Welcome to another episode of 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, 2021Quarter Estimates due September 15, 2021Apply For Forgiveness For PPP LoanReturns for C corporations That Are On a Calendar Year Have Now Been Extended to October 15, 2021How To Verify Your Identify With the IRSThe Current Capital Gains RatesIs the $300 Charitable Deduction for 2021?Do 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 0:26
Good day, I'm Dr. Friday and the doctor is in the house. We're having a wonderful Saturday around here. All kinds of things getting finished and completed. As we know, if you had an 1120 S or a 1065, you were now late if you have not filed your 2020 returns, those were due on 9/15.
Dr. Friday 0:45
So not single members, or LLC or sole proprietorships, or individual tax returns. Those are now due October 15, along with normal 1120 tax returns. So all of that being said, if you haven't filed your 2020 tax return, you need to get an appointment fast if you're trying to get in with my firm. Or if you do it yourself, you need to get them ready and file don't wait till the very last minutes because there's a likeliness that you will not get them filed on time. And then the penalties can even be worse than not filing in the first place.
Dr. Friday 1:17
So you know, I mean, it's like a 25% penalty if you actually don't file on time. So filing with an extension, if you do not have an extension you're already late. So sooner you file better it's going to be so if you have a question and you need it, maybe you're working on that, or maybe you're actually pre-empting, your 2021 taxes, what a concept.
Dr. Friday 1:39
You can join the show 615-737-9986. We are taking your calls here in the studio. If you have some questions concerning taxes, or maybe something that's come along, maybe you've inherited property and you're selling it or you've sold rental properties, you want to sell your primary home and you're not too sure what your taxes may or may not be, this would be the time to try to get at least the right basic answer which direction to go, everybody's got a slight difference.
Dr. Friday 2:08
But that is all based on percentage of income so we can get you pretty close to what you need. So again, the phone number here in the studio is 615-737-9986. All right, so we're going to talk a little bit about, as I've told you, in the last couple shows.
Dr. Friday 2:25
The fact is we've had several taxes, we've got the American Rescue Act and the consolidated appropriation act of 2021. We also had the Families Act, the economics for Families Act are going to be as follows. One of the reasons this is kind of important is there are some big changes that affect people with children, obviously.
Dr. Friday 2:46
So the child tax credit will be fully refundable under this new Act, which came in effect for 2021. And the amount would increase from $3,000 per child to 3600 for children under the age of six. And then over the age of six, it is $3,000. So we're going to go up right now it's 1000. So that's huge numbers, right?
Dr. Friday 3:10
I mean, that is huge. And the other permanent change is the age of the child, we used to go up until the change of the child turning all the way through the age of 16. So in the year, they turn 17, they fell off as being a child and became just a dependence. That now has changed and they'll be all the way through the age of 17 until the year your child turns 18, then they become a dependent and no longer a child.
Dr. Friday 3:37
Which are the say makes a lot of sense. 17-year-olds also seemed very young to be taking them off of the child side. But the concept behind that was his most 16 and 17-year-olds have side jobs. In essence, they're helping to work to take care of themselves and or bring money into the household. So the child credit wasn't as needed for a child that could actually go to work.
Dr. Friday 4:01
But with COVID and all these other things, they found it harder and harder to be able to justify that. I think it's kind of funny because I was watching something on TV the other day. And they were saying that some of the restaurants are looking to hire 14 and 15-year-olds now. Because the fact is those kids are hungry about getting jobs so they can start saving for a car or whatever.
Dr. Friday 4:23
And usually, the older population would normally take some of those jobs, but they're not working in the restaurants at this time. And I think a lot of that still feeds back from the COVID situation. So anyway, so that's a huge change. So we've got the change of the dollar amount to the increase for 3000 or children under the age of six, 3,600. And going from 16 to 17 all the way through so until your child turns the year of 18. They are now child credit.
Dr. Friday 4:52
The reduction of the crowd once the taxpayer is adjusted gross income p34 certain threshold. So those thresholds are 75 for a single 155 married, those thresholds will be indexed for inflation. So that's something that's going to both changes some of the values every year, based on whatever that certain situation might be.
Dr. Friday 5:14
So the child also advances payments, based on the prior year's tax information. I personally think that's a horrible idea. I know there's a lot of people sitting there going, "Hey, it's great. I've got two or three children, I'm getting four or $500 or $600, which is helping!" That's wonderful.
Dr. Friday 5:31
But what happens when you have to file your taxes and your income, since they're basing it on the year before and the year before was theoretically 2019, because you haven't even filed your 2020s, or you followed your 2020s, which was a really bad year for you. And in 2021, you're making more money, especially like entrepreneurs or individuals, that money used to be used to help pay your tax bill. Now you're receiving in advance, and you can either end up having to owe money back on this.
