Tax Talk with Jeff Pickering CPA Talking about the Roth Conversion.

Patrick: And welcome to Tax Talk. This is Pat Dougher and we’ve got a great show for you today. In this country, we have two tax systems. We’ve got one for the people that know how to save money on taxes and then, there’s everybody else that doesn’t and they pay more taxes. Which side of the fence would you rather be on? Pay less, of course, right?
Well, that’s what we’re going to talk about today is ways that you can pay less for this year’s taxes and really begin to structure even your business and your personal life in a way that the government just doesn’t walk off with as much of what they think is theirs already.
So, today, we’re going to talk about things like the government’s action or inaction on some of the things that are happening on Capitol Hill. We’ll talk about the Democrats pulling a bill for firing some people that are walking on their taxes. We’re also going to talk about how some of the areas of the government are just totally out touch.
California homeowners have a shock coming up. We’ve got some good news and bad news reports. And also, we’re going to talk about foreign bank accounts and how to – well, I’ll say some of the mistakes that people make just signing the checks and using checks.
We’ve got so much to cover and I’m so thankful that I’ve got Jeff Pickering CPA. He has a Master’s in Taxation. You will want to call in and ask your questions to Jeff and then, there’s also Rex Hogue, an Attorney with Bolinger and Hogue in the North Texas area.
If you want to cal in, it’s 214-787-1570 or #KLIF on your Sprint wireless phone. Well, guys, we have some deadlines coming up, don’t we, Jeff?
Jeff: We definitely do. This is deadline time. Taxes are deadline driven. We’ve got March 15th which is the deadline for filing your corporate tax return or filing you extension. So, if you have a company that’s named Inc, Corp, Incorporated, or Corporation or an LLC taxed like one, then you’ll want to file your extension by March 15th.
We’ve got March 31st is the deadline to buy a Ford Fusion or Mercury Mariner hybrids and still get the tax Credit. April 15th – big deadline; individuals, partnerships, trusts – if you’re making your estimated payments, it’s the first payment due. Ouch! It’s the due date for your extensions, your property tax renditions and it is the deadline to claim your refund from your 2006 tax return.
So, tax payers have $1.3 billion in unclaimed refunds from 2006 and if you are one of those, you have until April 15th of 2010 to file your return and get your refund back. In Texas alone, there’s 114 million dollars of tax refunds that are unclaimed.
Patrick: Wow. Is there a way to get any? We have to go and file for that to get it if there’s anything out there?
Jeff: You have to file. You have to file in order to get the refund.
Patrick: Wow, that’s amazing. So, what’s going on in Capitol Hill?
Jeff: Well, there was a Republican, a Congressman who introduced a bill after he found out that many of the tax deadbeats were actually in Congress which we did report. We reported that before.
We said, “Okay, the biggest tax deadbeats that are on the government side are in the House and the second biggest are the Senate.” And then, the third, of course, is the office of the President.
So, we reported that and this Congressman got a hold of that and he said, “Okay. Well, let’s make a bill to fire all the staffers that owe the IRS money.”
Patrick: Sweet.
Jeff: So, the Democrats actually pulled that. They pulled that bill for some reason. I think it’s because before they fire them, they want to give them a little chance to clear it up or something like that.
Patrick: That’s right. I remember reading that in your report.
Jeff: Yeah. So, that’s what’s going on. The Democrats pulled that idea, but it was a neat idea. Basically, you work for the government. You owe the IRS money. You’re getting a paycheck. Why are you getting a paycheck when you owe us money? That was the point.
Patrick: Exactly. So, what’s the out of touch? How is the government out of touch right now?
Jeff: Yeah. Well, this is a report, the first annual report on the White House panel headed by Vice President Biden and I guess they have to have stuff to do, so this is what he did. He put a report and he’s calling for a system of automatic IRAs in the workplace.
So, they’re saying that the employers who don’t currently offer a retirement plan would be required to enroll their employees in a payroll deduction IRA. However, workers would be able to voluntarily opt out of the system.
So, what that is – there’s no reason for a law like that because if anybody’s working and they’re not covered by a qualified plan, they can just go get it. There’s no reason to make employers put some kind of mechanism in place to force people and then, “Oh, they can opt out.” So, maybe it’s a little too much government intervention.
Patrick: Intervention. Mandatory is un-fun.
Jeff: Right.
Patrick: Very good. So, what’s going on in California?
Jeff: So, in California – California has their own separate tax system and they need the money. Believe me. They’re in big trouble. So, many of the people who are in trouble with their homes, they have short sales or they have foreclosures. They’re safe on the federal tax side because we passed a law that says for qualified residents, you can exclude up to $2 million of discharge of debt income.
So, the rule is, if somebody forgives your debt, that’s income to you. That’s the tax rule. And because of late, they’ve had so many of these short sales and foreclosures, they said, “Okay, we’re going to give people a break.” And they did, in the federal side.
What they didn’t do is they didn’t put that same break on the California state tax system. So, these people who are down and out, who don’t have any money, they’re going to owe huge amounts of money on their California tax returns.
Rex: It looks to me like it averages about $3,000 a piece.
Jeff: $3,000 a piece.
Rex: People out of a job and lost their home; what a nightmare.
Jeff: That’s all they need.
Patrick: And don’t forget, it’s only – what’s the interest rate that the IRS usually has right now? Is it 25% plus 12?
Jeff: Yeah, for late payments and stuff like that, it can go up to 25% per year.
Patrick: Ow! That’s usury if I’ve ever seen it. Here’s what we’re going to do. Call in at 214-787-1570. You really want to talk to these guys. They both have a tremendous amount of information that can help you save some money this year on your taxes.
And more specifically, you need to talk to them about planning for the next few years. None of us can avoid the fact that the government has overspent its income in a massive way in the last 30 years, but especially in the last few and they’ve got to fund it. The only way they’ve got to fund it, really, is to raise taxes.
So, you know that taxes are going to be something that are going to grow. Well, like I said at the beginning of the show, the more you know, the more you get to keep.
And I have to tell you, this is the time to get to know what you can do to lower your taxes. 214-787-1570. You need to talk to Jeff Pickering CPA, Rex Hogue, Attorney. We’ll be right back.
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Patrick: And welcome back to Tax Talk. This is Patrick Dougher. We’ve got Jeff Pickering CPA, Rex Hogue, Attorney in the North Texas area for Bolinger and Hogue.
You know, a lot of people don’t realize that we really do have a tax system that just – well, the more you know, you really do get to keep. That’s the thing we really want you to understand. We want you to call in, 214-787-1570.
You know the government’s got to raise taxes. You know that they’re going to find ways to increase you obligation unless you find the keys to help you avoid some of those pitfalls. Jeff, I know we’ve got another sports team in the news.
Jeff: Right. These are the New Jersey Nets, so this is our good news/bad news. The good news is you might get some free tax return preparation. The bad news is, you have to go a Nets game. So, this isn’t what the promotion is.
Rex: And with their 6 and 53 record, that might actually be an 8th Amendment violation of rights for cruel and unusual punishment.
Jeff: That’s right.
Patrick: I wondered when you were going to offer that with the Mavericks.
Jeff: Well, they haven’t approached me yet.
Rex: They’re in first place.
Jeff: I don’t think they need free tax returns to get people into the stadium.
Patrick: I get it. I’ll just go on from there.
Jeff: So, that’s the promotion they’re doing. Let’s move on next to the FBAR. If anybody knows what an FBAR is, it’s the Foreign Bank Account Reporting. So, there’s a little bit of news in the Foreign Bank Account Reporting.
For those of you who have foreign bank accounts – I know some of you out there do, so here’s the news. You have to do the Foreign Bank Account Reporting if you are a citizen or a resident. For everybody else, it’s pretty much waived for the 2009 and previous tax years.
Rex: They’ve waived it for people who aren’t in the US and are not citizens.
Jeff: Right, nonresidents.
Rex: You know, there’s really no secrecy with that stuff anymore. Every country shares with the IRS on US citizens and US residents. So, one great way to get in trouble is to not report.
Jeff: Yeah. The penalties for not reporting – this is a different kind of penalty because it’s actually under the criminal code and you can actually go to jail if you have a foreign bank account and do not report it on the FBAR, the TDF 90.22-1; big long name for a form.
But, they’re due in June and if you have an account that you control; they’re in your name or you control it, it’s over $10,000 in that account, then you do want to file the form and just comply with the government. It’s not that big a deal. I mean, how much interest are you going to make on a foreign bank account?
Patrick: It depends on how much is in the bank account.
Jeff: Well, it’s all relative, but right now, interest is not a whole heck of a lot. So, just claim the interest, report your foreign bank account and sleep easily.
Patrick: That’s very good. Talking about banks, I want to go to a special report that Rex wrote on what your bank doesn’t want you to know about checks. I hope you’ll call in and ask some questions about this, folks. It’s 214-787-1570. There’s an interesting story about how this even started, wasn’t it, Rex?
Rex: It was. I used to be in charge of counting offerings at our church and we saw all the checks coming in. I was just amazed at the number of mistakes I saw on checks from people who are businessmen, people who are highly educated – just an incredible number of mistakes that they made writing checks that could cost them a lot of money.
Patrick: What were some of the examples of some of that?
Rex: You wouldn’t believe how many people have their driver’s license or a Social Security number on their check. It opens the door for their identity to be stolen, opens the door for somebody to get a bogus driver’s license in their name with the criminal’s picture, but your name and address on it. It opens the door for your Social Security information to be stolen. So, somebody else can go get a job and have that reported.
A lot of people don’t know the old trick or they don’t realize it’s still around; that you have a phone number on a check and somebody steals a check, they’ll call your house to find out if you’re not there and if you’re not there, they may come by and do some free shopping. That’s still around. So, information that people should have on checks – one of the biggest problem areas.
Patrick: Very good.
Rex: Another problem area is the ‘pay for’ account on the top line of the check, who you pay it to. They don’t draw a line to the end. They don’t realize that if you leave that blank, somebody can come along and write ‘Or Charlie Conman,’ go cash that check and you still owe that money to the company you wrote it to even though Charlie Conman got your check, went and cashed it, doesn’t pay ABC company who you wrote the check to.
Patrick: I had no idea that was even an issue. I know years ago, even in my own checking account, I would post my driver’s license on there because they were always writing it anyways. I figured why not make it convenient – big mistake.
Rex: Yeah. People try to save time, but it just ends up being a nightmare. They’re actually making all kinds of problems for themselves.
Patrick: Very good. We’ve got some callers on the line, so I’m going to go to Mike. Mike, your question?
Mike: Yes, Sir. Thanks for taking my call.
Patrick: Sure.
Mike: I’m fixing to convert my home to a rental property. In terms of remodeling and such, one I move out of it, how much can you write that off? Can you write it off?
Jeff: Yeah. So, Mike, your biggest question is going to be what’s an improvement and what’s a repair. You probably want to do this once you place it in service. Once you put your property up for rental, then you want to do all these repairs and things like that.
So, an improvement is something that improves that improves the existing thing that was there. Let’s say if you replace a 30 year roof to 50 year roof, that’s an improvement and that’s got to be depreciated.
Mike: Or if I went from a 9 SEER to a 12 SEER?
Jeff: Yeah, that’s right. You got the idea.
Mike: Or, if I put a radiant barrier in.
Jeff: That’s right. That’s definitely an improvement. Now, a repair is just what you think. You have a fence. It’s broken. You put the same kind of fence up. That’s a repair. That’s completely deductible.
Mike: Repairs are deductible?
Jeff: Repairs are completely deductible in the year that you spend the money. The improvement has got to be – they call it capitalized which means you’ve got to depreciate it over the 27 ½ year life of your rental property.
Mike: Can you take an accelerated capitalization on that?
Jeff: Generally, for rental properties, you don’t want to do that. I’ll tell you, theoretically, it is possible because there’s something call a cost segregation. This is what the big boys do. Somebody with a million or more in property would normally get a cost segregation done. They would break out the components into fast depreciation. But, for most of us mortals, we just capitalize or expense based on improvement or repair.
Mike: One 27th of the life of the repairs.
Jeff: Right, 27 ½ years.
Mike: Right. So, if I replace, upgrade – now, is replacing a worn-out air-conditioner unit or a roof, that is considered a repair or an improvement?
Jeff: It depends on what you replace it with.
Mike: Okay. So, if you upgrade it, is an…
Jeff: Improvement.
Mike: Is it better, then, to do an improvement or a repair?
Jeff: If it’s an upgrade, it’s an improvement.
Mike: Yeah, income tax-wise, is it better to upgrade or improve?
Jeff: I always tell people when you focus a lot on the income tax consequences, sometimes you make decisions that really don’t make sense. So, I wouldn’t recommend you to get a nice air-conditioner just because there might be a favorable tax treatment. Actually, there’s not.
I would say put the stuff in there that’s going to help you get the money out of your rental. Your tenants will probably not appreciate what you’ve done. So, I would say you just want to put things back the way they are, usually. You just want to repair and put the same quality. Most of the time, your tenants will not appreciate the extra mile that you go.
Mike: Yeah, I understand what you’re saying. Now, did I understand you correctly to say that if I make a repair, that is deductible the year in which the repair was?
Jeff: That’s right, Mike.
Mike: Oh, okay. That’s an even better way to go. Same thing if I trimmed the trees – how about if I come in and remodel everything before the next tenant moves in? Is that all write-offable or is that one 27th?
Jeff: It depends on what it is. Maintenance, by itself, you deduct it. Just try to keep the general rule. The capital improvements are the ones that you improve and they’re improving the existing thing that’s there.
Mike: So, it would be better for me just to replace the roof, or the 25-year roof, and take it as a repair.
Jeff: Yes.
Mike: And write it off this year.
Jeff: Yes.
Mike: Oh, I see. You’ve been most helpful.
