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Brittany Price: Welcome back to Living Local. According to the Internal Revenue Service, 20% to 25% of all Americans wait until the last two weeks before the deadline to prepare their returns. If that statistic includes you and you’re in a hurry to get your taxes filed, do not stress. We’re sitting down with the experts to help you avoid making any last minute mistakes.
Joining me in the studio, we have David and James Nelson with NelsonCorp Wealth Management. Thank you guys so much for being here.
David Nelson: Thank you, appreciate it.
Brittany Price: And this is James’ first time, although I thought it was his second because he has a twin brother that has been here before.
James Nelson: Yeah.
Brittany Price: So we’re so happy to have you join your dad here today.
James Nelson: Thank you.
Brittany Price: So, David, let’s start. The changes that were made to the tax code were presented as a tax cut. So did everyone see their taxes go down?
David Nelson: So the bulk of the people will, so those that have filed, there’s been some kind of interesting data that’s come out as far as many individuals are getting their refunds, but it’s smaller than what they’ve gotten in the past. Part of the reason for that is that the legislation, this tax reform kicked in as far as in the first quarter of ’18. So what they saw is an increase in their paychecks as far as during the year. Subsequently, as far as when it comes to the refund time, the refund looks smaller. But when we look at the actual tax that they paid as far as what was taken out of the paycheck, it was less. So for most individuals, they will see a cut.
Self-employed people, and the area that I guess, if we had to pick one area, where you’re almost guaranteed not to have a cut, it would center around individuals that are single taxpayers that make a pretty good income. For whatever reason, they got picked on as far as in this tax law. And so, those individuals will not see necessarily a decrease dollar for dollar from what they would have had in previous years. They’re actually going to go up. So that’s about the only group. Other than that, most individuals are probably going to see somewhere in the neighborhood of 2% to 3% as far as reduction as far as their tax liability.
Brittany Price: Got you. Now, James, as your dad just mentioned, a lot of people are seeing that these smaller refunds than they maybe anticipated, can you give us a little bit more insight about why?
James Nelson: Sure. So looking at a refund versus what you have to pay when you actually file your return probably isn’t the best estimator. We look at total tax, and like David said, most people are down a little bit. The withholding earlier in the first quarter of 2018 is the main driver behind that. People were able to enjoy a little bit more money throughout the year, which in turn reduces their refund if they were to get one this time of year.
Brittany Price: And James, as I prefaced in the intro to this, almost a quarter of Americans are going to wait until those last two weeks to file their returns.
James Nelson: Yeah. Sure.
Brittany Price: So any tips that you would give people to avoid making any mistakes?
James Nelson: Yep. So there’s a couple last item things that you can do. There’s a lot of things that have a December 31st deadline, clearly we’re past that point now. So a couple things people can think about, IRA contributions being a big one, and married individuals can each contribute, single people can contribute, $5,500 for an individual under the age of 50, $6,500 over the age of 50. And you can double up if you’re married. So that’s a pretty good deal.
HSA accounts are another item that people can consider. If you have a high deductible health insurance plan, an individual can put about $3,400 into an HSA account, and a family can put $6,900 into an HSA account. The key here is having that high deductible plan throughout the whole year. You can take advantage of the deduction. If it was a partial year, you’re only going to get a partial deduction.
So those are kind of two of the last minute items that people should consider.
David Nelson: There’s all kinds of individuals that have filed as far as today, just like in years past, that are leaving lots of money on the table. So these are some items as far as, people say, “Well, it’s probably too late.” It’s not too late as far as for the IRA, if you’re eligible. Health savings accounts, HSA accounts, these are big items. And, again, the tax code allows you to pay less tax. Take advantage of it. Don’t let those opportunities slip by.
Brittany Price: Definitely. Thank you so much for the insight on that. And most people would consider that anything that they can do to lower their current year taxes would be a good strategy. Is that always the best course of action though?
David Nelson: The quick simple answer is no. So, many individuals, we’ve talked about as far as in prior programs, as far as the bunching of certain deductions, the bunching of charitable deductions, so that can be a really good technique. If an individual has the higher standard deduction and it looks like for the year they’re not going to be able to take advantage of the itemizing deduction, and they shove some money as far as to the charity at the last minute, it doesn’t make a lot of sense.
So clearly, just doing it just to do it doesn’t make sense. We are mega fans as far as or Roth contributions. For those that don’t understand a Roth versus a traditional IRA or 401k, it’s not deductible today, but it’s totally tax-free tomorrow. So big, big difference. So, again, we’re big into advice. We’re big into planning ahead. These are some last minute scrambling type things. Some things make sense. Many things don’t make sense as far as to do at the last minute. And I think coming up here shortly, we’ll be talking about some ideas as far as in ’19 what individuals ought to be thinking about, because there’s a lot of things people should be doing today for tomorrow.
Brittany Price: Right. That’s such a great point. And, yeah, a lot of people are seeing smaller returns than they expected. So looking forward to next year, what can people do to set themselves up in a good situation?
David Nelson: So I’ll start, and then I’ll let James jump in if he has any additions to this. But clearly the HSA, your retirement plans as far as through work, typically they’re referred to as simple plans and/or 401k plans. If I work for a not-for-profit, it’s called a 403b. All of them conceptually the same. I can put money in, I can get some tax benefits today, I take the money out tomorrow, I pay taxes on it, but it can really help me as far as on my tax liability as far as today. So those are really big.
And then the other part, which I alluded to just a second ago, was the charitable aspect. So most people out there have some charitable intent, some dollar amount that they give away each year. With the new tax law, most of those probably aren’t going to be deductible. But if I find a way to financially make it work as far as where I can bunch up some of my deductions and put them into one year, and you set up this special account that this is a charitable goal that I take like two, three years and I put it into one, by doing that, that could help get me to that point where these deductions I can actually deduct now instead of having them just thrown out the window.
So really, really good stuff. And again, this is the exciting time of the year, you start planning now for this year. We don’t start talking about this as far as December 31st. We talk about this stuff now. And it can have a real big impact as far as tomorrow.
Brittany Price: That is great advice. James, anything you want to add to that at all?
James Nelson: Yeah. I’d say sit down with your financial advisors, your accountants, and do that planning now. Like I said earlier, you’re kind of limited at this point in the game what you can really do. That planning should take place during the whole course of the year, and especially at the end of the year.
Brittany Price: Definitely. James, David, thank you so much for the [crosstalk 00:07:23]. We so appreciate it.
David Nelson: Thank you. Thank you.
James Nelson: Thank you.
Brittany Price: All right, for more information about wealth management, you can visit NelsonCorp.com. We’ll also have these details posted on our OurQuadCities.com. More Living Local continues on after this.
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