Dr. Friday 5:59
No different than, as far as I'm concerned, where they basically had the medic, the health insurance, where you go to the marketplace, and you tell people how much money you made, and then they gave you credits, and at the end of the year, you ended up having to pay more money, because you ended up with a penalty of several $1,000, because you made more money than the marketplace than what you told them, it could have been simply that you sold something or you ended up with a higher, you know, stock portfolio, anything can affect these numbers.
Dr. Friday 6:27
So I really think it's, it's going to be a problem when you start really seeing how the money comes out. So I just really worried about that being. For a taxpayer who's received an overpayment of the advanced credit when the act advance was paid for a child who is no longer dependent a reduction of this provision exists, which means that they're going to make you pay that back.
Dr. Friday 6:50
Advanced credits are exempt from Bank garnishments, levies, or private collections. Well, that's great. I mean, again, that's a nice thing to do. But my concern is not for the individual that you know, is married has the same children, it goes through and you know, that your basic income is always going to be less than the threshold. And it's pretty straightforward.
Dr. Friday 7:09
Most of my clients are entrepreneurs, or many of them are entrepreneurs, and or end up divorced in one of the years end up with I claim, or my ex claimed the children last year, so he's getting the credit or she's getting the credit. And now I should be getting it because I get to claim them this year. There's just a lot of individual situations that I think could really come up to be a problem for 2021. We've had some pretty interesting tax years 2020 and 2021 now are both leading to being exciting years for all of us.
Dr. Friday 7:41
So if you have a problem or question about that, you can also join the show at 615-737-9986. The provision retains the $500 non-refundable tax credit for dependents other than child dependents and indexes the value for the credit for inflation. So again, both of these or all of these are supposedly going to adjust for inflation. So we will see how that makes.
Dr. Friday 8:07
Earned income, makes permanent the temporary expansion for the eligibility and the amount of earned income credit for taxpayers with no qualified children, which is for a minimum age of EIC is reduced from 25 to 19. So it used to be that if you were a person that made less than and you're not a qualified individual, that you had to be over the age of 25 because most kids from 19 to 25 are either in college or possibly still living with their parents, but they're saying if your exceptions are certain full-time students and underage limits are limited.
Dr. Friday 8:45
So again, if you're in college, some of these things we're going to fate, but they've increased the earned income tax credit for people that are making a low income of 9820, which has now expanded up to 11,610, the maximum amount you can get is 1502. So for all those that might be working, having a lower income, but just unable to get a good job, whatever that might be, you may be able to qualify for EITC or earned income tax credits.
Dr. Friday 9:14
Alright, let's go and hit Rick while we've got the phone hot. Hello, Rick.
Hey, how are you?
Dr. Friday 9:20
I am Awesome. Thanks for the phone call. What can I do for you?
Well, my wife and I have a condo in Florida that we purchased three or four years ago under 1031. And I'm hearing the temporary ones are going away. And I was wondering what the ramifications might be?
Dr. Friday 9:38
So, it's not going to affect anyone that has 1031 in play right now. what they're trying to do is, as you know, for anyone that's listening, Rick, that doesn't know what 1031 is, that's when you can actually take a piece of investment property and roll it over into another piece of investment property and include all the tax dollars.
Dr. Friday 9:59
So you keep growing kind of like an IRA, you keep growing your investment along with the investments for the IRS all into one big or up to three investments into one. So in this case, you invested three or four years ago now, when you sell that, and a lot of times, many of us might do another 1031.
Dr. Friday 10:19
As long as you want to stay in investment, real estate, you may continue to keep rolling and rolling and rolling. The fact is under the new, right now, under one of the Biden tax things is probably the easiest way to put that, he wants to eliminate for them to be able to pay for some of the things in this $3.5 trillion bill, they want to eliminate 1031.
Dr. Friday 10:43
So that way, you have to pay the tax at the time and not be able to roll it over and keep growing the money along with growing the tax investment. I'm not a fan of that. Obviously, I think 1031 has a lot of great uses. But you'll be fine, Rick, until you sell that property. And if you want to do another one, the fact is, it may not be available, I guess is all I'm gonna say.
Is that my only question?
Dr. Friday 11:07
I don't know. Is that your only question?
No, I have another one.
Dr. Friday 11:11
Go for it. Go ahead. Yeah, you're good.
Would it be to our benefit to sell our home in Nashville and make the condo our permanent residence? Are there any advantages there for us in that sense, we're about ready to retire?
Dr. Friday 11:31
You can't do 1031. When you turn it into your primary home at that time, you would have to pay the taxes. So the fact that you sell the home in Nashville, and assuming you sell it for 500,000 or less from what you paid for it, there'd be a zero tax. So that's a wonderful thing.
