Announcer:
It is time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research. Inc. a broker dealer member FINRA SIPC. Investment advisor representative Cambridge Investment Research Advisors, Inc. A registered investment advisor, Cambridge and NelsonCorp Wealth Management, are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. Well, this is Nate Kreinbrink. I have Andy Fergurson here with me, third Wednesday of July. I think a month from today, it’s really crunch time to back to school.
Andy Fergurson:
Yeah, that’s bananas.
Nate Kreinbrink:
That is crazy.
Andy Fergurson:
I can’t believe it’s the third Wednesday in July already. It feels like –
Nate Kreinbrink:
I know. All-Star game was last night. The Major League All-Star game last week.
Andy Fergurson:
Yeah, that was fun. Yeah, it’s crazy how fast the year goes outside of tax season.
Nate Kreinbrink:
Yeah, I mean it is flying by.
Andy Fergurson:
Yeah. We’ll be in school before you know it. I’m going to have to spend $1000 on shoes.
Nate Kreinbrink:
It’s because they’re growing so fast. They outgrow them so darn quick. Yeah, good week.
Andy Fergurson:
Yeah.
Nate Kreinbrink:
Had a good vacation week last week.
Andy Fergurson:
Yeah, it was a good week. We went down to the –
Nate Kreinbrink:
Big exciting family news.
Andy Fergurson:
Yeah, my daughter got back from New Zealand, from her mission and so –
Nate Kreinbrink:
18 months, huh?
Andy Fergurson:
18 months in the island country of New Zealand.
Nate Kreinbrink:
Now the family’s back, complete.
Andy Fergurson:
Yeah. And so she came back. We had a reunion, of sorts, and then we went and spent a week in the Smoky Mountains. It was really good. Really a good time down there. Neat experience. Haven’t been to the Smokies before, so that was a fun deal and it was nice to have my daughter back. And now everybody’s home and now the fights are –
Nate Kreinbrink:
Just like they never left.
Andy Fergurson:
It’s a full team on both sides now.
Nate Kreinbrink:
The family dynamic is complete in the household.
Andy Fergurson:
We’re back in business again.
Nate Kreinbrink:
Exciting stuff and then I’m glad to hear that. And again, while you were out, July 4th, Independence Day. All the fireworks going off. There was also fireworks going off in Washington.
And this tax bill that has been talked about for months and months and months and months. And is it going to pass the Senate? Is it going to pass the house? What is going to be in it? To what extent? How are they going to do this? Finally, we’re starting to have some clarity with it passed into office on July 4th. The Big Beautiful Bill.
Andy Fergurson:
Yeah, I don’t know. It’s funny. I was watching it pretty closely and it passed while we were on vacation and I was very excited about it. Wanted to talk about it with everybody. Surprisingly, it was not a well-received topic around my house. I don’t think very many people could care much less than they did when I was talking about it, but it was exciting to me.
I know a couple of weeks ago I was on here on the radio and I said, “It’s unlikely that this is going to impact 2025.” Well, that’s wrong. It is going to impact 2025. This is in effect for 2025. And yeah, lots of things change. Lots of significant planning opportunities come from this bill.
It’s funny, when I talk to people about it, everybody has a political opinion about it and so that skews whether they think it’s good or bad or ugly or indifferent. And it doesn’t really matter what you think of whether it’s good or bad because it changed.
And so what matters is that it changed, the law changed, and so now there’s planning opportunities. Because the law changes, now we got to think about how that change is going to impact you in 2025.
Nate Kreinbrink:
Well, and when we talked about some of this, I mean one thing that we knew was whether it was going to be part of this bill or if it was just going to be in its own separate law, was the extension of the tax brackets, right? Because at the end of this year, they were set to sunset anyways. The 12% going back up to 15, 22 to 25, and so on, and so on. And the standard deduction were a couple of big parts of this that were actually put into this, and the tax brackets made permanent.
Which is going to be big going forward because we thought we were going to end and go back up. Well now they’re going to stay kind of as is. So it kind of gives us a little bit different, as you said, view on what we were looking at from a planning standpoint. We got a little more time now.
Andy Fergurson:
Yeah. Well, we definitely made a lot of plans over the last few years. 2025 was the end of the window and so we made moves based on the law and tried to take advantage of brackets. And now, like you said, we’ve got more time. And so now maybe instead of filling up a 24% bracket, maybe we can fill up 12% brackets and use that transition over a longer period of years instead of rushing it through in a couple of years.
However, there’s also new wrinkles to that, especially if you’re somebody who has social security. I mean there’s a new benefit that comes from social security, a new deduction that comes if you’re under a certain threshold, which that’s going to impact tax planning too. If you’re somebody who wants to do Roth conversions and you’re on social security, there’s a phase out now that we have to watch for. So we may not be able to convert as much money because we’ll lose some of that deduction if we get up past a certain threshold.