Patrick: Thanks again, Mike.
Mike: Thank you.
Patrick: Okay. We’re coming up on a break, but I wanted to make sure you knew, 214-787-1570 to talk to Jeff Pickering CPA, Rex Hogue, Attorney in the North Texas area. The one thing you need to know is these guys are local and you can visit them.
I know Jeff’s office is at 6533 Preston Rd., Suite 300 in Plano, Texas. Rex is up in Frisco at 2595 Dallas Parkway, Suite 100. So, both these guys are local boys. They can really help you get where you want to go tax-wise which is, for all of us mortals, it’s less taxes, right?
Jeff: There you go.
Patrick: So, it’s 214-787-1570. We’ll be right back.
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Patrick: And welcome back to Tax Talk. This is Pat Dougher. We have a phone bank full of calls and we’re so excited about helping you get the answers to the questions you have about how to save money on your taxes.
I know that we’ve had a great show so far and we’ve got so much more to cover, but we want to go straight to the calls. We’ve got Johnny. Johnny, you’ve got a question about – you’re retired? Go ahead.
Johnny: Yes, Sir. This past year, I have retired 100% and the last income tax I filed with a guy that helped me all these years says I don’t have to file this coming year.
Some of my friends say, yes, you should go ahead and file your income tax, and some other folks says, “No, you don’t have to.” So, I’m not sure if there’s an advantage or disadvantage one way or the other. What should I do?
Jeff: Well, Johnny, you have to file unless your income is less than the standard deduction and the personal exemption. Those are the two numbers on page two of your 1040.
Johnny: Okay. My income was just Social Security. That was about $16,000. Then, I had about $3,000 on a CD that I have. That $20,000 thereabout is what my income was for last year.
Jeff: Right. So, your Social Security; sometimes, it’s taxable. Sometimes, it’s not. Because of the $3,000, your Social Security won’t be taxable, so you won’t have to file. But, just for other people out there, you will have to file even if you don’t owe any taxes. You will have to file if you have Social Security and Medicare tip, or Social Security/Medicare tax, or AMT.
Johnny: Well, there wasn’t anything taxed or anything like that. It was just my monthly check.
Jeff: Okay. Johnny, in your case, you won’t have to file.
Johnny: But, would there be an advantage if I did?
Jeff: You know what? I’m used to dealing with a lot of folks and I honestly tell people to go ahead and file just to get it out of the way. There can be some legal advantages that are non-tax to filing a tax return.
Johnny: I was kind of leaning the other way, but I was just listening to you guys this morning and I thought I’ll just put that question to ya’ll. I really appreciate it and enjoy the program.
Jeff: Great, Johnny.
Patrick: Thanks so much, Johnny.
Johnny: Yes, Sir.
Rex: Yeah. You do get to start the statute of limitations running just in case income pops up that you don’t know about.
Patrick: Oh, that’s good. That’s very good. Well, let’s go on. We’ve got Walter. Walter, you’ve got a question about an IRA?
Walter: Yes. What kind of tip can you give us – they talked about this is the year that you can convert and IRA to a Roth IRA.
Jeff: Right. Basically, it’s not as much tip as traps because you have to watch out. You have to do it very carefully because you might wind up paying more and being in a worse situation. So, you’ve got to calculate the tax impact. You’ve got to figure the affect of the rollover on your Social Security because if you do the rollover, it’s going to increase your ordinary income and that will make your Social Security taxable.
You’ve got to calculate the Medicare consequences because once your adjusted gross income goes over $85,000, then you’ve got the higher Part B premiums that kick in.
If it’s in a 401K, you don’t want to convert to a Roth because you may have some net unrealized appreciation in employee stock, so that would be the wrong thing to do. You’d be turning capital gain into ordinary income.
You’ve got to be sure to fill out the beneficiary designee form because if you do the Roth, if you don’t fill out that beneficiary designee, the account’s got to be liquidated after five years of your passing.
So, really, there’s a lot of mines, bombs, that you’ve got to avoid. For most of my clients, I tell them to contact me after April 15th and we’ll go for it. We’ll have to go through a thorough analysis and see how it’s going to affect people.
Walter: Okay. A couple other questions. You said on the repair of the house, you get to deduct it in the year that it’s done. Is that only if that’s converted into commercial rental property or is that on a Homestead too?
Jeff: It’s only on a rental.
Walter: Okay. And one last question. An older gentleman at our church went to the bank and the loan officer told him he was making less money or less interest on his IRA than he was paying on a home loan. So, he convinced him to take money out of his IRA to make the payment on his home loan.
He’s concerned. Is he going to have to pay some money? As far as I would know, he would have to pay income tax on that IRA money, wouldn’t he, even if he is paying a loan, right?
Jeff: Unless he has a basis in his IRA, then he would normally have to pay taxes on withdrawals, yeah.
Walter: Oh, okay.
Rex: It sounds like advice to help the banker and not necessarily the individual.
Walter: Yeah, he’s no longer there, so I think the loan officer really made a bad suggestion to this man.
Jeff: I call it water cooler tax advice. There’s a lot of it going around.
Rex: That’s what we call it.
Patrick: Thanks so much, Walter. We appreciate it.
Walter: Sure, thank you very much.
Patrick: You bet. The number to call, 214-787-1570, if you want your tax questions answered. I know that we haven’t even given out how to get a hold of you guys this show. I want to make sure that we cover that. Jeff, your office number is 972-378-5200 and people can call you to set an appointment, come in.
Jeff: Right. There are people there right now. If anybody wants to call and make an appointment, they can do it just by calling 972-378-5200.
Patrick: So, 972-378-5200. They can get in touch with somebody right now. And Rex, you guys, it’s 972-309-0104.
Rex: Yes.
Patrick: So, 972-309-0104. One thing we mentioned, you were talking about this almost packet of information you guys usually sell for almost $60, but you’ll email it to somebody if they email you at Rex@bigtexlaw.com.
Rex: Rex@bigtexlaw.com.
Patrick: I’ll tell you, this information is what you want to have because when it comes to writing checks, there are so many ways to just open the door for some con artist to step in and take your identity, take your income, take your bank account and all of the information in there.
So, we’ve got Ellis. Ellis, you’ve got a question on your taxes?
Ellis: My question is I filed my taxes last month and I made a Thrift Plan withdrawal earlier in 2009, but they just sent me the information concerning the withdrawal this month and I’ve already filed. They’ve already taken the taxes out on the money that I withdrew. Should I file something showing that money was withdrawn or should I not worry about it?
Jeff: Well, Ellis, was it a 1099-R?
Ellis: Yes.
Jeff: Okay. So, the IRS has your social security, your name, the amount of income and they’re expecting you to report that because the IRS already has a copy of that on their computer. So, I would go ahead and before April 15th, amend your return. That way, you won’t have any penalties if you actually owe extra money.
Ellis: Okay. So, just go ahead and do an amendment to my return.
Jeff: Before April 15th.
Ellis: Okay, will do. I appreciate it.
Jeff: Glad to, Ellis.
Patrick: Thank you so much. It’s 214-787-1570. We’ve got some callers lining up. Again, I’m going to make sure that people know how to get a hold of you two. It’s Jeff Pickering CPA. That’s PickeringCPA.com and his number is 972-378-5200 up in the Plano area.
And Rex, you guys are at 972-309-0104 in Frisco, and they can get this special report, What Your Bank Doesn’t Want You to Know About Checks, at Rex@bigtexlaw.com.
We have got some people calling in looking forward to get to you. It’s 214-787-1570. We’ll be right back.
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Patrick: And welcome back to Tax Talk. This is Pat Dougher. We have a great show going. We’ve got a phone bank full of calls. We’re going to be going to those in just one second. Rex had a call a little earlier that didn’t want to go on the air, but he wanted to ask about checks.
Rex: Yes, he wanted to know whether you have to put your address on the check. The answer is no. You don’t actually have to put your address. You can use a PO Box. The issue is complicated. You can’t say which way somebody should go. If he would call and get our report, or email me and get our report, we address that in the report. We’ve got the information there for you.
Patrick: Excellent. It’s Rex@bigtexlaw.com to get that report. We’ve got Doreen. You’ve got a question on vouchers?
Doreen: [44:34 inaudible] which I have withholding taken out. I have Social Security which I do not have withholding taken out. But now, they sent me vouchers for the year to send in quarterly payments.
Jeff: Right.
Doreen: Am I required to do that?
Jeff: The vouchers are so that you don’t get a penalty next time you file. No, you’re not really required to. But, I always tell people to go ahead and do that unless they know for sure their 2010 tax situation is going to much lower than their 2009.
Doreen: But, you just estimate how much? So, if I have to pay $1,000 this year, I just pay in?
Jeff: Yeah, you are able to – if you did this with a program, what you do is you do the vouchers for 100% of your prior year taxes. So, take the total tax that you owe – this is a safe way to do it – the amount of money that you pay this time, divide it by four. Each one of those, there should be a voucher. Your first voucher is due April 15th.
Doreen: Yeah, the same time the rest is due.
Jeff: Yeah.
Doreen: Okay. But, I am required to do it?
Jeff: Well, it’s like I say, if you want to keep yourself out of hot water, out of penalties, then you do it.
Doreen: Okay, thank you.
Patrick: Thanks so much. You bet. Okay, we’re going to go onto Terry. You’ve got a question about a bankruptcy company?
Terry: Yes, I do.
Patrick: Go ahead.
Terry: I hold a note from a bankrupt company that paid interest on a monthly basis. They went bankrupt last year and I have the SEC notification that they’re in court during the bankruptcy.
Now, my question is, is this interest that’s paid at the beginning of the year declarable as income tax or is it a return on principle only? And how far back do they go?
Jeff: That’s a good question. Did they give you a 1099 with an interest?
Terry: Yes. The trustee gave me a 1099.
Jeff: Okay. Then, you should have to claim it as interest. But, remember, Terry, you have three years to change anything. So, if later turns out that it wasn’t interest instead of return of principle, then you can amend three years back.
Terry: But, how do I prove that it is a return of principle? Now, I’ve gone through this before with another company and the bankruptcy trustee, or the bankruptcy receiver, sent me a note saying that interest paid on this note is actually a return of principle and not.
Jeff: Okay. I had a situation kind of like that with one of my clients. He actually got interest income from Ponzi scheme. So, I put a note on the return saying “adjustment for Ponzi scheme.” If you are sure and you’re able to back up your argument…
Terry: Oh, I am, because I have the note from the SEC that says this company is in bankruptcy and the receiver has been appointed.
Jeff: Right. But, you have to be able to calculate how much was principle and how much was your interest. That’s the part that you need to be able to back up.
Terry: Well, I know that – for example, the note is for $100,000 and the interest that was paid on this last year was about $2,400.
Jeff: Okay. So, what you may have is you may have interest income and a loss on your debt. So, that may be what you have. You may have loss on your principle which would be a capital loss.
Terry: The question is do I just put a note on my return for this year?
Jeff: I would ask to see the accountant’s calculations for the bankrupt company just to make sure that he’s got it right.
Terry: You mean the receiver?
Jeff: Right. They have to engage an accountant to do the bankruptcy.
Terry: What if this hasn’t been done yet? All I have is a note from the SEC, or a letter from the SEC, stating that this company is in bankruptcy and under the process of liquidation.
Jeff: It’s possible that they’re right. It’s possible that it is interest. So, I would go ahead and claim it or file an extension until you can actually figure out what’s going on.
Terry: I see. In other words, I have to wait for the receiver to come through with some information.
Jeff: That’s a safe way to handle it.
Terry: Okay.
Patrick: Thanks so much, Terry.
Terry: Thank you.
Patrick: Okay, we’ve got two more callers real quick and remember, they could always contact you Jeff, right?
Jeff: Yeah, we’ve got a lot of callers on the line. So, if we didn’t get to you, you can call our office at 972-378-5200. I’ll be happy to help you.
Patrick: 972-378-5200. And Rex, I know yours is at 972-309-0104. We’ll go onto Dan. Go ahead. Turbo Tax?
Dan: Yes. I have a question about Turbo Tax. My son-in-law died this past year and so, I’m filling out a return for him. I’ve got it all filled out. Actually, he was in Turbo Tax and it filled it out. It printed out and it looks pretty much like the one that came out in 2008 that I did on Turbo Tax too. When he sent in 2008, he got a note back from the IRS saying that he overpaid, so they refunded some of his taxes from 2008.
I never did see the letter he got from the IRS and so, if everything looks the same in 2008 and 2009 as far as the form goes, I was just wondering, is there something that – I thought he had to pay $600 last year and this year, I think he would have paid $400.
Jeff: Dan, you’ve got to attach a certified copy of the death certificate. I’m sorry for your loss. Be sure to do that. Do you have a specific question?
Dan: Yeah, how can I find out why he got money back in 2008 so I can see if the situation exists again in 2009?
Jeff: Do you have a copy of his 2008 return?
Dan: Yeah.
Jeff: Okay. Then, you need to have somebody just examine it. It’s not something you can do. The software is not going to tell you…
Dan: Just go to somebody like H&R Block or whatever?
Rex: Or Jeff.
Jeff: Yeah, or me. That’s fine.
Dan: Yeah, but I’m down here in Mansfield.
Jeff: Any competent tax preparer would be able to analyze it for you.
Dan: Okay, I’ll do that. Thank you very much.
Patrick: Thanks again, Dan. Okay, we’re going to go real quick. We’re going to try to fire through, Bernie, your question?
Bernie: I have a question about RMDs. I have been notified that I have to start taking distributions this year and I’m wondering, is there a table or chart that tells me what the percentage is and does that percentage vary from year to year? Do I have to take it all from one source?
Reason being, I have several IRAS. In other words, I have two for $25,000. Can I take whatever amount is required just from one source or do I have to take the exact amount from each one?
Jeff: Bernie, your question is very – it requires a very complex answer, so I’ll give you a short one which is, basically, got to your advisor and they love to tell you how much your required minimum distributions are.
Bernie: Okay. From the source itself – is that what you’re saying?
Jeff: They’ll compute based on your age and some tables.
Patrick: Very good. Thank you so much, Bernie. We’ve got just a few seconds before we’ve got to get off the air. Okay. Well, that’s been a flying show. This is great. This is Tax Talk with Pat Dougher, Jeff Pickering, Rex Hogue in the Frisco area of Bolinger and Hogue.
Thank you so much. We’ve got a great show coming next week and we’re going to learn more about ways to save you money on your taxes. We’ll talk to you next week.