Dr. Friday 11:50
But when you get ready to move into the condo, or townhome, or whatever you have down there, and if you want to make that your home, that's not a problem, I would suggest, again, under this current tax law, it's probably not going to have a huge effect. I don't know your income, Rick, but as long as your income, including the sale price of or the profit of the condo, is less than a million, you'll be under the current tax laws we have today.
Is there any advantage to turning our current home into a rental property and living in the condo for a couple of years? Are there any exact zoning tax advantages to doing it that way? Is that a feasible plan?
Dr. Friday 12:31
The only way to do that would be to do that- it is a feasible plan because you could turn every two to three years. So theoretically, you could rent out the primary home in Nashville for two years.
Dr. Friday 12:42
But when you move into the rental property in Florida, at that time, you'd have to pay the capital gains, I don't know how much we have that we'd actually owe. But then you could turn into your primary and get the exclusion for when you really sell it. So theoretically, you can get that 500,000 exclusion every three years after the first one.
Okay, that's pretty good. I think I'd like to. I think my wife and I might make an appointment with you at some point. I'd like to get some covers more ground on this.
Dr. Friday 13:09
Perfect. Yeah, because it does make a difference on sorry, your income and different things like that, which we can't get into. But that's perfect. give my office a call be more than glad to crunch some serious numbers based on your guys' personal situation.
Thank you very much. I appreciate you.
Dr. Friday 13:23
I appreciate you calling. Thanks, guy. All right, we're gonna take our first break. When we get back, we will take some more of your phone calls. 615-737-9986. We'll be right back with the Dr. Friday show.
Dr. Friday 13:42
All right, we are back here live in the studio. So if you've got a question now might be a good time to ask it 615-737-9986. Here's a little provision that I don't know if a lot of people use. I will be honest, I don't do a ton of Earned Income Tax Credit tax returns.
Dr. Friday 14:07
But a lot of people do their own tax returns. And this provision makes permanent the temporary provision that was done under the consolidated what's it called the consolidated appropriation act of 2021. And this is using your prior year's earnings to calculate your earned income and child tax credits.
Dr. Friday 14:30
So sometimes, you may have made less money which may have reduced those credits. And or you may have made more money in one year or the other and they're allowing you to use a prior year or your current year to give you your best amount of tax credits. So an amount of was presented on 2019 return, maybe what you'll use on your 2020 year and your 2020 return may be what you'll use on your 2021 tax credits.
Dr. Friday 14:59
You will need to be Using an 8812 to calculate this, but I think this is something that a lot of times individuals don't know about some of these tax credits. And again, it's not something that, you know, if you have childcare tax credits, those are pretty straightforward. But earn income credits usually have limited income situations that usually will lead you to that kind of situation.
Dr. Friday 15:21
So if you've got credit to credit, if you have questions on that, you can certainly give us a call here at 615-737-9986. We are taking your calls talking about all things taxes are maybe you've gotten some love letters, and you're like, I don't really know where to start, what's you know, where do I begin, if you've got questions, and you're not too sure what you need to do, then you need to be able to make it work for you.
Dr. Friday 15:52
And I can tell you where to start, we can start talking about where or what you need to do to make this all happen, or make it work with what you need to do. All right, with so we're going to be able to keep moving here. So we all know that the family act was one of the tax ones that came through certain limitations for what we're talking about here about changing of age, maybe being able to use certain things for the EIC credits, giving you the best tax advantage.
Dr. Friday 16:24
We have had so many tax law changes in the years 2020 and 2021. I just want to make sure that we cover most of those questions if you have some. Again, as an Enrolled Agents, I'm licensed by the Internal Revenue Service, which means I have never worked for the Internal Revenue Service, I have been tested and licensed to basically do representation, which means dealing with offering compromises, making payment plans, basically helping you negotiate with the IRS to get what you what you're entitled to get doesn't always feel like sometimes the best deals.
Dr. Friday 16:58
But the fact is, sometimes people don't want to share what you know, I mean, the bottom line is here, you have money in a house, this is always the hardest thing, I've almost got my house paid off and the IRS is going to put a lien against me because I owe them $50,000 or, and then you sit in there, the IRS is sitting there saying wait, you've paid off your house, but you haven't paid us therefore that equity is ours. Pretty simple when you think of it from their side of the situation.
Dr. Friday 17:24
So you need to take about, you know, can you get a line of credit, can you get the money out of the house, you really don't want the IRS as a loan officer. Now there are ways of protecting a home as far as going bankrupt. If your IRS debt is over 33 months, you can take your IRS debt possibly bankrupt. So that way, then you don't have to worry about dealing with some of it. I mean, in all honesty, the IRS is not likely to take home take either of your cars if you're married.
