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 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. 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. I’ve got Andy Ferguson, NelsonCorp Tax Solutions with me today. We push back normally our third Wednesday of every month. We got pushed back a week, so glad to have you on this morning talking taxes on this bitterly cold January morning.
Andy Fergurson:
Yeah, it feels like tax time out there. That’s what I keep telling Mike when I come in and the door sticks, because it’s so freezing cold out there.
Nate Kreinbrink:
That usually is a signal for tax season. You are right.
Andy Fergurson:
I said, “Hey Mike, it’s tax time. I can hear the door squeaking.”
Nate Kreinbrink:
And always, you get excited when we talk taxes, and again, you get to this time of year, people start getting stuff in the mail or whatever, forms that people get. They’re usually accustomed to 1099s and they have those numbers down. There’s some new numbers, there’s some new forms that people need to be accustomed with, and make sure that they have those and keep an eye out for those as well.
Andy Fergurson:
Yeah. So if you remember last year, there were some other things that we had to put into the tax return, and there was a lot of delays at the IRS last year. Those delays were primarily related to the stimulus money that we got. So as we reported and reconciled this money that we got, which is not taxable, but we had to report it so that we could identify and determine that we got all that we were supposed to get. As we reported that, if those numbers were reported incorrectly, that caused the delay on your refund. And so last year in 2021, we got more money that came through. A lot of taxpayers got stimulus payments in March, and a lot of taxpayers got advanced Child Tax Credit August through December, so those payments now have to be reconciled on your tax return.
Andy Fergurson:
And so what’s going to happen is, there’s two form letters that are coming out from the IRS. There’s a 6419.
Nate Kreinbrink:
Okay.
Andy Fergurson:
And that 6419 letter is going to reconcile the Child Tax Credit. And there’s a 6475 that is going to reconcile the stimulus payments that came out in March of last year. So, those letters are going to be critical to your tax preparation because if we go and don’t have those letters when we file your tax return, we’re going to experience those same delays that happened this year, because there’s the same IRS, same number of staff, same everything going on there. And so if there’s a discrepancy there, it’s going to delay your return, and based on my estimations on what we saw last year, that’s going to be a delay of eight months, probably.
Nate Kreinbrink:
Not quick timing. So when should people expect to be getting this? Anytime soon I would imagine, then?
Andy Fergurson:
Yeah, so the IRS has made some promises. So remember, everything I say is based on a government promise. But the 6419s, we’ve started to see those come out already. Again, that’s the Child Tax Credit. You’ll start to see those 6419s, you may have already seen it in the mail. It should come in an envelope that says, Important Tax Document Enclosed. Really, any envelope that comes and says, Important Tax Document Enclosed needs to go to your preparer.
Nate Kreinbrink:
Right.
Andy Fergurson:
There’s none of those envelopes, really, that you can just throw away.
Nate Kreinbrink:
Let you be the one to throw it away.
Andy Fergurson:
I’ll throw it away for you if we don’t need them.
Nate Kreinbrink:
Yes.
Andy Fergurson:
But all of those need to go to the tax preparer. The 6419s should have come out this week, and then the 6475s, and that’s the one that reconciles the stimulus money or the EIP3, the Economic Impact Payment, the third payment. I haven’t seen those yet come out, but the IRS has promised that we should see those in our mailboxes by the end of the month.
Nate Kreinbrink:
So, those individuals that didn’t qualify for the Child Tax Credit, or didn’t get the stimulus money or anything, they won’t be getting any of those forms then. Correct? Or will they get something to say zero?
Andy Fergurson:
So I don’t know that they’ll get something that says zero. The way the IRS says it on their website is, anybody who received any payment is going to get one of these letters. So if you should have gotten the payment, but you didn’t get the payment, I don’t expect you’re going to get the letter.
Nate Kreinbrink:
Gotcha.
Andy Fergurson:
If you don’t get a letter, though, and you file your return without that letter, you run the risk of having a delayed refund because if we file your return and say, “Hey, Nate didn’t get this 6475,” and in actuality, you got something, you can expect that your return is going to be held, and it’s going to hold up until they can go through it manually and figure out who got what. Eventually it’ll get sorted out and you’re going to get all your money regardless of really what you report, or at least that’s what happened last year. People who under-reported what they got, they got the rest of it eventually, and people who over-reported, the IRS made the correction before they gave-
Nate Kreinbrink:
Before they gave them. All good stuff, and then everything that you go. Like you said, you get something in the mail, you have any questions on if you need it or not, put it on your stack.
Andy Fergurson:
Absolutely.
Nate Kreinbrink:
Bring it in, let you be the one to throw it away. I know this is another topic that we’ve kind of talked at length about in understanding how the impact is going to basically hit the bottom line when they file taxes with that Child Tax Credit that you had brought up. Obviously, that was a big change last year if you did not [inaudible 00:06:14] to opt-out of it. And we talked numerous shows on this, as far as getting that monthly payment to you, starting in July, how this was not extra money, it was basically that credit just being prepaid to you. Well, now it’s time to settle up with that. And obviously, that form that you mentioned will show how much you got. But the bottom line of that is, that’s going to impact what they either have to pay in or what they get back as a refund when they file their tax returns.