Go to Kingdom Marketplace Coalition and look for the Join KMC tab in the upper left hand corner. This is not an MLM and it’s like Facebook that you can earn an Affiliate commission just for recommending it to your friends. I am excited that we have a place for Christians to offer their goods and services to each other in a safe place that has it’s foundation on Doing People Right not Doing Them In.

I had never really looked at the Order of Melchizedek but when you study this important person in Biblical History. When you look into it, Melchizedek was a blessing to Abraham and he removed the reproach of Abraham to the Nations around him. You see he left Egypt with a bad name…( Kinda like having bad credit today.) Then after Melchizedek Abraham had a good name in the economy that he was a part of. This is like Christian business owners today. I have to tell you, up until today when someone told me they were a Christian Business man they thought they were elevating their standing with me and they were not. Many of the Christian Business men I have met were some of the worst back biters complainers and the worst business dealings I have ever had the bad fortune of dealing with. What a shame! We should be the best but we have stained our own lives with poor commitments in the market place.

I hope you visit this Kingdom Marketplace Coalition and join KMC with me.

I just received the following email from my friend David Schirmer … who is one of the Teachers on The Secret DVD.

My life has been touched and changed dramatically because of a chance meeting with David at a mastermind in 2005. He is coming here to Dallas and I thought of you.

Hi Patrick

I’ve just done something really, REALLY crazy!!!

About 4 months ago a friend of mine in the US told me to come over a run some seminars on abundance and prosperity with the Law of Attraction … she said I should do it for free because of the state of the economy and the mindset of the people … and to be different from all the other money ‘gurus’!

I said, “NO WAY … I’ll come but it won’t be a free seminar!” I have never done it before and I wasn’t about to start!

I have been fighting against it ever since … I even put up the website with the price and shopping cart and all … some people have even booked in paying full price. But it kept going through my head day after day!! On Sunday at church, the visiting pastor spoke about freely sowing into others!!! I said “OK, OK … I get it!!!”

Well, she won! Click here for more details: http://www.TheSecret.com.au

After much consideration and deliberation I have decided to run the 1-day “How To Apply The Secret of Abundance” seminar for FREE! Sounds stupid I know … neither my staff nor my wife are very happy with me at the moment! It’s a long story and I will share it with you at the seminar!!

Here is what I do know…

… If you can make it, the seminar will change your life forever.

Click here NOW for more details – tickets will go like lightening so you had better be fast. (http://www.TheSecret.com.au)

I had better get going. Our flight leaves in just 8 hours from Melbourne, Australia for LAX and I haven’t packed yet. I look forward to meeting you shortly

Yours in abundance

David Schirmer

P.S. If you have friends or family who would like to join us at a seminar in the US, forward this email to them immediately. (53 tickets have been reserved in the last hour since I announced it on FaceBook.)

I thought this was so important to pass along, expecially for those of us in the DFW Area. I hope you will join us on March 27th Click HERE to learn more.

Here is this weeks show and transcript for Tax Talk. Jeff Pickering CPA and Rex Hogue talk about several ways to dramatically reduce your tax bill.