Dr. Friday 17:53
Because they want you to be able to live and work that is not their plan. But they also don't see why you're building up money in a 401k. Instead of making a payment plan to them to cover the tax bill that you have. You shouldn't be retiring, or saving money for retirement. So this is the kind of game we have to be able to do and explain and deal with to be able to help you as a taxpayer to make things work but also to help make everything worked as far as the IRS is concerned.
Dr. Friday 18:20
Because when you're dealing with the IRS, there are a set of rules there as a way of making things work. But it doesn't always mean that it's going to be a perfect match. So we basically can explain how the game is played and then help you figure out how it's going to make it easier and easier on you.
Dr. Friday 18:38
Alright, let's hit Jeff in Greenbrier. Oh, about my favorite subject, PPP. What do you got, Jeff?
Hey, this is Jeff the Appliance guy.
Dr. Friday 18:47
How are you doing?
Dr. Friday 18:50
I am awesome. How about yourself, sir?
Alright. I listen to you. Every week. I have a question about the PPP two. PPP one, I got a notice from the bank. When it's time to take care of everything, everything went smoothly. I hadn't heard anything from the bank. And when I've called them, I gotten no real answers.
Dr. Friday 19:06
Well, PPP two, I think came out sometime in early 2021. So I think that they basically are giving people like 10 months, you know, I mean, because you know, how long it took for the other? So I think I mean, I know for a fact I've got mine in February, I believe. And we, we've got it out.
Dr. Friday 19:27
We've provided the bank has given us a place to be able to submit the information, but we still haven't received any kind of forgiveness on that one. And we have been working on several other ones. So I would say keep contacting most of the banks now have where you can apply for forgiveness and I'll ask you is this for p p one or p p two, but on the same screen, but I would I mean just bottom line is if you got yours 24 weeks afterward, you should be able to hit for the forgiveness. So if you've hit that 24 weeks.
I was kind of hoping I'd get one of those like last time, they sent me an email I clicked on the link. And it was all really simple.
Dr. Friday 20:04
And it will be the exact same way on this one with the exception of the proof of loss of income, you know that you'll have to do, you have to have what 20% loss of income? I think? I think I'm right. Yeah, that whatever that was 25, something like that.
Dr. Friday 20:21
But whatever it was, they're going to ask you for proof of that. But other than that, the same documentation, the Schedule C, or whatever you might have used for your payroll side would be the exact same thing. But I would contact the bank, if you received yours in the first quarter of this year, they should have openings now for PPP two, because we have been applying. I don't know what your bank is, and that's fine.
Maybe it just wasn't quite as automatic as last time, they just let me know, "Hey, it's time to do this."
Dr. Friday 20:48
Right. Well, and I mean, actually, I'll tell you, we had a couple of them that were getting a letter saying it's time to start making payments. And we're all like, "Wait a second, these are supposed to be forgiven." The bank was just basically going right into loan mode, you know.
Dr. Friday 21:02
So I would just stay on top of them just saying, "Hey, I'm ready to apply for it. Who do I go to?" Call your banker and see if you can. Usually there's a division. I mean, you did the first one perfectly. It sounds like so just a matter of getting them to get you the same link.
Dr. Friday 21:15
But good question. It's time for people to start thinking about making sure they have applied for it.
But we still have time. If it hadn't been done yet, we still got time.
Dr. Friday 21:23
Yes, yes, you still have time you have not hit the point where it's turned into or even the threat of turning into a loan yet for PPP two.
Alright, well, thank you, ma'am. I appreciate your help. I love your show.
Dr. Friday 21:36
Thank you, sweetheart. I appreciate you. Alright, thanks. All right, we're gonna keep going here. And if you've got questions, you can also join 615-737-9986.
Dr. Friday 21:51
Like I was talking a little bit about, if you haven't filed taxes for a number of years, it can be intimidating, you don't know where to start, you don't know how to deal with it. And that's what we're really good at, we can help you find where your tax documents are, trying to get the information based on you to know what type of industry you're in, things like that, and be able to move forward and try to help you get taxes.
Dr. Friday 22:13
Because without getting the taxes filed and getting into compliance, there's no way you're ever going to get out of debt with the IRS, they have to have the returns filed, you have to then get into a payment plan or an offer and compromise or even non-collectible but something has to be done.
Dr. Friday 22:29
Otherwise, you're going to constantly living with the idea. And sooner or later, even though at this point, you're like I don't care, there may be a point when you want to buy a house, when your kids want to go to college, there are times when you need to have a tax return. And you need to make sure that you have that information and you know to start making and to be honest, most of the time, it's really about going forward, the past is over. We can't change the past. But if you're self-employed especially and you're still self-employed, you need to start thinking about how am I going to start making my monthly estimated payments.