Andy Fergurson:
Absolutely. So if you think about the Child Tax Credit, there’s a lot of moving pieces here. We have families that are one-parent families, or we have families where a kid gets claimed on one return one year and one return another year. We have people that opted out, so their number moved or changed.
Nate Kreinbrink:
Right.
Andy Fergurson:
Anybody who tried to opt-out realized that they had to opt-out, and their spouse had to opt-out in order to stop that payment completely. And so, one thing to be sure of is, this 6419 letter that you’re going to get, you’re going to actually get two letters. If you are married, filing joint return, you will get one and your spouse will get one. If you’re a single parent, you’ll get one, and the other parent should get one if they got any advanced Child Tax Credit. The way it impacts your return is, essentially, the simple answer is anybody who got that full credit should expect their refund to be reduced by $500 per child. Okay. And here’s how the math works on that. The Child Tax Credit last year was $2,000.
Nate Kreinbrink:
Right.
Andy Fergurson:
In 2020, it was $2,000. In 2021, it was $3,000. That $3,000, if you got the advanced Child Tax Credit, you got $1,500 of that money ahead of time.
Nate Kreinbrink:
Right.
Andy Fergurson:
Which means you got $1,500 out of $3,000, but on your tax return in 2020, you claimed $2,000, and on your tax return in 2021, you’re only going to get a $1,500 credit.
Nate Kreinbrink:
Because that $1,500 was already paid back to you as far as to equal that $3,000.
Andy Fergurson:
Exactly. You got half of it ahead of time. You can get the other half on your tax return.
Nate Kreinbrink:
Right.
Andy Fergurson:
So essentially, the net number there that you’re reporting on your tax return is $500 less per child on your tax return, because you took the advanced Child Tax Credit. You’re not getting less money. You already got the money. You’re just reporting less of a credit on your tax return, and that’s going to impact the bottom line. If you’re somebody who receives normally a refund of $1,000 and you have four kids, you should expect to pay $1,000 this year if everything else is exactly the same. If you’re somebody who normally pays $500 and you got two or three kids, you can expect to pay more this year, because you’ve already received that Child Tax Credit. And again, I can’t emphasize enough the importance of getting that letter and making sure you have it so that you report the right number. Otherwise, it’s going to cause a significant delay in your return.
Nate Kreinbrink:
Yeah. Those are all, I guess, not unexpected because we’ve kind of known about this, but when it actually does get down to tax time and people see that, that is a big change in it. And especially, like you said, you have multiple kids, that does continue to add up and you’re going to see-
Andy Fergurson:
Yeah, I have seven kids, so it’s going to be a big number.
Nate Kreinbrink:
Right. So again, all good stuff. Any last thing that you kind of want to finish the show with that you have on the top of your head to say, “Hey, let’s remind the people of this.”
Andy Fergurson:
Yeah. So the other thing that I would add is what happens if you don’t get the letter, or if your tax appointment comes and you haven’t gotten the letter that you want. I would say it’s important to go and find that information. The IRS has a service that allows you to go create an ID.me account. ID.me is a service provider for the IRS, essentially outside of the IRS, a system you go in and you scan your driver’s license and then you take a selfie on your cell phone, and it does some facial recognition to confirm your identity. Once it confirms your identity, it sends that information to the IRS, says, “Yeah, this is Andy. He is who he says he is.” And then the IRS lets you in to access the letters that you may or may not have gotten in the mail. You can then pull them up online. That’s something that you should do before your tax appointment, because you’re going to need that information.
Nate Kreinbrink:
Right.
Andy Fergurson:
If you don’t get it in the mail, you need to go out and get it from the IRS. The other thing that I would add to that is, get on your accountant schedule right now. If you haven’t scheduled your appointment, you need to schedule it. Everybody in America is waiting for these two letters, or the majority of people are falling into categories where they either got an economic stimulus or they got an advanced Child Tax Credit. So, everybody’s waiting on these letters, and what’s going to happen is 40 million letters are going to come out on the same day and everybody’s going to schedule their tax appointment on that day, and my concern is that if you wait until you get the letter, you may have to wait several weeks to get into your tax preparer because the phones are going to go bananas as soon as everybody gets those letters. So if you are thinking about it right now, call, schedule your appointment, push it out. But get on the schedule and say, “I expect my letter by the first week of February,” get on that calendar and get your appointment made. Otherwise, you may have to wait.
Nate Kreinbrink:
Right.
Andy Fergurson:
Or you may even have to extend, because if there’s too many returns to do, there’s only so many hours in a day.
Nate Kreinbrink:
All good stuff, all great stuff for you. I appreciate, again, you coming in during this fun time of the year, talking a little taxes with us. Again, Andy Ferguson, NelsonCorp Tax Solutions. Nate Kreinbrink, NelsonCorp Wealth Management, 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 recommendation 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.