Announcer:
It is time now on KROS for Financial Focus, brought to 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 advice mentioned are unmanaged and cannot be invested into directly. Registered representatives, securities offered through Cambridge Investment Research Incorporated, a 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. 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 joining here with me. It is mid-August and I was just telling him on the way up, I had my first football practice for fifth and sixth grade football last night.
Andy Fergurson:
Oh, that brings joy to my heart.
Nate Kreinbrink:
It’s one of those seasons. It is hot as all you know what the start the year and by the end of the year you…
Andy Fergurson:
You’re sitting in a blanket.
Nate Kreinbrink:
You’re sitting in a blanket.
Andy Fergurson:
So within what? How many weeks is the football season? 12 or 16 weeks. By the end of 16 weeks you’ll be huddled under a blanket watching a football game instead of sweaty and hot.
Nate Kreinbrink:
Yeah, it was human. It was rather corn sweats. Is that what they call them?
Andy Fergurson:
Corn sweats? I don’t think that’s what corn sweats are, but yeah.
Nate Kreinbrink:
No, but hard to believe. We are into August right now. Again, obviously big talk now is back to school and all that fun stuff, and teachers are back into the classrooms, getting ready, making those kinds of final push to get the bulletin boards ready, get the room set up and back to school shopping and supplies and-
Andy Fergurson:
Everybody’s got to have new shoes and all that stuff. I don’t know what my poor dog’s going to do when there’s not kids at the house all the time. He’s going to go crazy.
Nate Kreinbrink:
Probably like it. He’s relaxed for a.
Andy Fergurson:
I don’t know if he’ll like it or if he’ll tear everything up, so we’ll have to see. But yeah, the world’s about to change. I think Illinois starts tomorrow, or at least Fulton starts tomorrow and I think Iowa’s only 10 days or so away. So it’s happening.
Nate Kreinbrink:
It is coming fast. Where did the summer go? We say that every year, but it goes faster.
Andy Fergurson:
Yeah. And then the fall goes fast, which I guess it feels like the fall goes fast to me because it’s always ramping up towards tax season. It’s interesting to me how fast the nine months that we’re not in tax season goes compared to the three months that we are in tax season. But that’s okay. That’s what I signed up for, so it’ll be okay.
Nate Kreinbrink:
And again, heading into this year’s tax season, I know last month when we were on we kind of were just at the very beginning of that new big tax bill, Big Beautiful Bill.
Andy Fergurson:
Are we going to call it the Big Beautiful Bill forever?
Nate Kreinbrink:
I hope not.
Andy Fergurson:
I don’t know what its real name is, but it’s…
Nate Kreinbrink:
It’s going to make changes. Like in-
Andy Fergurson:
Oh, it’s changing things for sure.
Nate Kreinbrink:
I know you always joke every year as far as the training the last part of December, mid-December when you take your conference or your class as far as, and you come back with this big stack of papers and you’re like, “This isn’t the tax bill. These are just the amendments and changes to the tax bill.”
Andy Fergurson:
Yeah, yeah.
Nate Kreinbrink:
And again, this year is obviously not going to be any different with some of those changes that went into effect July 1st.
Andy Fergurson:
Yeah, I would say this year is even more important to have an expert help you. This new law has changes that are all over the place. Some changes are effective for ’25, some are effective for ’26, some are temporary. They go from some ’25 to ’28. Some go from ’25 to ’29. Some things are repealed in the middle of ’25. Some things are repealed in the middle of ’26. It’s all over the place. And so the timing is important. And when those things happen where you have a different… Sunsets or different start dates for different tax credits, planning becomes even more important.
An example is there’s a part of the bill that says that for high-income earners, their standard deduction, or I’m sorry, not standard, their itemized deductions will be limited to the 35% bracket. Well, that doesn’t take effect until 2026. So that means if there’s a high earner who has itemized deductions and has the opportunity to have more itemized deductions-
Nate Kreinbrink:
In 2025.
Andy Fergurson:
In 2025, there’s a planning opportunity there, because they may be getting a 42% discount in 2025 where they’re going to get a 35% discount in 2026. So donor advised funds, things like that might be important this year to pull the trigger on those things so you get the maximized deduction.
Nate Kreinbrink:
Well, and I think leading up to this, I mean obviously through the campaign to the November election, and then once we got to the new year, I mean there was kind of three big parts I think that stuck with people, and that seemed to be the driving force behind some of this bill that got all the news. And that was no taxes on Social Security, no taxes on overtime and no taxes on tips. And although those are part of this bill, it’s not, as you would imagine, not as straightforward as you might think to say, “Hey, it’s just no tax. No tax, no tax.” There’s a lot of bullet points. There’s a lot of, “Well if… Well only if this.” There’s a lot of qualifications with that.
Andy Fergurson:
Yeah, a lot of requirements and qualifications.
Nate Kreinbrink:
I think the Social Security, not taxing the Social Security is a big one, and I think that is going to impact people maybe more or less than what they thought it was going to. But there are some limitations to who qualifies and how that is actually, it’s not just really a no tax on Social Security. It’s coming in the form of a deduction.