Dr. Friday 23:01
And yes, I said monthly. As far as I'm concerned, most entrepreneurs should be making them on a monthly basis. By by the law, you only have to make them quarterly. But monthly would be you know, it's a little easier. And just like a mortgage or anything else it auto drafts out of the bank goes to the IRS. So at the end of the year, you're not worried about making your taxes the taxes have already been paid for mostly it's all you are is getting the paperwork together dealing with the issue and filing the return, you're moving into the new year, you're already starting to make payments for the next year and etc, etc.
Dr. Friday 23:33
That makes it easier to negotiate with the IRS because at that point, now, they see that the bleeding has kind of stopped and you were able to start moving forward. Because every year you keep adding to the debt sooner or later that that's going to get too big that you really don't have the ability to control it. So if you have questions on how to make that happen, or what we need to do to get started, the easiest thing is to call my office.
Dr. Friday 23:57
But today if you've got a question right now, during the radio show, I'd be more than glad to answer that question for free at 615-737-9986 is a number right here in the studio. All right, we're getting ready to take our second break. So if you've got questions again, 615-737-9986 we're gonna be right back with the Dr. Friday show.
Dr. Friday 24:27
Alrighty, we are back here live in the studio at the Dr. Friday show. I'm an enrolled agent licensed by the Internal Revenue Service to do representation and taxation. So basically, guys, that's what you're getting a lot of talk about taxes, my favorite subject, and let's go on to a couple of things.
Dr. Friday 24:44
One, I wanted to just bring back up again, because last year, we had quite a few people that didn't give anything to charity because it really I mean, again, I know a lot of people don't give to charity and sometimes they give but they didn't say the paperwork because they knew it was isn't going to be a tax deduction. But then they threw in at the very last minute that $300 deduction this year for married couples, 600 for single people 300.
Dr. Friday 25:08
So if you are giving to charity, and this has to be cash, this cannot be clothing, or food, or any of this, this is only for cash. So if you have money that you're giving to charity, please save those receipts because we will be using those above the standard deduction. So just putting that out there, because last year, a lot of people just said, Well, I didn't know that change, whatever. So we need to make sure that we had that going forward and making sure that we're dealing with that.
Dr. Friday 25:36
Miss classification of workers remains a priority for the IRS knowing that some firms circumvent payroll taxes by treating their employees as independent contractors. Work classification issues come to light during audits and from filing SS-8 filings, workers can file an SS-8 to ask the service settlers whether they should be an employee or, or an independent contractor.
Dr. Friday 26:00
So if you're sitting in a situation, and you're like, "I go to work at the same place, they tell me where I'm supposed to go, I'm driving their vehicles, I'm doing everything and basically showing up every day. And they're just telling me." When they're not taking taxes, they're treating you with 1099. At the end of the year, you can file a form called an SS-8 and you can send that to the IRS and they will come back and say yes or no that you're being classified correctly or not.
Dr. Friday 26:26
And by doing that, I will tell you that most likely the employer will get a visit from the Internal Revenue Service. And that should cause a bit of conflict there. But again, if the employer is not treating the person in the proper way that they're supposed to be treated, it's not your fault.
Dr. Friday 26:42
As an employee, you're working and doing what you're supposed to do, the employer is the person and that leads to money being lost for unpaid payroll taxes is absolutely huge people were unreported or unreal, under-reported payroll taxes is the biggest chunk of the overall federal tax gap of $77 billion of payroll taxes fell through the cracks yearly from the year of 2011 to 2013, per 2019. IRS, over 50% of that figure is from the self-employed tax, it is a sure bet the number much higher than that today is growing from the freelance service gigs and everything else.
Dr. Friday 27:18
So what they're saying is people that are self-employed, or people that have employees that are either misclassified, or they're just not paying the taxes to the government. Yeah, you guys are on the radar for basically being and that's actually been going, we were really getting fairly 2019, 2018, 2019 a lot of audits for payroll, a lot of federal Department of Labor audits seem to be coming out. And then COVID hit, obviously, that just slowed down the whole thing. And now it's slowly coming back up to one of those situations.
Dr. Friday 27:53
And keep in mind, payroll taxes are one of the few taxes that the IRS even though you work for a company, and if you're the person that's responsible for writing the 941 or the payroll tax out if you're a bookkeeper, I had a case where a person was the bookkeeper and they made choices to pay the rent and pay other things then to pay the IRS that that came against them individually, because they were making choices and chase saying, well, it's more important to keep the rent than it is to take the taxes the IRS doesn't agree. IRS says it's more important to pay the taxes than to pay the rent, not too sure how to keep your doors open, but that's the way it works. And then they can put that debt against you as the responsible member.