Patrick: The more you know, the more you get to keep. There really are two standards in this country for taxes. There’s the ones that pay little and know a lot, or the ones that pay a lot and know a little. Which side of that equation do you want to be on?
This is Patrick Dougher with Tax Talk. We’ve got Jeff Pickering CPA, Rex Hogue, Attorney in the North Texas area with estate taxes and business preparation.
The one thing that I really want to get to is we have got a great show. You need to look at ways that you can save money on your taxes. Most of us would rather not pay more. Would you guys agree with that? Yeah.
So, let’s do this. We’re going to talk about a couple of things. We’ve got deadlines that are quickly coming up and then, we’ve got Escape from New Jersey. We’ve also got the President Obama’s healthcare tax increases and the IRS, of all things, is asking for more money; and we’ve got tons more for you this hour on Tax Talk. Jeff, let’s talk about some deadlines.
Jeff: Sure. So, we’ve got some deadlines coming up. February 28th is W2s, W3s, 1099s, 1098s, 1096s and it’s the last day for 2009 Haitian donations. That’s actually today.
So, all that other stuff; all the forms are actually due the next day, next business day because whenever a deadline falls on a weekend, it’s due the next business day. But, today is the last day for your Haitian donations if you want to deduct them on your 2009 tax return.
We’ve got March 15th coming up; calendar year corporations extensions for returns. So, extensions for a lot of people. And March 31st deadline to buy a Ford Fusion or a Mercury Mariner hybrid and still get the tax credit.
And then, April 15th, of course, individuals, partnerships, trusts. If you do 1040-ES, your first payment is due on April 15th, property tax renditions if you’re a business owner.
And then, April 30th is the deadline for the home buyer credit. So, you should have a contract in place if you want to take advantage of the home buyer credit.
Patrick: So, all of those things that you’ve just rattled off, which I know everybody was taking notes, but if they wanted to get more information, they could call your office and get some of that information as well, couldn’t they?
Jeff: Sure, 972-378-5200. That’s our office.
Patrick: Very good. And I know that you’ve also got some things that you want to give away during the show. So, be listening because you want to get Jeff’s information that will help you save taxes this year.
As we move forward, the Escape from New Jersey. We touched on it last week. What’s happening in New Jersey?
Jeff: Okay. So, this is a study and people aren’t always doing studies on taxes. This is a study by Boston College Center on wealth and philanthropy. They did a study of New Jersey tax rates from, basically, the last decade.
They found that the first half of the decade, people were moving into New Jersey and the gross national product, the gross state product, if you want to call it that. The assets of New Jersey grew in that time period and in the last half of the decade, they shrank substantially.
And what caused the shrink is people moving out of New Jersey because the tax rates basically went up from, let’s see, about 6% and 9% basically. They call it 8.97%. So, people move out when you raise taxes and that’s definitely happened in New Jersey.
So, the real point is that New Jersey, if you look at New Jersey, you can project that to the United States because we’re playing in a global economy. If we raise taxes here, our investors, or money is going to flee the United States.
Patrick: That’s a huge concern, isn’t it?
Jeff: It is.
Patrick: I know that a lot of people want to ask questions of these two guys and I encourage you to do that. It’s 214-787-1570. Call and get your questions answered on taxes. Nothing’s really off base. We want to make sure that you get your answers to your questions. 214-787-1570.
We always bring some information up front just to really wet your appetite and show you that the IRS is not going away and Obama has really overspent his income, so he’s going to have to pay for that, isn’t he?
Jeff: Well, the money has got to come from somewhere to pay all this and we all know where it’s coming from really.
Patrick: What’s Obama want with healthcare now?
Jeff: Okay. So, the next thing; the healthcare has got to be paid for some way. So, one of the ways that our President’s budget, or his healthcare tax increases, are going to pay for this is by increasing the Medicare tax by 0.9%, so it’s a percent, and also, by applying the Medicare tax to investment income.
So, this is an antigrowth measure. When we talk about investment income, we’re talking about interest, capital gains, dividends. So, why should we make that stuff lower?
Well, the reason why is because – it’s an economics thing – people that want to invest in the United States, they want to have incentives to do stuff, they make those tax rates lower so that people go out and start businesses, and do jobs, and keep our income and jobs here.
Patrick: Very good. Well, I know one of the things that we also want to add to what you’re saying there is a FACTA training that’s coming up this week; this Thursday at the Prestonwood Country Club. It’s only $17.50. It’s kind of a luncheon learn.
One of the things that a lot of people don’t really understand is the FACT Act is really critical that business owners learn more about how to protect themselves from a ton of pain, is one way to say it. Rex, give me some more information on that.
Rex: That’s right. We’re talking about the Fair and Accurate Credit Transactions Act which applies to just a slew of small businesses if they keep customer information, employee information.
Really, this has to do with identify theft. If an identity is stolen and the most common way that identities are stolen is through business. Somebody can break into the business computers, they get the information from company records somehow.
Well, the problem is when it’s used to steal an identity, the business owner, under FACT, under the FACT Act, is liable for the actual damages that occur and up to $2,500 in fines per incident.
One of the questions we’re trying to get business owners to deal with is how do you protect yourself from that? We’re going to be talking about that at the luncheon this week.
So, if you are interested in attending the luncheon, call my office – 972-309-0104. Tell us you want to go to the luncheon. Leave a message in our general mailbox and, please, leave us a phone number or an email address where we can call you back, or email me at Rex@Bigtexlaw.com and tell me you want to come and let us get back to you.
We do have limited spaces available, but this is something that every business owner ought to know about. It’s critical that you take steps to avoid the problem.
I was talking to a corporate attorney here just a few days ago and we were talking about the fact that he has a lot of clients that are subject to this and I sent him some info on it. I’m supposed to get back to him this week. Folks, protect yourself. This is something that you can prepare for.
Patrick: Very good. Again, call 972-309-0104 for the FACTA training that’s happening this week, general mailbox. I would encourage you to leave your message, your phone number and email twice. Say it slow. Get it in there. Be present. We’ll be right back.
[commercial]
Patrick: And welcome back to Tax Talk with Patrick Dougher, Jeff Pickering CPA and Rex Hogue, Attorney in the North Texas area of Bolinger and Hogue.
We’re so thankful that you’re here and I really encourage you guys to call. Call now and talk to these two because Jeff’s got a Master’s in Taxation. He’s not just an average CPA. I’m not saying anything against that. Actually, it’s more tremendous value that’s on the table and he’s answering your questions today for free.
Rex, estate Attorney. These guys work with extremely – I will tell you, a lot of high end folks and they’re here to answer your questions.
Jeff: Actually, Pat, I want to mention one thing. I had never really told you this, but I actually to tax returns for some CPAs and three of those CPAs actually have a Master’s too, and I do their returns.
Patrick: Really?
Jeff: Yeah, that’s right.
Patrick: Well, there’s a lot of covering in that. That’s one of the things that even Geithner missed is that you’ve got somebody that has the ability and the knowledge to help you, and they’re not using it.
So, the biggest thing I want to say is call 214-787-1570 and talk to these two about what’s going on with your taxes and how you can save more money this year on your tax return.
Most of us, we don’t really enjoy filling out our stuff, but we’re still thankful for guys like you, Jeff and Rex, that can make a difference.
Jeff: Well, I always like to make it worth it for my clients. I’m not a call center. I’m a revenue generator. That’s the way I think of myself.
Patrick: I was blown away just sitting around talking to you and you started asking me questions about some of the things that I don’t use as a tax write-off. It was furniture and it was several other things that I just never thought of. So, believe me, you’ve got a real treat. 214-787-1570, Tax Talk, and call in now. Well, I know we wanted to get also to the fact that the IRs wants more money.
Jeff: Right. So, the IRS needs more money. They’re asking for more money. So, what they have is they have a call center. This is the government. The IRS is more of a premier branch of government because they’re the one that the revenue comes to.
So, they’re asking for money. They’re asking for the call center. The call center is setting priorities so that nearly three out of every ten calls won’t get through. That’s their target, their mark. If they meet their goal, then three out of every ten calls will not get through.
Patrick: Ow! How many of us, if we ran our businesses that way would get very far?
Jeff: It wouldn’t happen in the private sector.
Rex: And the sad thing is the IRS is in it only for the money.
Patrick: Well, what’s your statement?
Rex: THE + IRS = THEIRS. Have you all heard their new motto?
Jeff: No.
Rex: We’ve got what it takes to take what you’ve got.
Jeff: Right. There you go. So, we’ve got another little story. The IRS = ATM. We’re talking about acronyms. So, the IRS has sent over $100,000 in bogus tax refunds to 50 inmates in a South Florida jail. Let’s go to a call. I think we’ve got somebody.
Patrick: We do. They’re getting loaded up right now. One of the things that I just want to make sure though is that you also wanted to answer a question of a guy that called in last week – Bob.
Jeff: Right. So, Bob, what he did was he had an IRA which had a basis which means he can put after tax money into his IRA. He’s been filing 8606, which is a form that reports your basis, every year because he’s at the age where he’s required to take money out. They’re called required minimum distributions.
So, last year, 2009, they waved thee RMD rules, the required minimum distribution rules. He’s wondering, “Do I still have to file this 8606?” The answer is no.
Patrick: Wow. That’s interesting. Well, one of the things that I want to try to get to is the death of two heiresses because I know that is something a lot of people just don’t really know is how much money they actually could pay in taxes if they don’t take care of it right.
Now, call in – 214-787-1570 and we’ll get to your questions today on Tax Talk. So, tell me about the two heiresses.
Jeff: Okay. So, there are a couple of heiresses, Casey Johnson and Ruth Lilly. They’re both heiresses from Johnson & Johnson and Eli Lilly and Company. Casey Johnson was 30 and Miss Lilly died at 94. Casey Johnson was a party animal and Miss Lilly made her biggest contribution in charitable contributions.
Patrick: Oh, very nice.
Jeff: Yeah, she was a very charitable person. So, they both had massive personal wealth. It was all tied up in estates and trusts. The way they died was very sad. Miss Lilly died on December 31st and Miss Johnson, age 30, the party animal, we don’t know exactly when she died.
Rex: We don’t. Her last Twitter post was on December 29th. But, she was not found until January the 4th and under California law, the date of death is presumed to be the date that you found the body.
Well, what a problem because on January the 4th there was no estate tax, but on December 31st, the estate tax exemption was $3.5 million. So, Miss Lilly with an estate of over $800 million is going to pay a huge amount in estate tax while Casey Johnson, in theory, won’t pay any.
Patrick: Oh, really?
Rex: Yeah, because of the quirky thing of both California law and our estate tax law which disappeared for a year starting January the 1st of this year.
Patrick: Wow. That’s amazing. Well, let’s go to the next call. We’ve got Fernando and Mother’s Day childcare. Is that correct?
Fernando: Yes, Sir. My mother runs a child day care at her house and I have a question. I wanted to know what kind of expenses could she write off?
Jeff: Well, Fernando, the biggest expense for you is going to be the office and home, only it works a little different for daycares. You basically take the area of the home that’s used for daycare which, for most daycares, it’s almost all of it, and then you prorate that based on the number of hours the daycare is open. So the more hours she’s open then the bigger deduction you’re going to get.
Other typical things you would have for a daycare would be supplies, which would include wipes, food, cleaning. There’s an inventory of toys that’s always circulating in and out. She might have some advertising, but she may not. The typical stuff is basically your food and your supplies, and I don’t know how many baby wipes there must be, but there must be a lot.
Rex: And Jeff, let’s not forget the possibility of doing something like incorporating that could save her some taxes.
Jeff: Right. Incorporating would have to be a decision you’d have to make. Rex and I both agree that somewhere around 20,000 – 30,000 of the net income is about the point where it would make sense for you to incorporate.
Fernando: Let me see if I understand this. I wasn’t clear on the size of the house. Can you explain that to me again?
Jeff: Okay. So, any time you have an asset that’s used for business and personal, you have to come up with a way to allocate. So, for daycares, you do it based on square footage of the home. So, square footage of the home used for daycare divided by total square footage of the home. Then, you have to use the hours test because for daycares, they make daycares use the hours test in addition to that.
Fernando: Oh, I see. Okay. Well that’s a great help. Thank you so much, guys.
Jeff: You’re welcome.
Rex: Thank you so much Fernando.
Patrick: We’ve got another caller who’s getting lined up on the phone and why don’t we just go ahead. Next, we’ve got Joyce. You’ve got a question?
Jeff: Oops. Joyce, call us back.
Patrick: Yeah. Joyce, call us back. We were talking about the death of the tourist. Did you guys finish that one?
Jeff: Well, Rex was making the point that under California law, the date of death is when the body is actually found and there was a huge difference in the way the states are going to pan out.
Patrick: Oh, just because of the way we’re in transition right now? Is that what you’re saying?
Jeff: Right.
Rex: Yeah, and another thing that will be kind of interesting – if Congress passes an estate tax bill this year and they made it retroactive to the first, Casey Johnson’s family is going to be really ticked off because they’ll go back and reinstitute that exemption amount at $3.5 million or whatever they decided on.
Patrick: Wow. Well, that’s another reason that I think people need to be talking to you guys about how to save money on their taxes. It’s 214-787-1570. We’re going to be taking calls quickly here and then also, I just want to remind everybody about the FACTA Training that’s coming up this week.
Thursday is the FACTA Training at Preston Wood Country Club. It’s only $17.50 You’re going to get a wonderful lunch and then you’re going to get some great information that’s mandatory for business owners and it can save thousands and thousands of dollars in penalties and pain if you just begin the process of getting educated. You’ve got to understand what the FACTA Training is all about.
Then, the last thing is if you want to register you can either email Rex and rex@bigtexlaw.com or 972-309-0104. Leave your name and your phone number and maybe your email. Repeat it a couple of times so they get it. They’ll contact you and give you all the details. We are going to be taking questions shortly and we’ll be right back.
[commercial]