Andy Fergurson:
Yeah, that’s one of the things about this bill is it really, it spans all the spectrums of income. Low income people will have things change. Middle class, high earners, all of them are going to have things change. Social Security is a good example, though, of things that are being misrepresented. So we heard no tax on Social Security, but that’s not really how it works. What it is there’s an additional deduction for seniors. It doesn’t really have anything to do with Social Security.
So you could be somebody who’s on a pension and has no Social Security. Maybe you’re one of the people in Illinois who doesn’t get Social Security because you’re on one of those select pension plans. Well, you’re still going to get the deduction if you’re over 65. So it’s not about taxation on your Social Security. It’s just an additional deduction for people over 65. $6,000 for single earners, $12,000 for married filing jointly if you fall into certain modified adjusted gross income thresholds and this is one of the ones that’s temporary, right? This is one that’s only going to happen for a couple of years.
So it definitely is not being represented well in the media. It seems like it’s like the name Big Beautiful Bill, right? Everything gets these catchphrases that go with it, and then that’s just what they keep saying. They just keep saying no tax on Social Security, but that’s not what’s happening. Social Security is going to be taxed exactly like it has always been taxed and if you are not over… So here’s the other thing. Let’s say you’re 62 and taking Social Security, you’re still going to pay all the tax on that Social Security. You have to be 65 and it’s going to be a deduction for people over 65, not a no tax on Social Security.
Nate Kreinbrink:
Right. Well, and I think too, I mean, it’s important for people to remember and realize that again, Social Security isn’t taxable. It becomes taxable when your income becomes above certain thresholds. So again, whether it was a no tax on Social Security or this deduction with it, I mean people that weren’t paying tax on Social Security before probably still aren’t going to pay tax on Social Security here going forward. And so now you look at that deduction and when you look at what the standard deduction is for a married couple, now you add on, for those that qualify another $12,000 of a deduction, that’s a pretty big hit on the tax return.
That again, you said there’s some planning opportunities and I was surprised that some of these went into effect here in 2025. I thought they’d all be kind of unveiled with a January 1 start date, but that will be on your 2025 tax return and some of the planning we’ve done and having that deduction built into it, it does change and move the needle a little bit with some of the things that we’ve done. The other part is, again, with this overtime, it’s not as clear as just if you work, if you have 40 hours in that 41st hour, you’re going to not pay tax on that overtime. Well, it’s not as clear as that either. There’s some limitations and some kind of guidelines that it goes by as far as how you earn that or where that no tax on overtime applies.
Andy Fergurson:
Yeah, it’s interesting. As I get into these different pieces of this law and the nuances of each of these components, there’s some strategy that can be had. Jumping back to Social Security real quick, because of income limitations or MAGI limitations that surround this deduction, some of the planning, you may not want to do a big Roth conversion like we were talking about doing before, because it throws you over that income limitation then you lose the credit or not the credit, the deduction. So no tax on overtime is the same way. There’s income limitations.
One of the things I learned about the overtime law was, it’s interesting. It’s not going to be that the overtime isn’t taxed, but what’s going to happen is that overtime income, under certain limitations and guidelines, is going to be taxed like regular time. So you get time and a half when you work overtime usually.
And what happens is the regular time of that time and a half is still going to be taxed. It’s the and a half that doesn’t get taxed. And so I think a lot of people are like, “Oh man, I made $20,000 of overtime last year.” Well, that $20,000, you’re probably only going to save 30% of that in tax, or only 38% of that’s not going to be taxable. It’s just not represented well when you hear the pundits and the talking heads talk about this bill. It doesn’t matter which station you listen to either, they all say the same thing and they’re all kind of misrepresenting what actually happens inside that bill.
Nate Kreinbrink:
Well, and I think that goes to it too with that planning, like you said, and again, for the part of it that includes tips. I mean, that goes back to, again, reporting the tips and how that does, there’s limits that apply to amount that can be subject to that bill. And again, it’s the planning, it’s the, “Okay, let’s get ahead of this.” Again, something that goes into effect this year. So again, this will go back to January 1st and kind of take all that into account for this year.
And so I mean, there’s going to be some discussions, I think, when individuals or families sit down and do their taxes this year with their accountant that, “Hey, I thought it was going to be this.” Well, kind of, but not really. And that’s what the explaining is going to be is that understanding of it at that point as far as when it applies. Then you get a grasp on it and then it ends.
Andy Fergurson:
Yeah, so this is a great point. I mean, this year more than ever need somebody to help you go through it. Don’t change your lifestyle. Don’t change the way you withhold because of something you think you understand unless you’ve got a real good grasp of it. There’s some of these things, there’s five months worth of opportunity to plan and some of them, there’s only a month left, like on the clean vehicle credit.
You better get that clean vehicle going, because if you don’t have it purchased within the next month, it’s not going to be qualified. So lots of things. I brought in a paper for us to look at that had 12 or 15 points on it. We got to two.
Nate Kreinbrink:
Two, yes.
Andy Fergurson:
So you definitely need to talk to a professional, make sure you’re planning, otherwise you may be disappointed on tax day.
Nate Kreinbrink:
All great stuff. And again, you got any questions, give them a call. Before we run out of time here, I did want to mention that Nelson Corp is wearing jeans for charity. Money raised in the month of August will be donated to the Midwest Pets for Life program here in Clinton. Again, this is Nate and Andy 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.