Dr. Friday 28:34
So if you are working in a firm in which you're making decisions on payroll taxes, or if you know there's a payroll tax issue, you may want to be very, very careful about how and where you're going with that, you know, situation because you could make it personal and the IRS can come for you for the employee portion of those taxes. Very important. New law changes on 10 99k reporting should be a hike in compliance in this area. Presently a third-party payment network must send a 1099k to payees who have over 200 transactions were paid more than 20,000 during the year, starting in 2023. These payers must send a 1099k to pay he's who are paid over $600.
Dr. Friday 29:20
Okay, so think about this guys, you have a PayPal account, and you've got family heirlooms or things like that, that you're using and PayPal is you're using PayPal at the end of the year. If you sell more than $600 in the year 2023, you're now going to get a 10 99k and the government is going to now think you need to pay taxes on that. And this is going to get bizarre because I have more than one person that does that kind of thing where they clean up the attic once a year is their clothes, closets, and all that and they're selling more than $600 a year in gross sales.
Dr. Friday 29:56
Now you know but the cost of that usually is zero because you usually selling for less than you originally paid for it, who has the original receipts to prove what you paid. So this is going to have a huge effect on, in my opinion on the way taxes are going to be done for those kinds of situations because in most cases 1099 Ks are thought of for business purposes. Usually, it's merchant services. So, you know, your Vin Mo's or you're all of those, you know, I mean, if you're using Venmo, and have more than 600, right now, it's 20,000. Most people aren't receiving more than $20,000 through these things.
Dr. Friday 30:32
So you know, it's a couple of $1,000 here there. I'm wondering how the IRS is going to be able to figure that out versus friends sending money back and forth throughout the time. I mean, I have, you know, someone pays for dinner, everyone Venmo owes money back over to that person. So that way they're paid back. Venmo is a merchant service, how are they going to track this?
Dr. Friday 30:51
So this is going to make 2023 a much more exciting time than we probably needed to be, but just saying that, along with that the same threshold for 1099, and C's on payments for nonemployee compensation, or based on the 200 transactions, and now it says 200 or it doesn't say 200. And so it's going to be interesting to see how that law comes back through to see if individual tax returns after 2022 are going to be more of a concern than what we have for that.
Dr. Friday 31:23
So again, if you want to join the show, or if you got a comment, you want to share 615-737-9986 taking your calls about taxes or if you've got a question about some sort of situation that you have that's come down the line.
Dr. Friday 31:44
The government can garnish criminal 401k to pay restoration, a restoration that the man who applied guilty for embezzling money, for example, or anything like that they can actually mandate a 401k. Here's a little bit of interest, I actually had someone that wanted to voluntarily turn their 401k over to the IRS to settle their debt. And we found out that to do that they had to pay the taxes first.
Dr. Friday 32:11
So I thought that was I mean, not to say it doesn't make sense. The IRS should not eat your tax bill. But I thought that they would rather take the full, you know, amount and then obviously worry about that. But no, they will not do it based on a seizure. I thought that they could do that. Interesting. So if you do actually have something like that you will end up with a textbook at the same time.
Dr. Friday 32:33
All right, let's take Chris to Nashville. I know I'm a little faster than you, buddy. All right, Chris, what's happening?
How are you today? Thank you for taking my call. About a year ago, he helps me out a lot with some will issue with my father and the tax implications on inheritance. But I got another situation, and it's a very good one.
So I have a sports card, a football card that is worth about $1.9 million. And I only paid about $3,000 for it about 12 years ago. It's no secret, I guess that capital gains tax most likely will be going up a lot next year.
Dr. Friday 33:19
I'm trying to pick the best time to sell this. If this particular player wins another Super Bowl, it could easily be worth $3 million next year. Do you anticipate or has the IRS released any information about what capital gains will be next year?
Dr. Friday 33:39
Well, I mean, that's a great question. Right now they're not telling us that there's going to be any change in the capital gains rates, you know, but if they are able to pass the law that we think is going to go into play then you're going to end up with the possibility in your case.
Dr. Friday 34:00
Because what they're saying is initially he ran on the fact that nothing I do is going to affect anyone with $400,000 or less the tax law that they're they're selling to us at the moment under the $3.5 million deal is going to be anyone with a million dollars or less will not be affected by the new capital gains rates you are going to be affected because of two things.
Dr. Friday 34:23
The marginal tax gain on collectibles is different than it is on stocks so even though it's a capital gains rate you're looking at basically 28% tax versus the other ones now well that changes if it goes up to 40 you know I'm saying cuz you're looking at million dollars or more you know in gains. And right now you've already basically hit the 28% tax for collectibles versus normally only be 23.8. But you are lucky man because it's a collectible.