Patrick: And welcome back to Tax Talk. This is Patrick Dougher. We have a great show going today. We’ve been talking about everything from Ecape from New Jersey, which is really people fleeing to avoid the higher taxes there, Obama’s healthcare tax increases, the IRS is asking for more mone, and now, we just finished a talk about the death of two heiresses; how one of them had saved a ton of money and the other one is in a really scary position as far as where the law ends up landing on their side or the other.
So, one of the things that I want to make sure is that folks have a chance to get on the air and get their questions asked. It’s 214-787-1570. The phone lines are beginning to fill up, so get your call in. 214-787-1570. Jeff Pickering, Master’s in CPA
Jeff: Taxation
Patrick: Taxation. That’s right.
Jeff: And I’m a CPA.
Patrick: Okay. And then Rex, estate Attorney. Why don’t we go straight to our call? We’ve got Calvin. And Calvin, help me with your question here. What’s your question?
Calvin: Hey guys. How are you doing?
Patrick: Good.
Jeff: Good, Calvin. How are you?
Calvin: Good. Well, I think I made a rookie mistake this year. I incorporated four years ago and sent in my quarterly 941’s. As it got late in the year, I would just kind of copy and do my third and fourth quarter. As you guys know, there’s an extra pay period in the third and fourth quarter. So, I shorted some payment on the 941 statements. I’m doing my tax return now, so should I go ahead and fill that out and send it in, or just wait for the IRS to contact me, or just go ahead?
Jeff: I would go ahead. Usually, for 941’s, at least get the taxes in. You can wait for them to do the penalty and you might be able to get out of the penalty by doing an abatement letter, but definitely 941 taxes, get them in as soon as you can because you know how they are. They go fast and furious from zero to sixty on 941 taxes.
Calvin: Okay. So, just figure out the shortage and just make a payment; send it in?
Jeff: Right.
Calvin: Now, obviously, the last two 941 statements are going to be short. Do I need to just make a correction form or?
Jeff: Yeah, you can do a 941-X, which is sort of new, which is a nicer form than the 941-C. It’s a lot easier to follow.
Calvin: Okay. So, they’ll let me make those corrections and just add the additions and then I’m sure they’ll send me a nice little penalty fee.
Jeff: Well, if you have a good reason, if you have reasonable cause, you might be able to get out of the penalty.
Calvin: Okay, and one other quick question. In my business, I use a trailer. Obviously, we have a mileage deduction. Is there any mileage compensation for a trailer vehicle or does that just go under repairs and maintenance type stuff?
Jeff: You mean a trailer as one of those things you drag behind your car, right?
Calvin: Right, yeah.
Jeff: Yeah. No, there’s not a mileage thing for trailers. You just basically depreciate it.
Calvin: Okay. Alright, guys. Well, great show. Thanks a lot.
Patrick: Thanks so much, Calvin. Well, why don’t we move right along? Homer, you’ve got a question that is on buying rental property with an IRA? Is that right?
Homer: Yes, Sir.
Patrick: Go ahead. You’re on the air.
Homer: Thank you for taking my call. Good afternoon.
Jeff: Good afternoon.
Homer: I have a pretty good amount in my IRA. It’s all invested in stocks in an account with the bank. I’m thinking about buying some rental property and wondered if that was acceptable to do with IRA monies.
Jeff: It is. It can happen, but what you probably want to do is get in some buddies because many of the companies that do third party IRAs like this, they don’t want you to be the primary, the majority owner, of the rental property. So, it works out better if you get some other guys in on it and you all go in together on something.
Homer: Hmm. Okay.
Jeff: The other people not having IRA money.
Homer: So, I couldn’t be the 100% owner.
Jeff: You know, I’ve not seen – I think there’s actually a prohibition against it and I’m pretty sure that even if there weren’t, then these trust companies are very conservative because they don’t want to get in trouble, they don’t want to be sued, they don’t want to have their livelihood taken away by going against the IRS rules.
Homer: Yeah, I don’t either. Okay. Thank you very much.
Patrick: Thank you, Homer. Again, it’s 214-787-1570. If you’re outside the area, 800-583-1570 or if you have a Sprint phone, it’s #KLIF. With that, why don’t we go to Robert? Robert, 706 return. Go ahead.
Robert: Yes. My father’s multimillion dollar estates 706 return was filed almost 18 months ago. The preparer is concerned that he might be rocking the boat if he checks on the status and I was just wondering how accurate that would be.
Jeff: That’s a good question. Go ahead, Rex.
Rex: I don’t really know the answer to that, Robert. Sometimes, we do some 706s in our office. We have gotten closing letters back as early as two months, and it’s taken as long as two years and a month to hear anything back.
If you file the return, they’re going to get in touch at some point. I don’t know that I see an advantage to doing that sooner. I don’t know that it really hurts anything either, but honestly, I’d be inclined to just kind of sit and wait.
Patrick: Kind of let the statute run, Rex?
Rex: Well, the IRS isn’t going to let the statute run because they have three years to audit that return if they’re going to, so really the time pressure’s on them; not on you. I’d just sit tight and wait.
Robert: Alright. Thank you very much.
Patrick: Thank you so much, Robert. I want to give a couple of numbers out too. One, Jeff Pickering, PickeringCPA.com 972-378-5200 and you can get your tax organizer. Is there any other information they can get from you?
Jeff: If there’s something that if you’re shy, and you want an answer to a question, you can basically call us. Some people don’t want to discuss their stuff over the airwaves, so you can call our office and we’ll be happy to help you out with whatever we can.
Patrick: Very good. And they can set an appointment as well, to come in and just see what you guys can do, right?
Jeff: Right.
Patrick: Now Rex, I know yours is 972-309-0104. What are some of the other services that people get from you?
Rex: Well, we do estate planning, tax planning, business planning, asset protection planning. We handle probate cases, we do some guardianships, we do 706 estate tax returns, we even do some tax litigation against the IRS in gift and estate tax cases.
One thing that we are offering today, because we are focusing on business owners and the FACT Act, is a little handout from the Texas Workforce Commission that we’ll be glad to send anybody. It’s in a PDF format. We would have to send it by email, but we would be glad to send that out if they’ll call us or email us. The email is rex@bigtexlaw.com or call our office at 972-309-0104. Be sure you leave us a phone number where we can call you back and get your email address information.
Patrick: Sure. Well, or just email you. That’s the easiest way because then you know you’ve got your return, but it’s rex@bigtexlaw.com. Jeff, your email again is?
Jeff: jeff@pickeringcpa.com.
Patrick: jeff@pickeringcpa.com. So, you can get some questions offline there, so to speak. Now, I’m going to give the numbers again. You really don’t want to miss the opportunity to talk to these two. 214-787-1570. I know there are deadlines coming up. I know that the closer we get to that almighty March 15th.
Jeff: March 15th is for calendar year and then, April 15th for individuals, trusts, partnerships, property tax renditions for business owners, first payment for estimated payments if you’re an estimated payer. And April 30th for first time homebuyer – or not first time, just a tax credit – home buyer tax credits.
Patrick: Very good. I know that we’re going to talk about the tax credits here in just a second. One of the things I want to remind people is to go to the FACTA Training. If you’ve got a business, then you want to be at this FACTA Training this Thursday. FACT Act is actually the information. The training is called the Fair and…
Rex: Fair and Accurate Credit Transactions Act of 2003 which very few people know about.
Patrick: Very few. Well, the thing is, is that it actually, for business owners, is mandatory. So, this Thursday, Prestonwood Country Club. Call 972-309-0104 or email Rex at rex@bigtexlaw.com.
You need to be here at this event. You won’t want to miss it. It’s only $17.50. It’s a country club. They’ll feed you great, but the real food, the real information that you want to get is how to protect yourself from thousands and thousands of dollars in penalties and what I’d call pain.
[commercial]
Patrick: Welcome back to Tax Talk. This is Patrick Dougher, Jeff Pickering CPA, Rex Hogue Attorney in the North Texas area. We’ve got the answers to your tax questions. You need to call in. 214-787-1570 or 800-583-1570 if you’re outside of the DFW area or #KILF.
We’ve got a great show. We’ve covered a ton of information this time. You’ll want to actually get maybe even a download of this week’s show or a transcript which will be on PatrickDougher.com later this week on Thursday and you can get – actually, the transcript of all the shows that we’ve done up till now. So, with that, we’ve got a first time home buyer question from Henry. Henry, you are on the air.
Henry: Yes. I need to find out on the first time home buyer’s thing with the IRS. My son, he’s 19, has no credit. So, my question is, what I’m planning on doing is borrow money using some of my property as collateral and paying for his, letting him have the money. He’s making the loan back payments at the bank, although his name is not going to be on it because they’re using my collateral.
So, his house will be paid by cash. He will be on the tax and show that the house is his, insurance and everything and he will be paying the note back at the bank, but when it comes at the end of this next year, what is it? A 1098 the IRS will send back to me for interest received at the bank. It’s going to show that I’m buying it even though he’s buying it.
Jeff: Yeah. Henry, I’m going to let you know that interest is deductible by whom paid.
Henry: Right, but I know he has to own the house for three years and I think the number t10 rule on the IRS says you can’t a relative can’t give it to like a son. I’m not giving it to him, but it’s liable to show that I’m – you see what I’m saying? I’m actually paying for him.
Jeff: Is the title going to be in his name?
Henry: Correct. The title will be in his name.
Jeff: Okay. I don’t think you have a problem. Even if you were to buy it jointly, the IRS has come out and said that two people who are buying the property together can allocate the credit in any way they see fit, so you should be okay on that area. And the mortgage interest is deductible by whom paid, so you should be okay in that area.
Henry: Okay. That’s my question. I just wanted to make sure the end of the year when they show and they say, “Well, you gave it to him so he’s going to have to pay that back.”
Jeff: You kind of like have a wrap situation. You kind of like have a wrap note it sounds like, where you have the note and he’s paying you. That happens all the time in real estate.
Henry: Right. That’s how I do all my other properties, but I just want to make sure he was going to – since he couldn’t do it from a father, I wanted to make sure that I was clear on that with IRS so he doesn’t get stuck for the money back.
Jeff: No, you’re okay. No direct lineal descendants, but it doesn’t sound like that’s what’s happening here. I want to make one point on the home buyer tax credit and that’s something that’s seldom known; that a home can be a, which doesn’t apply to you Henry, but a home can be a trailer home, it can be a boat. Those fall under the definition of a home. So, I know somewhere somebody out there is going to buy a boat and get a home buyer tax credit for it.
Henry: Right. Okay. Well, thank you very much. I appreciate it.
Jeff: You’re welcome.
Patrick: A boat?
Jeff: A boat, yeah.
Patrick: I’m stunned. So, I can move out to the lake and buy a boathouse.
Jeff: It has to have a bathroom and an eating area.
Patrick: Well, most of them do.
Jeff: Some of them do, yeah.
Patrick: There’s a back deck for the speedster.
Jeff: And it’s also got to be used as a principle residence, so there’s the kicker.
Patrick: Well, that takes a whole other meaning to waterbed. Okay, we’ve got Catherine. Catherine, you have a question on capital gains. Go ahead.
Catherine: Yes. I have a mutual fund that’s held at Fidelity. It’s not a Fidelity fund. I had transferred it there when I bought some other Fidelity funds. I’m getting ready to sell that. I’ve had it since 1996, so there’s going to be a lot of capital gains as far as initial purchase and then all the reinvestment of dividends.
Jeff: Right, Cathy. That’s right.
Catherine: Am I just going to have to go back through each year and figure out how much my capital gains, or should that mutual fund company be able to tell me?
Jeff: The good mutual fund companies keep track of your basis, but it may be if it’s really old, they didn’t. There was a time that you had to manually go ahead and add in your dividends and that was a big pain for us in the tax business.
Catherine: Right, right. Okay.
Jeff: It really depends on the fund and how far you go back. You want to make sure, though –you might want to ask them or ask somebody at the fund how far they go back in tracking your cost basis.
Catherine: Okay. Alright. Thank you very much.
Jeff: You’re welcome, Catherine.
Patrick: Thank you, Catherine. One of the things I’m really surprised at is that I’ve heard, guys, that there’s a new baseball team that just showed up out there; something about the Tax Dodgers or something?
Rex: It’s the Tax Dodgers – the LA Tax Dodgers; very interesting story here. It appears that the owners are going through a divorce and in her divorce petition, Mrs. McCord explains that they have made – how much is this? It’s $108 million from 2004 to 2009 and paid not one dime in taxes.
Jeff: To California or the Federal Government.
Rex: California or the Federal Government. And interesting, something about this is they’ve avoided taxes on millions and avoiding taxes is legal. Tax evasion is illegal.
Patrick: How does the IRS tell the difference, by the way?
Rex: Well, the way you can tell the difference is five to ten years.
[laughter]
Patrick: Right. I get that. That’s very good. Well, it’s 214-787-1570, but I really want to cover a couple of things before we get off the air and that is, again, the FACTA Training. I don’t want you guys to miss this. This is something that when I first saw all this information, I was stunned that this law is mandatory for businesses which are incorporated, S Corp on up, right? Is that right, Rex?
Rex: Any business.
Patrick: Any business needs to understand that they are liable for any kind of loss due to identity theft, things of that nature. Is that correct?
Rex: Yeah. And one of the requirements of the law, for example, is when you get rid of information on clients or employees that you actually destroy it. You can’t just throw it away.
Patrick: Oh really?
Rex: It has to be destroyed in such a way that it can’t be put back together.
Patrick: So, you’ve got to burn it or something. The thing that I’m saying is you need to attend this. It’s this Thursday lunchtime. You can get all the details from rex@bigtexlaw.com. Just, literally, email Rex and he will give you the information or you can call and leave your name at 972-309-0104. Make sure your number is stated clearly so that they can get back to you and give you all of the rest of the information – Prestonwood Country Club.
One of the other things we want to make sure is you know that next week we are going to be covering some great topics and I know, Rex, you had a couple of things you wanted to cover next week and I want to prime the pump for that. You don’t want to miss this.
Rex: Next week, we’re going to talk about what your bank doesn’t want you to know about checks; even common mistakes people make writing checks and how those mistakes cost them money. You know, most people do not know how to write a check? We’re going to teach you about that next week.
Patrick: That’s awesome. I know one of the common questions that we get on the show has to do with Roth IRA’s and their conversion, how to set up your company or whether to set up a company in an incorporated position. That happens all the time. So, Jeff, how can people get a hold of you this week?
Jeff: 972-378-5200.
Patrick: Say that again.
Jeff: 972-378-5200.
Patrick: Very good. And Rex, one more time.
Rex: 972-309-0104 or rex@bigtexlaw.com
Patrick: Or jeff@pickeringcpa.com, correct?
Jeff: There you go.
Patrick: Well, one of the things we want to do is thank you guys for listening. Next week the show is going to be really awesome and I want to thank you guys for coming by PatrickDougher.com to see the transcript and catch the last few shows. We look forward to next week. We’ll talk to you then.

