Announcer:
It’s 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 representative securities offered through Cambridge Investment Research, Inc., a broker-dealer, member, FINRA/SIPC, investment advisor representative, Cambridge Investment Research Advisors Incorporated. A Registered Investment Adviser, 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 with me. September’s flying right by and with it is coming rain.
Andy Fergurson:
Rain and cool weather and-
Nate Kreinbrink:
Yes, it was quite the drastic change from Saturday, kind of mid-upper 80s, kind of warm, and then all of a sudden-
Andy Fergurson:
All of a sudden we’re cold at the cross country meeting.
Nate Kreinbrink:
Yeah. And rain coming with it. And it’s extended forecast, kind of rinse and repeat the way it looks.
Andy Fergurson:
It’s my favorite time of year. I love the cool nights and I’d much rather wear a sweatshirt to a football game than be sweating through my pants.
Nate Kreinbrink:
Yeah. It definitely has definitely had that switch to a fall feel with it. So yeah, from that standpoint, Friday night’s outdoor activities the rest of the week, you better bring a umbrella, a poncho and everything.
Andy Fergurson:
Probably a jacket. Yeah, probably a jacket. It’s going to get cold. It’s going to be wet.
Nate Kreinbrink:
You’re going to need that. I know some schools have homecoming this week, probably going to be a wet one. Next week, we’ll kind of see how that shakes itself out, but maybe get lucky and have a few dry hours where they can get their activities in.
Andy Fergurson:
I used to love playing football in the rain because I was never a fast kid playing football and the rain makes everybody slow.
Nate Kreinbrink:
So they kind of leveled the-
Andy Fergurson:
Yeah, levels the playing field. Well, what happens is that there’s different skill sets in football. There’s speed and there’s strength, and well, the rain takes away everybody’s speed. And then when I was playing, I was stronger than most kids. And so I felt like it was my kind of game, those mudders. I could push a big old guy around, he’d just slide in the mud.
Nate Kreinbrink:
Yeah, especially if you’re not handling the ball and you’re just clearing holes or doing those jobs, you get muddy… Moms don’t like it or parents don’t like it with cleaning those uniforms on the next day, especially those who wear white.
Andy Fergurson:
Well, nobody likes sitting in the rain and watching. It’s just miserable. My dad, we’d go to soccer games or something and it’d be raining and I’d look at him and he looked like a wet cat and he’d be like, “This is not fun. This is not fun to sit in the rain.”
Nate Kreinbrink:
But they did it because they were there to support you and that’s all that matters. So good luck to everybody. Activities, everything going on as we continue on with the school year. Getting in today’s program, we had you on last week. You had just returned from a IRS conference. You came back with a bunch of notes with another binder full of updates. We got through a couple of your bullet points last week, but again, for this week’s show, wanted to kind of continue on to that.
And the main one here that you have for today kind of leads right into that end of the year planning that we are in right now. And I think that’s an important time for everybody. Again, you had your tax return last year, you had any changes this year. How is that going to impact how your return for 2026 turns out? If you make changes now, if you do some planning now, you still have time for it to kind of take effect and have time to make it impact that return.
Andy Fergurson:
Yeah. And actually last year we had a new tax law that was going into effect where we got no tax on overtime, no tax on tips, no tax on social security, which all of those we talked several times about how that’s not really what they are. So we had that new law go into effect and then there were some things that were not going into effect until 2026. And those things are things that you can focus your planning on.
For example, the advanced premium tax credit. So anybody who’s on marketplace insurance, in 2018 I think they suspended the payback rules or they dampened the payback rules on that advanced premium tax credit. So what that means is you’re on marketplace insurance, you basically go in and you say, “This is how much money I expect to make.” And then they give you an advanced credit to reduce your insurance premium.
So that’s the advanced premium tax credit. But then at the end of the year, you reconcile that. So you then go in and say, “This is how much money I actually made.” If it’s more, then your credit should have been less. And if it’s less, then your credit should have been more. And so you go in and you say, “I’m going to make $80,000,” and you end up making $85,000. Basically they gave you too much credit. And so there was a clawback on that credit.
Well, from 2018 to 2025, that clawback. I’m sorry, not 2018, I think it was 2022 to 2025, that clawback was minimized, meaning you could go over the threshold and they would claw back just a little bit or just what you owed. Well, in 2026, that goes back to a cliff, meaning if you had, say a $500 credit every month, that’s $6,000 and you go $1 over the maximum amount for your income.
Well, you got to pay all $6,000 back. So in 2025, you may have had to pay back $500. In 2026, you may have to pay back $6,000. So that’s a big difference when we’re talking about planning. There’s just not as much cushion as there was in 2025. So you want to make sure that you’re aware of what’s coming down the pipeline with that advanced premium tax credit.