Dr. Friday 35:00
So you're looking, you know, I would say, and again, Superbowl is not so January of next year. And if that guy's a player that could put into that hate see and lose money on that deal. But on the other hand, if he doesn't win that Super Bowl, will it reduce? Or will it stay the same? I don't know.
It's Tom Brady. But, you know, I've held on to this card for a very long time. And so if this if I could sell it today and say for 2 million, I would be paying 28% capital gains, correct?
Dr. Friday 35:34
Absolutely. Yes. Under the current tax law, yes.
So let's say he repeats from last year, they win the Super Bowl in February. And the car then could go for, say, 3 million. But if capital gains tax goes up to say 40% for a collectible.
Dr. Friday 35:54
Now, really, how much money are you making? In addition, if you consider, but you're still making 60%? Right. I mean, on the next million, I mean, if you had. So you'd be still bringing home? Well, that means 40 times the whole thing. So you'd be losing.
Yeah, so it's a pretty big chunk.
Dr. Friday 36:16
Yeah, 1.2 million?
And is there any way? I mean, like, Is there any way to set up a nonprofit?
Dr. Friday 36:26
You have a couple of things. One, you could do some charity. I mean, there is the possibility of donating money?
I do want to give some away. I mean, at least a tithe of 10%? Probably not exactly to my church, but to other different ministries, and then maybe even another 250 percent more, so maybe as much as 25%.
Dr. Friday 36:47
Well, I mean, that would be something that would come off. And you can roll it forward, theoretically, if you don't use it on the first year, but you would in that case scenario, so it would help.
Dr. Friday 36:58
But again, you're still looking at a minimum, I mean, the question, and that's where you've played, and this is where Friday would be the worst person to ask this question. Do you sell now and know that it's at 28? Or do you wait and go to 40? But you get another million?
Dr. Friday 37:12
And that's all a matter of who's willing to pay how much I mean. Again, that's outside my head for that conversation. But I can just tell you, the odds are they're going to get their way this particular administration does not like people that are actually making money. They feel they're entitled to such a large chunk of it, because well, I don't know, because we're Americans.
Dr. Friday 37:35
So it's very likely that it's going to come back and come. I mean, I think it will hit in 2022, or will it hit in 2023? I think sooner versus later. And theoretically, there's some people saying that they can backdate not to the not to this end of this year. But if they make it effective as of December 31, you know, or you know, whatever date it happens, they can move forward from that date. I don't believe they'd ever be able to backdate it to a prior year for that rate.
Dr. Friday 38:08
Because I don't think I mean, I don't think they can goodness gracious. I may have to take those words back later, Chris. But I don't think so. But I guess you'd have to sit down and do some serious analogy and say, Hey, if I sell it this year at the 28%, or worse scenario, it's 40%.
Dr. Friday 38:24
And I believe it would be over a million dollars. I think anything under might go that's a guess is I don't know the tax law right now. Which way would give you the most money? And what's the odds of it happening? Well, God knows that guys what, he's the oldest player, I think in the NFL if I've got the right firm there but it's, you know, he's a heck of a player so he could pull it off. That's all I could say.
So, within the last two years, there's been a big boom in the baseball, football basketball card business where cards are selling for seven figures. And it's not unusual that some of these big large auction houses and brokers.
And I would be going to one of them that will accept cryptocurrencies as part of the payment. Like if someone gets it for 2 million and I go to a broker and agree to accept cryptocurrency they could say, "Okay, we'll give you a million cash and a million in bitcoin."
Dr. Friday 39:24
But they're looking at that but the IRS, I will tell you from my standpoint, million dollars in US dollars a million dollars in crypto or any other currency, it's still a currency. It's still taxable, we still have to report it, far as I'm concerned. Yep. All right.
Do you know locally of a good tax attorney for something like this?
Dr. Friday 39:48
Yeah, if you want to email me, Chris, at you know, firstname.lastname@example.org, and I can send you over a couple of attorneys' names.
I appreciate that. Thank you, ma'am. You have a great day.
Dr. Friday 40:00
All right, thanks. We're gonna take our last break here. And if you want to join the show you can at 615-737-9986. We'll be right back with the Dr. Friday show.
Dr. Friday 40:22
All right, we are back here live in the studio. And if you want to join us, you got a few minutes, not very many 615-737-9986.
Dr. Friday 40:33
So here's a bit of wisdom to the individual who thinks that they can just write off large amounts on their Schedule A trying to meet itemizing, which to be honest, is not an easy thing. But there's a court case that just came up where they were audited, they had $38,000 in medical expenses, but on the audit, they could only substantiate about 1/5 of that.
