revenue Service. I am licensed as an enrolled agent, which basically means I'm licensed to do taxes and representation. And in doing that I can help individuals make sure that they if you're in the middle of an audit, the IRS has sent you one of those love letters and you're like, "Oh my gosh, I don't understand what they want. How did I mess up? What was the situation?" We can work together to figure out what's the best way of handling it and what you need to know to make it work.
Dr. Friday 44:28
Because if you think every love letter that comes from the Internal Revenue Service is correct, they'll be the first to tell you. Because of timing, you may have sent in a payment and then you've got a collection letter coming A week later. They're always working 12, I would say two weeks to 30 days out from when you send something and when they're sending. When they send it in to the queue, they tell you it's two weeks out.
Dr. Friday 44:53
So if I call an agent today and say "Hey, I'm gonna do this," and they've already sent a letter you can expect it has already sent even though I might get It a week and a half from now, that's the way the IRS works, it's just the way they have to do it. So you need to know that collections kind of runs theirs and you have you know, customer service and then you know, you have the advocates office, which I mean are awesome, they have done a lot of good work.
Dr. Friday 45:17
If you ever have a problem and you're like "I've called the IRS 15 times, and I proved that I paid this or done this or that" and you've got documentation, the tax advocate office is the way to go, they will get once they get an agent on you they will take care of or they'll explain to you what the problem still is. If they're not going to do negotiate and this has nothing to do, they're there to help resolve when you keep talking it feels like a wall and they and you've got documentation.
Dr. Friday 45:46
I had a situation where some money was deposited into one account the money was supposed to be transferred based on the tax return to another account. This guy got in there he did awesomely and within a week or two, the entire thing was solved. I had sent in like three different times responses to the collection letter the clients going crazy like "Oh my gosh, do I owe this?" you know, whatever. There are ways of getting help to deal with it and Tax Advocate office is free. So it's not something that's gonna cost money.
Dr. Friday 46:14
If you need to reach me, call 615-367-0819 is my direct number or email email@example.com or just check me out on the web. Its drfriday.com is the website so I hope you guys have an awesome Saturday. It's beautiful outside. Hope you enjoy your weekend and I will talk to some of you on Monday. Call you later.