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Listen to this weeks Tax Talk with the 6 bullets Your Simple Will Can’t Dodge.

Patrick: And welcome to Tax Talk. We’re actually looking for ways to help you save taxes on your money. I’ve got Jeff Pickering CPA, Master’s in Taxation, on the air today as well as Rex Hogue, an Attorney in the North Texas area.
Today, we’re going to be talking about and giving you answers on this attack of the IRS this last week. Audits are going up. Some people will be paying more taxes while the government has no estate tax. Now, that’s a twister. And then, we’ll also be reporting on the escape from New Jersey. You won’t want to miss that. Jeff, I know we’ve got some deadlines coming up this month?
Jeff: Definitely. The tax world is definitely deadline driven. So, we have our deadlines at the end of this month. We got W2s, W3s, 1099s, 98s and 96s due to the IRS on February 28th.
March 15th, calendar year corporations have to file an extension March 31st. If you’re interested in buying the hybrid, the Ford Hybrid or the Mercury Hybrid, March 31st is your last day to buy it and get that $750 credit.
You know, I just found out that they’re coming out with an electric vehicle also. Who’s putting that out? GM, I think. It has a plug-in and that’s going to have a $7,500 credit on it. So, that’s coming out later this year.
But, April 15th, individuals, partnerships, trusts, property tax renditions. If you are in business at all, you’ve got your personal property tax renditions due on April 15th as well as everything else. And the first payment, if you’re making quarterlies, your first quarterly payment is due April 15th.
Patrick: Outstanding. I know that a lot of people want to call in, so let me give you the numbers. It’s 214-78-1570. We will be taking your calls. 214-787-1570. If you’re outside the DFW area, 800-583-1570 or if you’re on a Sprint phone, it’s #KLIF.
Well, I know that it’s been in the news all week, but maybe we can just add some finishing understandings of this attack of the IRS. In Austin, we had a guy fly into a building. At first we were thinking, “Oh, my God. More terrorism.” But now, it wasn’t just that. It wasn’t terrorism, but it was a real attack and he could’ve alleviated some of his frustrations by just talking to you, Jeff. Wouldn’t that be correct?
Jeff: You know, I would’ve loved to have talked to this person before he did this thing. So, he ran into the IRS building as we know and he made a huge tirade on his website, and he talked about his tax issues with the IRS.
His main issue was really about the independent contractor status. He failed to report income and they caught him through the document matching process because the IRS has computers and they expect income to be reported.
His wife, apparently, made some income as well and it wasn’t reported. He believed that since he didn’t have any income, that he wouldn’t have to file his return.
Patrick: Oops.
Jeff: So, that was not a good thing and a lot of his issue had to deal with the independent contractor status; the treatment of independent contractor and he could’ve avoided the whole issue very, very easily; very simply. All he had to do was incorporate. It doesn’t cost that much to incorporate in Texas.
Patrick: Nope.
Jeff: It’s cheap. We can do it. The returns aren’t really that much more. You would think that you would have to pay a lot of money for a corporate return. No, it’s not really that much money. So, if he had only done that, he could’ve taken the independent contractor status issue off the table.
Patrick: I know that it isn’t that hard to do it. When I set up my S Corp, it wasn’t very hard at all. So yeah, you’re exactly right. Well, I know that he could’ve solved that problem, but some people are going to be looking at taxes, more taxes, in the next few years.
Jeff: Right.
Patrick: But, it has to do with actually passing money on to their heirs, so how is that going to take place? What’s going on there?
Jeff: Okay. So, this is a strange – whenever tax laws come out, people come, and the run scenarios and they test stuff. So, these people came out and tested and they found out that some people are actually going to be paying more taxes with no estate tax law.
The reason is because of a rule that goes along with the estate taxes which is called a step-up in basis. It means that if you inherit some property under the old rules, if you inherit something, you get to claim the cost as the fair market value on the date of death or the alternate valuation date if that’s what happened.
So, it allows people to take stuff that has a very low tax cost and bump it up to fair market value. That’s why, for the most part, you’re not going to pay any income taxes on your inherited money.
Rex: Yeah. And one of the problems that created – Jeff, I had an example. In 1999, a guy called me. He owned a farm in North Carolina and he wanted to know if he sold the farm, how much in capital gains tax would he pay.
Well, the typical formula, as you know, is you simply take the sale price and you subtract from that the amount you paid for it, plus improvements. So, I asked him, “How much did you pay for it?” And he said, “I didn’t.” I said, “How’d you get it?” He said, “Well, dad gave it to me.” And I said, “Well, was dad alive or dead at the time?” And he said, “Dad was alive.”
So, I said, “That means you took dad’s basis. How much did dad pay for it?” He said, “Dad didn’t pay for it. Dad got it the same way from granddad.”
Granddad had given it to his dad while he was alive and that went back to about 1960. Granddad got it somewhere around 1930 in the same exact way. His great granddad had given it to him while he was alive.
So, I told this guy, “Well, your basis is the same as great granddad’s. When did he get it?” And he says, “Well, he bought it 1898.” I said, “Oh, that’s great. Now, we have a basis to go back to.”
And I told him, “I’m sure your great grandfather was a brilliant man and when they came up with the income tax in 1913, he went out and established what the basis was so they would be able to calculate that on down the road.” Right?
Of course not. That means the whole thing was subject to capital gains tax. And that’s an example of how difficult it’s going to be to track basis from one generation to the next.
And if you think about other issues that come up; house fire, tornado, flood like we had in Katrina – all kinds of things can go wrong with having those records available when your heirs when they go to sell it.
Patrick: How much did that person end up paying in taxes?
Rex: I don’t know what the sale price was. It was several hundred thousand dollars. The number 800,000 kind of sticks in my mind.
Patrick: So, how much did he pay in taxes?
Rex: That would’ve been, I believe – I don’t remember whether it was 15 or 20% of that, but it was a chunk of change.
Patrick: A couple hundred grand.
Rex: Yeah.
Patrick: And if they had just done a couple of easy steps. In fact, that kind of leads me to a thing. We’re about to go on the break and I’ve got some callers on the line. I encourage you to call in while we’re there. It’s 214-787-1570 to call in and get your answers to your questions. Jeff Pickering CPA, Master’s in Taxation. Rex Hogue, Attorney in the North Texas area. I know you deal a lot with estate planning and helping people save money just like we were talking about.
The last thing that I want to do is just say get these guy’s special reports. I know that Jeff has a tax planner, a tax organizer and Rex has Six Bullets Your Simple Will Can’t Dodge. So, with that, we’ll be right back.
[commercial]
Patrick: And welcome back to Tax Talk. This is Pat Dougher. I am really excited about this show because when I first heard about it, I thought, “Man, our government has gone to a point of writing what I call almost kite checks or hot checks,” where you’ve got this huge credit that we just signed up for and we’ve expanded all this income or spending that they’re doing, but at some point, you have to pay for that credit card bill.
And I know where that’s going to come in. that’s going to come in the form of taxation whether it’s estate or it’s just income, it’s all taxes. So, really, the more you know, the more you get to keep.
In fact, one of the things that I heard recently is there are two tax structures in America; the informed and the uninformed. And the uninformed have a much higher tax rate than the informed.
So, with that, I’m brining you Jeff Pickering CPA, Master’s in Taxation, Rex Hogue, Attorney in the North Texas area, estate tax planning help for your company, for passing your wealth down to your heirs. These guys are specialists at this.
Let me put it this way. They’re excellent at it. With that, one of the things that really hits home with me is the whole fact that if the bill has to be paid, how’s the government going to do it?
Well, they’re going to have to increase and maybe even build an Army of auditors. And you know what? They did. The number of auditors have doubled and so, audits are going up. Jeff?
Jeff: Yeah. There’s money in the new budget. There’s money in President Obama’s budget to increase the number of auditors. Specifically, even the issue that the airplane guy, when he crashed into the IRS building, they’re going to focus on that as well. That’s one of their hot buttons is the independent contractor issue.
So, incorporating is one way to get rid of it. There’s something called Section 530 Relief which is available. You wouldn’t want to try it on your own, but if you want to call your tax advisor and ask him about Section 530, then it’s not based on the IRS code – I won’t go into it.
But, Section 530 is another way to get rid of the independent contractor issue. It’s something that employers should look into.
Patrick: Well, that really raises a big point to me. I’m thinking there are lots of people out there that do their own taxes. It’s a little bit like doing mind surgery to me. But, you actually run into some folks that if they had just let you help them, things would’ve changed.
Jeff: Right. So, there’s something called the substantial understatement penalty. If you use a tax professional, you can get out of the substantial understatement penalty if you took the tax professional advice.
So, I had this guy. He did his own taxes. He spent endless hours with multiple choice questions. He did it with some software and he did it wrong just like Timothy Giethner did. He got the penalty and we were looking at it and I would have – if he had used a tax professional, even if he had got it wrong, he would’ve gotten out of that penalty and it doesn’t apply to software.
You can’t get out of the penalty with the software. You’ve got to use a professional. So, I could’ve saved him a couple thousand dollars. For anybody else, that’s one reason – a good reason – to use a professional.
Patrick: And I know that you have a tax organizer.
Jeff: Yes. We have a tax organizer. If anybody would like to call our office at 972-378-5200, we can get you a tax organizer to help you get prepared for your tax professional. It’ll get you in the mind. Things will click and you’ll be ready for your appointment.
Patrick: I will tell you. I got mine today, folks. I was blown away at the volume of material that was available to me just by asking Jeff, “Hey, can I have one of those organizers?” And he printed it off and handed me this, almost, booklet.
But, the point is, it was the right information. You need the right information in dealing with the IRS. I kind of say IRS, KGB – aren’t those the same letters in some other language?
With that, I want to make sure we get some calls. It’s 214-787-1570 in the DFW area. Outside of the area, it’s 800-583-1570 or if you have a Sprint phone, it’s #KLIF. You’re listening to Talk Radio. This is Pat Dougher on Tax Talk.
I know that one of the things I want to get right into as we’re having people call in is, Rex, you have Six Bullets that Your Simple Will Can’t Dodge. What are some of the six bullets?
Rex: We have this report, Six Bullets Your Simple Will Can’t Dodge, why even a simple situation needs more complex planning and there’s actually seven. It’s kind of a seven shot, six-shooter.
The first one is incapacity. Most people don’t realize that your will does not work until you die and until it’s been probated. A lot of people are surprised by that.
Another problem with a simple will is that it can actually leave your spouse high and dry which surprises people because they think, “Hey, if I give it all to my spouse, that’s taken care of them, isn’t it?” Well, it may not be.
First of all, they might not know what to do. But, you may also be creating problems for your spouse if you’re in a second marriage and if they get remarried, that will create problems for your kids.
The third bullet is getting even with minor children. Minor children can’t own property. If you use a simple will to pass it to them, other people can go find out when they’re going to be getting the money. Some people ask me about, “What about a minor’s trust?” I tell them it’s a great idea, but it’s no longer a simple will once you put a trust in it.
The fourth bullet is what we call the law of title; how you lose control of property. Most people don’t realize, you go prepare a will, you say I want everything to go to my spouse, but the life insurance beneficiary is your previous spouse and you’ve never changed it or you own it with right of survivorship with your children and one child, the one child whose name’s on it gets it instead of all the kids regardless of what your will says.
The fifth bullet is the dangers of probate. Now, probate isn’t always bad, but probate can cost a lot of money. It can take a lot of time. The big thing is families lose control. It puts the family last. It’s very public. If you own property in more than one state, you’re going to have probate in all of those states. It creates a place where creditors and other people can bring disputes.
The sixth bullet is that estate tax planning is really for everyone. That surprises people because they think, “Well, we don’t have that much.” Well, some good reasons to do estate tax planning is it gives the first decedent control over where some of the property passes. It can preserve family relationships, particularly in second marriage. It can help the surviving spouse qualify for Medicaid without completely going broke. It’s a great way to protect the surviving spouse against creditor lawsuits and it allows you to pass twice as much estate tax free.
And our last bullet, number seven, is it creates a false sense of security. A lot of people get their will done and they think, “We’re finished. We don’t have to do anything else.” Folks, there’s always more you have to do. I would love to send you this report. We talk in here. Not only do we explain all the problems, we talk about solutions that we don’t have time to go into here on the air.
Patrick: That is awesome. Rex, thank you so much. Yes, one of the things you want to do, you can email Rex at Rex@bigtexlaw.com or you can call their office at 972-309-0104. Leave your name, and address and phone number in the general mailbox and they will get back with you in the next, essentially, 24 hours and get some information out to you.
Well, we’ve got some callers on the line. I want to go to Janet; Janet, in Southlake. Go ahead, Janet. You’re on the air.
Janet: Hi. About 15 years ago, my father-in-law