Dr. Friday 40:55
So, lesson learned, guys, whatever you put on your tax return, please have the documentation to justify it. This seems silly, I mean, they're just throwing numbers on a return. So that was a silly one. So obviously, they ended up not being able to prove that tax deduction.
Dr. Friday 41:11
Here's a big one, though, IRS is helping. As we know, in 2020, many employers were able to defer the company portion of the employer's portion of Social Security and Medicare, the 6.2, I should say, just the 6.2, the Social Security share, and you had 20 December 31, to pay half of it. And then again, by December 31, 2021. If you did defer that 6.2 Social Security tax, you need to be looking on to EFTPs. If the most of us that's how we make the payments.
Dr. Friday 41:45
You need to go on there, you will see that they have a new button where it will say "deferral" and you can click that and make your 50% payment on to that and or send a check, obviously making sure that all the details on the check to note that that's what it's for. So properly be applied. But don't send it with any other payment, don't make that along with a standard 941 or anything else for that year, it should be a completely separate number.
Dr. Friday 42:13
So that way, you have the ability to prove that you paid your 50%. And make sure you know what that 50% is because if you're at 49.99, they can charge you a penalty. And that is not going to be exciting for anyone. So again, making sure that you have that and we'll keep reminding you here for anyone that deferred Social Security, the six-point to take in over there and making sure you have to make sure that that's a good situation.
Dr. Friday 42:39
Anyone that is making more than $146,700 that is there be your new 2022 Social Security cut-off. So that will be when we don't have to worry about paying the extra. S Corporations can blunt the impact of the 3.8 surcharges on unemployed income shareholders who material participate in S Corporation operating generally aren't subject to the 3.8.
Dr. Friday 43:02
This is for people that invest in small companies, but don't actually work for them, there is a surcharge for those individuals, you have to pay a surcharge of the 3.8, then you can basically be an employee and that exception moves on a lot of people try to use the sub s corporation as a way of deferring having to do payroll, they basically tried to take it through as a K-1 not having to pay self-employment tax only as an earned income, ordinary income.
Dr. Friday 43:27
They are really cutting back on that it's very important that small business owners really get somebody that understands the tax law. I have taken on more than one case where the people haven't paid themselves for years. The IRS is like Well, there's no payroll, they audit because the first thing they see is a corporation without payroll. But yet there are owners taking out huge dividends.
Dr. Friday 43:47
And there are two things. One, Tennessee had dividends tax on that obviously up and through the end of 2020 when the hall of income tax went away, but up for all those years, you should have been paying tax on that to the state as well as we would have had some other issues with paying the surcharge and ordinary income in the effect of that.
Dr. Friday 44:07
So be very careful because the IRS is targeting Corporation, especially S Corporations. They're either paying really low payroll tax because you know they're making 150,000 but they paid themselves a W2 for 15,000. And the rest of its coming through dividends again.
Dr. Friday 44:27
Again, guys, this is not the way it's supposed to work. I mean, if you've got a corporation, my suggestion is to maximize it so you don't have to pay any franchise excise put it all through payroll. And that way then it will wash out and you won't have to worry about any of these situations but make sure you've got someone that understands the true law of how that's going to work.
Dr. Friday 44:47
All right. So this has been another Saturday with Dr. Friday and I will be back next Saturday if you want to reach me after this on Monday morning at 615-367-0819.
Dr. Friday 45:01
Again 615-367-0819 You can also check me on the web at drfriday.com. Again, I am an enrolled agent licensed by the Internal Revenue Service to do taxes and representation. So if you've got IRS issues and you're not too sure what you need to do, maybe you've hired some sort of company that doesn't even work in our state, really, and you're trying to figure out did you get the right deal? Are they helping you? Are they trying to keep you from actually losing your payroll or anything like that?
Dr. Friday 45:29
If you need a second opinion, give our office a call at 615-367-0819 Also, you can email email@example.com. We actually are a full-service accounting and bookkeeping firms. So if you're a small business owner and you're trying to figure out who's going to help you we are certified QuickBooks advisors so we can help you do you know your bookkeeping, we can help you with your taxes.
Dr. Friday 45:53
And again, we can help individuals that need help to get back on track with the IRS. The last person you want as a loan officer is the Internal Revenue Service their basic penalties are 25 to 50%. Easily can owe 100% for if you filed a tax return in 2013 or so. And you didn't pay those taxes your likeliness is with penalties and interest, you now owe 100% more so if you owed five you now owe 10. It grows really fast.
Dr. Friday 46:20
So if you need help 615-367-0819 is the number to our office. I hope you guys have an awesome Saturday. It's been a great, little rainy, but it's a great day, Call you later.