Nate Kreinbrink:
Well, and I think too, that’s a big part of it. And then again, for those that it applies to, that’s where communication, coordination and looking at where you’re at to make sure that, again, unknowingly you don’t do something that causes you to go over that because again, it is drastic. It’s not that gradual phase out where you’re going to pay back a little. It’s again, like you said, you go over by a dollar, you’re in it. Another-
Andy Fergurson:
And there’s things that you can do right now to control that, right? So think about that going over by a dollar where they’re counting your adjusted gross income. Well, you may be able to impact your adjusted gross income. So especially if you’re close. I mean, if you’re within a couple thousand dollars, we’re in September, you may be able to put that couple thousand dollars into your 401k at work and drop your income back below the threshold, but you got to know where you’re at.
And so that’s where the planning comes in. You could put money into an HSA, you could put money into a 401k. Any of those things that reduce your taxable income or reduce your adjusted gross income could help you stay below the threshold and not have to pay back the $6,000.
Nate Kreinbrink:
And again, look at it, planning, give your tax preparer a call. The next kind of part that kind of goes down with this is what you were talking about was, again, being able to control the outcome of your return. And you can do that through, again, your withholding on any income that you have or making estimates. And that’s a big thing with how they go. Again, essentially prepaying that tax, but if you’re going to owe a bit, you want to make sure that you’re making those estimates to avoid any potential penalties.
Andy Fergurson:
Yeah. So you can make estimates, you can pay withholding. Those don’t change your income because they’re just prepaid tax, but you could also reduce your premium tax credit. You could go to your provider and say, “I don’t want this $500 credit if I’m going to have to pay it back at the end of the year.” And then maybe if you do that for four months, instead of paying back 6,000, you’re paying back 4,000, which is better. Like you said, withholding will reduce your tax burden on tax day.
Estimates will reduce your tax burden on tax day. There’s other planning opportunities. A 401k is a great tool to reduce your taxable income. You put money into your own account and you are reducing your taxable income and there’s opportunities that come with that. In a couple of weeks, I’m going to go to the high school and I’m going to talk about taxation for people that have kids in college.
Well, there’s some great tax credits that come to people that have kids in college, but they phase out based on your income. And they phase out for a married couple, I want to say around $180,000, something like that. Well, if you’re somebody who’s at 185 or $190,000, you may want to, between you and your spouse, put that $10,000 into a 401k or into a 403 or something like that and then get that credit back that you could get for having your kid in college. So there’s lots of planning opportunities that come with controlling your income. It may be that you use overtime or tips in a way that help you reduce your taxable income to allow you to take advantage of some of these credits. But again, it’s about knowing where your adjusted gross income is and then making a play to either reduce it or increase… I mean, it goes the other way too.
There are times we want to increase our adjusted gross income because maybe we have a piece of a bracket that’s left that we can get money out for 10% or 12%. And so we want to realize income. That’s something that we do all the time as we talk about people in retirement where we’re trying to control that adjusted gross income number to put it right kind of in a sweet spot where we want it and take advantage of the tax laws the way they exist.
Nate Kreinbrink:
Right. And I think too with that, I mean, you mentioned the 401ks, there are some changes that came to the 401k when you talk contributions to that. And a lot of it has to do for those that are over age 50 that are looking to do that catch-up contribution and what you could do with that versus what the new rules state that you are allowed to do with that now.
Andy Fergurson:
Yeah. And the new rules for 2026 are, if you were a high earner, I want to say if it’s over $150,000 at your job on your W-2, if you were over $150,000, that catch up in 2025, you could have put that catch up into a traditional IRA to reduce your taxable income, or I’m sorry, a traditional 401k.
Well, in 2026, if you’re a high earner, you can’t put that into a traditional. You’ve got to put it into a Roth. You can still save it, you just got to pay tax on it upfront. They want those high earners to pay that 24, 32% on that income as opposed to putting it into a traditional and saving that tax rate and then paying it at a lower rate later. So that’s new to 2026, something that you’ll have to be aware of if you’re one of those high earners.
Nate Kreinbrink:
So again, as we get through all this, it goes back to, ask questions. If you don’t know, meet with somebody to help guide you through this, because again, as I’ve noticed and as we’ve seen and as we’ve discussed, I mean that tax law changes from year to year to year. Your personal situation changes from year to year to year. So what you were doing last year maybe worked, well with the new tax laws or with your new situation, we may need to kind of tweak that a little bit just to make sure we get that same outcome, because again, you don’t enjoy those meetings when you’re tax preparing and you’re like, “Well, this isn’t because of this.”
Andy Fergurson:
Yeah. The information your neighbor gave you across the fence was good two years ago. Today it’s not good. So yeah, you just got to be careful. Make sure you’re planning with current information. Again, you don’t ask your roofer for medical advice. Don’t ask your neighbor for tax advice unless they’re a tax preparer. Get professional help and you can’t even always trust Google. Sometimes Google will give you the wrong information because it’s looking at old data too. So just make sure you get good information, make good plans.
Nate Kreinbrink:
All good stuff. Did want to mention real quick here before we run out of time that every month NelsonCorp Wealth Management is featuring a new charity of the month. For September, we are focusing on the hand-in-hand out of Bettendorf. 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 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 representative securities offered through Cambridge Investment Research Inc, a broker-dealer, member FINRA/SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a Registered Investment Adviser. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.