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Tax Talk this Valentine’s Day we went into great detail on what constitutes Community Property and how to make sure your Kids get what you want them to have after you pass away. Listen to the show or read the transcript below.

Patrick: And welcome to Tax Talk. The more you know, the more you get to keep. Welcome to our Valentine’s Day edition. We are so thankful that you’re here and one of the things that we want to get right into is community property.
So, I know that’s going to be a big topic today. I also know there are several upcoming deadlines that you need to be mindful of.
Jeff: Definitely.
Patrick: And our hosts, or guests, today, hosts for the show, of course, Jeff Pickering; obviously, CPA, Master’s in Taxation and then, Rex Hogue of Bolinger and Hogue, an attorney in the North Texas area; so thankful that you’re here.
And one of the things we want to give out right away also is the phone numbers to call in to ask these two guys questions about anything taxes. It’s 214-787-1570, or 800-583-1570 or #KLIF on your Sprint phone. With that, Jeff, why don’t we talk a little bit about the deadlines?
Jeff: Right. We have some deadlines coming up. Our deadlines are the 28th of February. That’s the deadline to get your W2s, copy A, 1098, 1096, W3s. All that stuff goes to either the IRS or the Social Security Administration. So, the IRS copy of that stuff is on the end of this month.
And March 15th is the deadline for your tax return if you’re a corporation or if you file as a corporation. So, if you have Inc, Corp, Incorporated, Corporation in your name, if you’re a calendar year, then March 15th is your date to file an extension or to file your tax return.
Patrick: Very good.
Jeff: Then, we have another deadline which is March 31st. That’s the deadline to buy a Ford Hybrid. If you want to take advantage of the Hybrid Credit, you’ve got to buy your Ford Hybrid by March 31st.
Patrick: Now, that’s a new thing, though. That’s just been in the last year. Is that right?
Jeff: Well, the Hybrid Credit has been with us for a couple of years. But, the Fords haven’t been selling as much as like the Prius when they came out. So, now that Ford has come out with the Fusion, and it’s a big seller and they’re running out of the credit that has been allocated to them.
So, March 31st is your last chance to get the credit on the Ford Hybrid. And they have another one. I think it’s a Mercury something or other.
Patrick: That’s great. Well, we’ve got callers already coming in. That’s great; 214-787-1570, 800-583-1570 or #KLIF. We want to talk about community property and everything Valentine’s. So, Jeff, go ahead.
Jeff: Sure. First of all, if you’re new to Texas, then you may be aware that we have something called a common law marriage. Not all states have them. Common law marriage basically means you live together as husband and wife and you represent yourself to the public as husband and wife. You can be husband and wife. You can be married without going through the ceremony.
Rex: And Jeff, one person can hold that hold that out in front of the other, and the other not corrected and that qualifies as a common law marriage in Texas.
Jeff: Right. So, that’s happened to me in my office. For instance, I had explained to some people that their tax return, for the next year, look better because they were planning to get married. I’d say, “Okay. You’re going to save $7,000 next year because next year, you’re going to be filing as married filing joint.”
I’ve had a couple of clients look at each other and talk quietly in a corner. Then, the husband comes up and says, “That’s my wife, Jane so and so.” And right in my office, can you believe it? In a CPA office, I’ve had the hallowed ceremony take place and those two love birds entered themselves as husband and wife and we filed the joint return.
Patrick: I would’ve never thought that a CPA gave that kind of power and authority vested in them. I would never have expected that.
Jeff: My dad is a religious man and he says it’s one of the perks of the job of being a religious man. So, I have something over him.
Patrick: Very good – or something in common with him.
Jeff: In common with him, yeah. That’s exactly right.
Patrick: Very good, very good. Rex, you had some other stuff you wanted to add to that.
Rex: Well, yeah. Community property in Texas – Texas has a very complex statute regarding that because income from separate property in Texas is community property. A lot of people don’t realize that.
They think the rental house they had before they got married, that income is separate because that house is separate and that’s just not true. The income is community property. And that, by the way, causes people a lot of problems not only if they later go through a divorce, but it also causes problems on death if either spouse has children from prior marriages. It just creates a mess trying to sort out what exactly is separate and what exactly is community.
Jeff: Definitely. And one of the things we should mention also is that in Texas, because community property basically means one half of your income is your spouse’s and one half is yours. Married filing separate in Texas is you add them up and you divide by two and then, you report on your married filing separate tax return.
So, if you’re listening to tax shows or something on TV and they talk about this, “Well, maybe you should try marriage separate.”
Well, in Texas, those people don’t know about Texas law. They don’t address Texas Law. As a matter of fact, a lot of the IRS people – there are only ten community property states, so most of the other states don’t even deal with this. A lot of the IRS people are not aware of Texas community property. I’ve seen a lot of tax returns that are prepared by other people, even regular tax preparers, that don’t properly reflect a community split.
Patrick: Interesting. Let’s go to a caller. We’ve got a caller; Scott from Dallas. Scott, you’re on the air. Scott, do you have a question?
Scott: Yes, I do. I’d like to speak with the CPA for his thoughts about ways to possibly bring me out of AMT. I’m married, one child. My base salary is about $130,000 and I get company stock options which I exercise periodically. When I do that, it pushes my income to about 275 – 500 depending upon the year.
This year, or 2009 rather, I sold some options. So, my total income is about 250 this year and I’m getting just killed by AMT. Is there anything I can do to avoid that? I am buying and holding for at least a year, so there are long term capital gains. That’s what’s crushing me.
Jeff: Alright. Scott, that’s a very good question and what I’d like to do is I’d like to tell you exactly how to handle this just right after our break. So, coming right up.
Patrick: Very good. Scott, thank you so much.
Scott: Thank you.
Patrick: And we’ll be right back.
[commercial]
Patrick: And welcome back to Tax Talk. This is Patrick Dougher, Jeff Pickering CPA and Rex Hogue Attorney in the North Texas area. We’re talking about taxes. But, it’s a Valentine’s Day show and so we’re doing a lot with community property.
We found out that Jeff has the authority and the power vested in him to create marriage in his office, or something like that. At least, that’s the way it worked.
Jeff: I guess encourage marriage.
Patrick: Encouraged marriage.
Jeff: Right.
Patrick: And then, I know that Rex is trying to keep this whole community property thing straight. So, why don’t we talk about that a little bit more? I know we’ve got a question to answer don’t we, first? So, let’s do the question and then we’ll talk about the community property.
Jeff: Okay. Scott called in and he’s got – it sounds like what he has are called incentive stock options because he’s talking about a holding period and he’s talking about the AMT problem.
So, that AMT was originally designed to catch people from taking too many deductions. The ISO Incentive Stock Option adjustment is a typical one. It’s probably the most common one that we run into and it can really cause problems.
What you want to try to do when you’re subject to AMT is try to do things that minimize your gross income. So, that’s one of the coping strategies – anything you can do to minimize your gross income.
So, if you have investments, you would want tax free investments, especially the ones that are not subject to AMT. You want to hold rather than sell. Anything along that line will help mitigate the problem.
You have to be careful of listening to other advice because people will say, “You can double up on your property taxes and other expenses and get a double hit.” Well, if you’re subject to AMT, you don’t want to do that. That’s exactly the wrong advice.
So, you minimize your income, you plan probably around October. Scott, what you should’ve done is sat around with your tax guy or girl and said, “Okay. I’m going to exercise some options and this is how it’s going to happen.”
Most people have the ISOs. They try to exercise a little bit at a time to try to keep them from being subject to the AMT. So, that’s the most effective coping strategy is to exercise a little. If you can’t do that, then – of course, you’ve got to make money. You can’t sit there and wait for your stock to go down and then sell some. You’ve got to make money first, usually, and then worry about the tax consequences.
Patrick: You could help them, though, at your office too.
Jeff: Absolutely. If you need some help, we do planning for this kind of thing. So, we’re at 972-378-5200. That’s our office in Plano.
Patrick: What was that again?
Jeff: 972-378-5200.
Patrick: Very good. And you’ve got a tax offer – a free guide?
Jeff: Yeah. If you would like to have a freebie, what we have is we have an organizer. It’s valued at $40 and you can just call our office or email us and we’ll give you a free tax organizer.
Patrick: So, they call 972-387-5200 to get their free tax organizer and that’s for folks that are hearing this show, Tax Talk. And also, one of the things that I want to mention is that this show is actually set on my website, patrickdougher.com, by Thursday of each week. Not only is it the recording, you can download it. But, I also give the transcript.
So, if you want to look at anything that these guys say, you can actually use that information to help you in any way that you want. With that, also, let’s go on with how do you keep this information straight?
Rex: We’ve found it’s very difficult because most people don’t get any real education on how they should handle property when they get married. They don’t know how to distinguish between separate property and community property. And Texas has something called special community property that involves community property that has only one spouse’s name on it and has control by only one spouse.
So, what we’ve got today is a handout that we call Texas Community Property and it’s really two handouts. The second one is called Determining the Nature and Character of property. We normally sell that for $77. We are giving it to anyone who calls in. Call our office 972-309-0104. Leave a message or email at Rex@bigtexlaw.com.
And what we do in this handout is we explain how you can distinguish between whether it’s separate property, community property or special community property and how you have income from separate property swept into a community account, which any brokerage house can do, so that you don’t wind up comingling property which is a huge problem both in cases of divorce and in cases when one spouse dies.
A lot of people think it’s all about the divorce planning, but it’s not. It’s about what happens when one spouse dies because that is eventually going to happen.
Patrick: Wow. And I know that also there are certain situations where someone moves to the state from a non-community property state to this one. It kind of really gets messy.
Rex: It can get fuzzy and in Texas, Texas has something called quasi-community property where if you had acquired that property in Texas, it would’ve been community property. It can be deemed community property through the quasi-community property rules.
But, we also have something called the exception of title rule which says that once property is acquired, however it was acquired originally, unless you take some steps to change it, it retains its initial character.
So, it’s also possible to come back here and it might’ve been treated as community property had you owned it one way. But, because of the way you own it, it never falls under those rules.
Patrick: Very good. 214-787-1570. If you want to ask Jeff Pickering CPA, Rex Hogue Attorney about anything taxes, it’s 214-787-1570 or 800-583-1570. Call in. Ask you tax questions. We’ve got lots of information we want to give. But, we really want to answer your questions. When you think about it, Jeff, why is it that you’re doing this show?
Jeff: Well, as our little slogan says, “The more you know, the more you get to keep.” And I find that my best clients are the ones that are aware of things. They come to me and they’re already clued in on most of the things and they just want to know how to make the rubber meet the road.
Patrick: Rex, what about you? Why do you do the show?
Rex: Well, for most of our clients, they want property ultimately to be passed the way they want it passed, they want to maintain control of assets during their lifetime and they want to avoid family disputes. Those are really the three biggest things.
Of course, everybody wants to avoid taxes too. But, the other three are actually, for most people, more important and we want to help people make sure that happens and, of course, that happens by taking steps to properly plan.
Patrick: 214-787-1570, 800-583-1570 or #KLIF on your Sprint phone. We really want to make sure that you have the information that can change your tax situation as in lower it. I know death and taxes are pretty inevitable, but neither one of them are very fun and we’d rather that you minimize your taxes as much as possible. Again, the more you know, the more you get to keep.
Jeff: The more you get to keep. So, sticking to our little Valentine’s Day topic, we’re going to talk a little bit about also what are some of the strange things that interact with your tax return when you have the community property.
So, moving away from Texas four, five years doesn’t cause somebody to lose their community property status. If your home is in Texas, you can go out, you can come back in and you’ve still got community property.
As Rex said, you have something called quasi-community property and a husband who can deduct one half of his mortgage if it was paid out of a checking account that the wife had that contained rental income from a separate property because separate property income when you’re married is community.
Also, this is something that’s really strange. Alimony paid to the first wife is deductable half by the husband and half by the wife since it was community property.
Patrick: Ouch!
Jeff: Ouch, yeah!
Patrick: She’s probably real thankful that – your current wife. Ow! Well, we’ve got a caller here. We’ve got Paul. Paul, why don’t we go to you. What’s your question?
Paul: Well, I am currently separated in the process of a divorce and this is the first tax season that we will be apart from each other during taxes. I know from my attorney that the person with the primary residence of the children gets to claim them when the divorce is final. However, right now, we’re still technically married. So, we’ll be filing married separate.
Jeff: Yeah. Married filing separate; one of the worst tax brackets you can be in. Actually, whoever gets to claim the kids, you do have that business about where they’re domiciled. But, there can be separate agreements that override where the kids are.
So, it is possible for you to have agreements to share the custody of the kids – not share the custody – share the tax exemption.
Paul: Well, here’s my question. Does that also apply when you’re separated and the divorce is not final? What my situation real quick is that she went to a tax seminar and I asked her about separating the kids – I claim two, she claims two.
She said, “Well, I’m going to a tax seminar.” She then called me later and they helped her do her taxes and she claimed all four kids.
Jeff: Whoa! Ouch.
Paul: And so, here’s my question. Again, my attorney isn’t sure about before the divorce is final. Yes, after the divorce is final, if they’re residing with her, she can claim all four. However, what is my recourse at this point?
Again, I asked her to separate them, and she said she would consider it and then went and did the taxes and claimed all four. Can I claim them and then have the IRS work that out at the backend? What’s my recourse here?
Jeff: Paul, we’re going to tell you exactly what that is coming right up.
Patrick: Hey, hold on a second, Paul. The number is 214-787-1570. We’ll be right back.
[commercial]
Patrick: And welcome to Tax Talk. This is Pat Dougher. Today, we are talking about Valentine’s, ways for you to save money on your taxes in lots of different situations like that. The one thing I want to also start with is the calls. A lot of people want to know, “How do I talk to these two brilliant guys?”
You’ve got Jeff Pickering CPA, Masters in Taxation. Rex Hogue Attorney, works with estate law in the North Texas area. They really are here to give you answers while we’re on the air.
So, if you call in, 214-787-1570, 800-583-1570 if you’re out of the area and want to use that 800 number or #KLIF on your Sprint wireless phone. And if you’ve got a Blackberry, that’s #5543. Most people are moving away from the old dialing system. With that, Jeff, I know we wanted to continue with answering that guys question real quick.
Jeff: Paul’s situation is he’s separated from his wife and his wife went to a tax seminar. Shortly thereafter, filed her tax return and claimed all the kids. What probably happened is she probably filed her tax return incorrectly. I bet that Paul didn’t give his information to her so that she could file her one half of the community split.
So, what recourse he has, she is supposed to – if she’s a listener, she’ll figure this out. She is supposed to notify her husband that she’s filing without the community split before the due date of the tax return which is April 15th. That’s something that she’s supposed to do on her side.
And then, for him, if she does that, he may be kind of stuck. He can try to get the kids. But, without any agreement, if there’s no other agreement, then she’s going to be by default able to claim the kids.
Patrick: Very good. I know that one of the other big things we want to talk about in just a little bit is if you had a business involved either before you got married or while you’re married what happens, how to make sure you take care of that properly. I want to go next to Ed. Ed, you’re on the air. What’s your question?
Ed: Yes, I was calling because my wife passed away last month and I’m trying to prepare I guess for next year’s tax documents wanting to know what I need special to do.
Jeff: Well, one of the things you have to do is get an extra death certificate because you’ll file a certified copy of the death certificate with the final return for your wife. This year, you may want to note that on your tax return that you are filing and signing for your deceased wife. And then, Rex, this sounds like a total opening for you to tell this guy what to do.
Rex: Yeah. First of all, I’m sorry for the loss of your wife.
Ed: Thank you.
Rex: It’s also important that you do whatever administrative steps it takes to get property properly where it’s supposed to go according to her will or trust document. That may mean that you need to go through probate.
But, you need to get started and go ahead and take those steps. I don’t know where we are as far as estate tax depending on the size of the estate whether an estate tax return might be required. And it might not be today, but Congress could change that and make it retroactive to the first of the year. But, you absolutely need to be thinking about that too.
Ed: Okay. What determines a good probate lawyer?
Rex: We do a lot of probate in your office. I don’t know what county you’re in. But really, an attorney who has done some probate work. You really don’t want somebody who’s doing it for the first time because there’s quite a lot to doing a probate. There’s also a lot to doing an estate administration.
And those are not the same thing. A lot of people get the two confused. Probate is a process that you go through because somebody’s got their name on property, and they can no longer sign and we have to have basically a court sign their name to transfer those assets.
But, there’s other administrative things that go along with taking care of a death that don’t really have to do with changing property, but it has to do with getting things set up in the right way and moving forward with property authority.
Patrick: Great. Ed, thank you so much. I know that you should talk to Rex at his office. You can actually just call and leave your name if you want to visit with him next week or when he has a chance. The number there is 972-309-0104. Just leave your name in the general mailbox and we’ll be able to get with you. Thanks so much, Ed.
Ed: Thank you.
Patrick: You bet. I want to go right on. We’ve got a couple minutes before our next break is Charles. Charles, you are on the air. What’s your question?
Charles: Well, you had just spoke about estate taxes and that’s really what I was going to ask about. I understand we’re kind of up in the air right now with where the estate tax is going to end up. I hadn’t been extended or it’s kind of in limbo. But, let’s say it does go back or revert to a million dollars. I think that’s correct. Am I right so far?
Rex: Yes.
Charles: Okay. Is that the entire estate or is that one portion of the estate to an individual?
Rex: Well, under the law, each person can have an exemption. In the case of the 2011 law that’s on the books right now, that would mean that the husband can get a one million dollar exemption and the wife can get a one million dollar exemption.
And a lot of people think that automatically means two million. But, not only is that not automatic, but it may not even necessarily work out that way because if the husband gives all the property to the wife, he destroys his exemption. Or if the wife gives all her property to the husband, it destroys her exemption. And so, they wind up with only one one million dollar exemption.
The way that you take advantage of both of them is you create a trust where the first decedent’s assets go into that trust and they can be used to take care of the surviving spouse. But, that trust holds the exemption equivalent for the first decedent and then, the second decedent gets their exemption upon their death.
Patrick: Very good.
Charles: Do you guys set up trusts?
Rex: We set up a lot of them. We’d love to help you with that. Just give our office a call at 972-309-0104. Leave it in the general mailbox and we’ll get back to you as quickly as we can.
Charles: Okay.
Patrick: Very good. Jeff?
Jeff: That number?
Rex: 972-309-0104.
Patrick: Very good. Thank you. Go ahead, Jeff. Did you have anything you wanted to add?
Jeff: That’s it; wonderful, wonderful answers.
Patrick: It’s been a good show. I know we’ve got Rick here. Why don’t we go ahead and take this call. Rick, you’re on the air. What’s your question?
Rick: I’ve got a question regarding oil and gas right of ways where an oil company comes in and gets a right of way across your property for a pipeline or something like that. I understand, or someone told me, that it ends up being a wash on the tax return and you do an adjustment to the basis of a property.
Jeff: That’s one way to handle it. So, that’s definitely one way to handle it is to reduce the cost basis of your property for the easement. Right.
Rick: And then, would it be reported on a Schedule D as just a wash where if they give you a 1099?
Jeff: That’s the way I report them.
Rick: That’s the way you would do it. And then, do an adjustment to the cost basis of the property?
Jeff: Yes.
Rick: Okay. Very good.
Patrick: Thank you, Rick. Very good talking to you. So, if you want to contact Jeff, just call him at his office. It’s 972-378-5200.
Jeff: I should’ve asked Rick where they’re buying the easements. I want to know what’s going on.
Patrick: Really?
Jeff: Maybe I can get some land with some oil on it.
Patrick: Yeah, no kidding. I know that used to be just everything was – and everybody was chasing those things down.
Jeff: Right.
Patrick: One thing I do want to mention. We’re almost ready to take a break here. But, there’s a couple of free offers on the table. Yours, Jeff, is?
Jeff: Right, a tax organizer. You can use it and take it to your tax preparer. Just call our office at 972-378-5200.
Patrick: And Rex?
Rex: We have the Texas Community Property Handout. We normally sell it for $77. It’s free to those who call in this week on the show out from the Texas Workforce Commission that we’ll also be glad to send for all business owners.
Patrick: Very good. Well, we’ll be right back. This is Tax Talk on KLIF.
[commercial]
Patrick: And welcome to Tax Talk. This is your host Patrick Dougher, Jeff Pickering and Rex Hogue in the office here in the studio. We’ve got a caller on the line and what we’re going to do is let me give out the numbers here. It’s 214-787-1570, or 800-583-1570 or #KLIF on your Sprint phone.
But, if you want to ask these guys about your tax situation, Jeff Pickering CPA, Masters in Taxation and Rex Hogue, Estate Attorney in the North Texas region. You need to ask these guys your question.
This season, obviously, everybody’s thinking taxes and nobody really likes paying them. With that, why don’t we go right to Ron. Ron, what’s your question?
Ron: Yeah, I had a question regarding community property. You indicated earlier in the show that just by two couples sitting in your office they could actually tell you that they were married and, therefore, be married. So, my question to follow up on that is what would constitute a divorce if they could simply…
Jeff: That’s good. That’s a good question. In Texas, we have common law marriages, but we do not have common law divorces. So, anybody who’s contemplating on being married in their tax preparer’s office better think it through very carefully because if you want to undo that situation, you’re talking about a real divorce.
Ron: I had a second question if I can and that was with regards to rental property owned prior to the marriage. You indicated that the income from rental property was considered community property.
Jeff: In Texas.
Ron: In Texas. My follow up question on that is if that’s true, then it must also be true that the losses from the rental property is also a part of community property.
Jeff: That’s right. So, community income and losses are split with the community split.
Rex: One thing I’ll tack onto what you said, Jeff. I had somebody approach me one time and tell me he was about to get married. And after he explained his previous situation, I realized, “You’re already married.” And if he goes out and gets married again, he’s going to be married to two people at the same time. That is illegal in our country and you don’t want to do that.
Jeff: Right.
Ron: So, I had to tell him there’s no common law divorce. You’ve got to go through the process.
Jeff: That’s right.
Patrick: That’s good. Thanks so much, Ron.
Ron: Thanks. Thanks for your help.
Jeff: Just a little bit more on the deductions. So, deductions for expenses incurred to earn or produce community business or investment income is divided equally by the husband and wife. Deductions for expenses for separate business or investment income – other states normally by the separate husband and wife who earns them.
But, in Texas, we share stuff from community property. If you want to do the itemized deductions, the itemized deductions, medical expenses; they’re considered paid from community funds and they’re deductible by husband and wife half/half unless you can specifically show that it was paid from separate property funds. Like I said, when most people try to do married filing separate in Texas, they do it wrong.
Patrick: I get it; 214-787-1570 or 800-583-1570 if you want to ask Jeff Pickering CPA or Rex Hogue Attorney in the North Texas a question. Also, one of the things I want to make is that you have the numbers to get a hold of these guys. Jeff, your phone number again is?
Jeff: 972-378-5200.
Patrick: Somebody’s there, right?
Jeff: Somebody is there right now. If you’re shy and you don’t want to talk to us on the air, there’s somebody that will answer your question or make an appointment for me to answer your question.
Patrick: Very good. Rex
Rex: My number is 972-309-0104.
Patrick: And remember, this show will be on patrickdougher.com later this week and you can also read the transcripts from the last few weeks on patrickdougher.com. If there’s anything I can do for you, you can check me out there. We’ve got a caller. It’s Israel next. Israel, you’re on the air. You had a question?
Israel: Thanks for taking my call. I would like to hear if you could address – there’s a form I’ve been researching, 982 attached the bankruptcy code. Basically, I’m a contractor and I had a huge debt forgiveness last year from BOA in the amount of close to $60,000. That’s the 1099 C that I got.
Jeff: That’s right, Israel.
Israel: I’m pretty obviously broke and in solvent at the time, I have an 11 year old truck. I have a condo that’s in my wife’s name that we owe more than it’s worth and not a whole lot of assets. I’m trying to see if that’s commonly used or if you’ve got to jump through a lot of hoops because, obviously, I can’t pay taxes on another 60K on top of my regular 1099.
Jeff: Definitely. So, the general rule is that if you have debt forgiveness, then it’s income to you and that’s why they issue those 1099 Cs. But, for certain people, and your situation sounds like one of them, you don’t have to include that income because you are insolvent and insolvent means, for this purpose, insolvent means that your liabilities exceed your assets. So, it’s kind of like you’re upside down in your life financially.
Israel: Unfortunately, that’s the case. Okay. So, is that something that if I call your office – obviously, with the economic situation the way it is, I assume that a lot of people are going to be using this last year and the next couple of years if that’s available to them.
Jeff: We’ve done a few of them already. We’d be happy to help you out. Just call our office at 972-378-5200, and we’ll make sure that you’re filed properly and nobody’s going to come after you for the income.
Israel: 378-5200?
Jeff: That’s right.
Israel: Thank you very much.
Jeff: Glad to, thanks.
Patrick: Thanks, Israel. Why don’t we go on. Do you have anything to add to that, Jeff, Rex?
Jeff: Well, in Israel’s case, he’s got a condo. Other people may have a foreclosure on their home. That’s also eligible for some income exclusions on debt forgiveness.
Patrick: Awesome. Why don’t we go to Robert. Robert, you’re on the air. What’s your question?
Robert: I have two questions if I make it quickly. The tax situation for 2010 on the estate planning is supposedly zero taxes this year.
Jeff: Yes.
Robert: This is still my first question. What is on the horizon for next year? Is anything being planned in Congress? Do you have any idea what the rates will go to for 2011?
Jeff: Go ahead, Rex.
Rex: I’m skeptical of anybody who says they know what’s going to happen. Right now, the law says that we’re going to have a one million dollar exemption next year. There are all kinds of proposals out there to make it a 3.5 million exemption permanently and make it retroactive to the first of the year, but I don’t know if that’s going to happen.
The further we go into the year, the more difficult it’s going to be for them to make that retroactive to the first of the year I think because, at some point, people are going to be beyond the filing date.
Jeff: Yes.
Rex: I don’t know. What’s your next question?
Robert: My next question. You were talking about a book on community property and specialty community property. Did I hear that correctly? A book that you have?
Rex: Yes; Texas Community Property and Distinguishing the Nature of Community Property, Separate Property and Special Community Property.
Robert: How can I get a hold of a copy of that?
Rex: You can call our office at 972-309-0104 or email me at Rex@bigtexlaw.com
Robert: You said Rex at what?
Rex: Big Tex Law dot com.
Robert: Okay. How much are they?
Rex: It’s free if you simply tell us that you were listening to the show to day. It’s ordinarily $77, but it’s free if you just mention the show.
Robert: How wonderful. That’s a blessing. I really appreciate that. 972-309-0104.
Rex: Yes.
Robert: Great. You guys have got a great program. It’s so informative. [51:50 inaudible]. I’ll be calling you for a consultation and so forth.
Jeff: Great. We hope you tell others. We appreciate all the listeners we get.
Rex: Yes.
Patrick: Thank you very much, Robert. We appreciate that.
Robert: You’re welcome. What days will you be on so I can listen next week and so forth?
Patrick: Every week, Sunday at noon.
Robert: Sunday at noon. Okay. 570.
Patrick: Yep, 570. They call that Radioactive Talk Radio, 570 KLIF. Thanks so much, Robert.
Robert: You’re very welcome. I appreciate you guys very much.
Jeff: I’m glad.
Robert: Bye.
Patrick: Okay. Well, that was a great call. I appreciate the extra. I’m sure Rex appreciates the plug and I encourage you guys to call his office. Jeff, call his office. Set an appointment. And we’re very thankful for the 570 audience. They really are responsive. They are Radioactive.
So, with that, I know it’s going to be next week before we talk to you again. Thank you for listening and if you want, listen to the show and read the transcript on http://www.patrickdougher.com. Thanks again. We’ll talk to you next week.