Nate Kreinbrink:
Well, and I think too, when you look at that social security deduction, I think where that’s going to come into play, this goes back to the campaign leading up to the November election where again, the three big points of some of those tax cuts that President Trump was throwing out there was, again, no taxes on overtime, no taxes on tips, and not taxing your social security. We can get into the tips and the overtime, as far as how that applies. The taxes on social security, when they got into it, the taxes that are collected currently on social security, a majority of them go into the social security bucket, which is then used to pay out benefits.
So you take those taxes away, that bucket that pays out social security depletes a lot quicker than what it was planned in that 2032, 2033 projection. So what they did on the backside was your social security, if it is taxable … Again, that is another misconception. There’s a lot of people that already don’t pay tax on their social security because of where their income is. Andy always says social security is not taxable in and of itself. It becomes taxable when your income hits certain thresholds. But now instead of not taxing that, anybody that is 65 or older that is receiving social security is going to receive a $6,000 deduction on their tax return.
Andy Fergurson:
if they’re single. Right?
Nate Kreinbrink:
If they’re single. Right. If they’re married and both spouses are 65 or older and taking social security, that household will get a $12,000. It’s 6,000 per person. But again, you have to be 65 or older to get that. If you’re 62, just turned on your social security, you’re not going to get that deduction.
Andy Fergurson:
Right. And what it does is it creates kind of a pocket in the tax code or in the taxation of your social security where, if you fall right within this pocket of income, you’re going to get a huge benefit, but if you go beyond that pocket of income, the benefit’s going to be reduced. Or if you’re below that pocket of income, you’re not going to see any benefit from it.
So it seems to target those that are firmly in the middle class. And so it’s definitely something worth taking a look at and making sure that you’re not doing anything in your tax planning to eliminate some of that benefit if you’re in the right spot. So it’s a planning opportunity to get yourself right in the sweet spot. The sweet spot’s fairly large, but there’s a sweet spot. You want to make sure you don’t go too far over it. You want to make sure you don’t go under it.
Nate Kreinbrink:
And so I think with this bill too, like you said, I mean the taxes on over times, taxes on tips and how that is going to change. There’s criteria that you have to meet, that you have to fall within this certain area and to do this with all of these.
Another part of this is that again, there are some credits that are being taken away and that’s going to change your tax situation. If you were able to utilize those in years past, you may not be able to utilize these going forward. And so when you look at this, it’s not a straightforward, clean, “Hey, this is what it’s going to be. This is what it’s going to be.” A lot of these have timeframes in it where some of these aren’t permanent. It’s only for a couple years or whatever. Or you have to fall within a certain income bracket before you can actually utilize these deductions or these credits or whatever they are for it.
So again, there’s going to be a lot of change with this tax season. As Andy said, we thought we were going to have some time to really dive into this thing and do it before it goes into effect next year. That’s not the case. It’s this year.
Andy Fergurson:
It’s this year.
Nate Kreinbrink:
It’s happening.
Andy Fergurson:
The good news is we’ve got a pretty good handle. Our software, at least, is already updated. It seems like we’re going to be able to be pretty close on projections this year. There’s credits that affect everybody, so everybody who pays tax or everybody who files tax returns is going to have some impact from this bill.
People who have dependents or children at home are going to see a change to the child tax credit. High income earners are going to see a change based on the SALT limitation that’s in the itemized deduction. So there’s just a lot of things going on.
Like you said, tips and overtime. Tips seems like something that’s going to be easy for them to do because tips is already a separate line on your W2. I don’t know how they’re going to figure out overtime. I don’t know how that is exactly going to work. I imagine the payroll providers are going to have to come up with some way to separate that out, but it’s an interesting change.
Lots of opportunity. It’s good for me because everybody’s going to want to talk to me now and I love to talk to people. So lots of things to look at. I’ve looked at a couple of different scenarios already for people, and it’s significant. It changes the way you plan. So that’s the takeaway.
You need somebody to help you plan. If you’re doing something that is proactive; if you are trying to do a Roth conversion or spend down your money in a specific way to take advantage of tax law, what you did last year is going to be different than what you do this year. And you’re going to need somebody to look at it for you. Because it is definitely time to do something different because the rules have changed.
Nate Kreinbrink:
They have. So give us a call. Give them a call. Again, Andy always says, “Tax planning, tax preparation.” We are definitely in the tax planning time period, and these changes fall right in that time period. So you got questions, how it’s going to impact, how it’s going to change, “We were doing this because of this. Well now we’re not going to do,” that’s where the planning needs to come into play.
Because again, you always say, that outcome when you file for your taxes, you can make that whatever you want it to be.
Andy Fergurson:
We can make it whatever you want. You tell me where you want to be. We can get it there.
Nate Kreinbrink:
Right? We just need to make the planning ahead of time. So give him a call. He’d be happy to do it. I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of July will be donated to the Project People Program here in Clinton. Andy, I’m sure this will not be the last time we talk about this –
Andy Fergurson:
I can’t imagine.
Nate Kreinbrink:
… but it’s a good start. So appreciate you joining me this morning. Andy Fergurson, Nate Kreinbrink, bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer member FINRA SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.