Using A Special Gift To Your Advantage

“If you are in a job that is sucking the life out of you, you need to find a way to get out of that.” – Patrick Dougher

Many of us have had jobs where we had to force ourselves to go through the door, and once there the clock just seemed to stop. You repeated this sentiment again each day, and kept thinking, “Now, I’ve got to do that again?”

Other times you are so “jazzed” that you can’t wait to get to work, and you seem to be recharging yourself as the day progresses because you are really into what you are doing – and the time flies by. You want to repeat this feeling over and over again.

Although you may not realize it, when you are in “the groove” you are actually taking advantage of your natural “gifts.” You have found something you are good at, and enjoy doing, and are allowing yourself to experience the elation that comes with finding your “niche,” or natural-born talent.

We all know someone who does not know how to take a compliment. When we tell them they look good they always have a negative comment to counter, like “This old thing?” or “Nah, not me.” For some reason they play the “unworthy” card, and they don’t need to.

We all have a “gifting” or spiritual gift, presented to us that can be plugged into – allowing us to fulfill our purpose, destiny, passion, or whatever you want to call it. Once you tap into that gift “It will be like you jumped into the river at high stream and you’re going downstream fast because it will open doors for you.” You will find your purpose, and your life, and it will exhilarating!

Somewhere each of us has a place, literally, that will take us to our destiny, passion and purpose. Until you apply that gift to your life you will not be happy.

Here is a short quiz that will help aim you in the direction of your particular gift.

In your life (not the life you want, but the life you are currently leading) do you tend to work with your hands or speak with your mouth? At a party, are you the one who is having fun (speaker), or the one who is reserved in the background (handy)?

For “Handy” People Only
A. Do you respond to people’s practical needs, or how they feel?
 If you respond to the way they feel – jot down the # 1 and you are done.
 If you respond to the practice needs, continue…

B. Would you find that you would give somebody money, or do something for them?
 If you would give them money, jot down the #4
 If you would do something, jot down #3

For “Talkers” Only
A. In forming an opinion about something, do you tend to “fly by the seat of your pants” (gut feelings or preconceived ideas) or do you research the subject until you feel confident?
 If the answer is research – put down #2
 If the answer is gut feeling, proceed…

B. In giving advice, would you give practical steps with action, or would you quote something (scripture, website, encyclopedia, etc.)?
 If the answer is quote – put down the # 5
 If the answer is practical steps, continue

C. Do you find that you adapt easily to any situation, or get frustrated with red tape and delays?
 If the answer is adapt easily – put down #6
 If you are already frustrated with this exercise – jot down #7

Now that you have a number, how do you find your gift?

Here are what the numbers you have found actually mean, and how you can use your personality to your advantage, in selling and in life.

#1 – Mercy.
Mercies are the feelers, the empaths; they take in their surroundings and understand how those around them are feeling. They are the ones with insight into your feelings. They see, and feel what you feel, and literally absorb the feelings of those around them – and this burden could cause them to collapse under the weight.

A Mercy will attract people who want to let go and release their feeling. Even perfect strangers will feel drawn to a Mercy, and will unburden themselves. A Mercy has the ability to “reach into their chest, pull their heart out and rub it, absorb the pain that they’re feeling, set it back into that person and they feel strangely comforted.” You’ll know a Mercy, and be drawn to them.

When selling to a Mercy – use words that will draw at their heartstrings. Do NOT attack, that will only force them to withdraw. (Examples: “This really gets to the “heart” of the issue.” “Wouldn’t you feel guilty if this worked and you didn’t use it?” “Can’t you feel the difference you can make?”) If you learn how to speak to them you will be amazed at what you can draw from them.

#2 – Teaching.
Teachers translate well. They can take an image or concept in their mind, and make it easy for you to understand. They love to learn – through audio, video, books or whatever, and want to share what they have learned.

Teachers are always trying to find ways to convey what they have learned, and sometimes – say with a Mercy person, who likes to get to the feeling of things, they don’t want to know everything.

#3 – Service.
The Servers are the behind the scene workers. “If you have a party, invite these guys. They will do the dishes.” They ‘do in action what the Mercy does in spirit. They see a need, and fill it. The problem with a Server – they have a problem saying “no.” They want to please everyone, so they won’t set boundaries, and this lends them to being used a lot. Even more important than saying no, is to learn how to say “Yes” the correct way (Example: “I can get to that next Tuesday, will that work for you?”). You didn’t say “no” but you set expectations, which means you would be willing to do the project, but in YOUR time. If you don’t make what’s important to YOU a priority, you will build up resentments to those who you feel are taking advantage of you, and you will burn out. It also teaches others that you are willing to help, but will not allow yourself to become a doormat. They will respect you more for it.

How could you create a relationship with a Server? Work WITH them. It’s that simple. If you are working as a partner, they will be more receptive to you. In addition, if more people attacked problems with a “get ‘er done’ attitude, more would actually get done.

#4 – Giving.
Givers don’t necessarily give from their own pockets, but they have the ability to garner from others to support the cause. They are the fundraisers in the group. Once they are focused on something they have the ability to get things done. They give of their time to make things happen.

Givers make good business owners. If you can find out what a giver is interested in, and find ways to contribute to that, you will attract a Giver.

#5 – Professing.
Professors are those who tell it like it is – whether you want to hear it or not. They take “Thor’s hammer of Truth” and use it “in the name of LOVE.” They are the ones who find the loose thread, and like to keep pulling until the sweater is only yarn.

People tend to stray away from Professors. If this is your primary gift, you have to learn to channel it so as not to hurt. Being truthful can be a double-edge sword. The ability to tell a person honestly that the dress they are wearing is not flattering to them may be for their own good, but if you put it too bluntly it will hurt more than it will help. A Professor needs to know that their gift is special, but there are times when tact is in order, and people don’t always have to know the “whole truth.”

#6 – Exhortation.
The Exhortations are the cheerleaders. Their upbeat personalities tend to bring energy to their surroundings that weren’t there before they appeared. They are the networkers, the ones who can work a room and get those around them excited. They are the motivational speakers.

Some would explain an Exhortation as “A Mercy that has been through Hell and come out the other side.” Exhortations have learned how to take the pains they experienced growing up and turn it to their advantage – and they want to teach you how to do that too. They have the ability to make you believe in them, and in yourself, and your ability to do anything you put your mind to. Dr. Wayne Dyer is a good example of an Exhortation.

How do you approach an Exhortation? Have some fun, rev yourself up, and put more energy in your conversation. Don’t go in with “victim” written all over your face. You are a survivor, and you can make this sale. Have the “I can do this” attitude, and mean it!

#7 – Administration.
Administrators are not the quarterbacks of the team, they carry the ball. They’re the one the quarterback hands the ball to and has confidence they will complete the play and go for the goal. They are wired to make things happen.

A drawback of the Administrator type – they tend to do things themselves instead of delegating work. They get too involved, and think no one can do the job as well as they can. Administrators tend to have large egos, be perfectionists, and are somewhat of a control freak. Once they understand that they will burn out if they continue the pace they have set for themselves, the smoother things around them operate.

How would these types of gifts manifest themselves in real life?

Let’s take a scenario: We are at a fancy restaurant with your extended family, including children. One of the kids spills his milk. Here is the reaction you could see from each personality type:
Mercy: “It’s alright, we all spill drinks from time to time (and may give a hug).”
Teaching: “Next time place your glass away from the end of the table.”
Service: “I’ll get that cleaned up.”
Giving: “Waiter, can we have another glass of milk.”
Professing: “If you take that napkin you can clean up the milk before it gets on the floor.”
Exhortation: “If it makes you fell better I can spill my milk too.”
Administration: “You all just step back and I’ll take care of it.”

How can a Boss use these gifts to their advantage?

Working with people is an art. The more you know about how they are wired the better you can utilize their specific talents to get the job done. In order to find out what types of people you are dealing with, you need to first observe them. Watch how they react to certain questions and stimuli. How do they interact with each other, and with customers?

A successful boss is one who is able to make the best use of his staff, and utilize their specific and special talents to his/her advantage. For example: You wouldn’t want to put a Mercy personality in the position of collections, and a Professor would not do their best in areas of Human Resources or Diplomacy. By taking the correct personality type and fitting them into the niche that is best for them you will create an environment that will allow all your employees to shine in their own areas. If your employees are happy they will work better, and your business will prosper. It’s that simple.

How can finding your special gift affect your personal life?

When you eliminate the baggage, and get rid of the negativity and begin believing in yourself your special ability to contribute, you will have turned your life around.

Once you believe you are unique, and valuable, and ignore years of negativity thrown at you by others who have their own baggage, and are often motivated by things that probably don’t even relate to you, then you will find your happiness. Carry this newfound enlightenment into all areas of your life and you will be amazed at how fulfilled you will be, and how successful.

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This article was taken from transcripts of a presentation Patrick Dougher make at Business Blitz in early February 2010.

Patrick Dougher is a sought after keynote speaker across the country for workshops, conferences and coaching on varies motivational topics, including: “The 19 Easy Ways to Market Your Business Without Money,” “How to Double Your Reading Rate and Learn Twice as much in HALF the Time!” “Building Effective Teams at Work.” In addition to the radio talk show he also has a TV show “Learning From Leaders” on Channel 34, and the DVD Workshop on “Accelerated Learning.”

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