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 of 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.
Andy Fergurson:
Good morning and welcome to this week’s Financial Focus brought to you each week by NelsonCorp Wealth Management. This is Andy Fergurson from NelsonCorp Tax Solutions. I got Mike Van Zuiden with me, also from NelsonCorp Tax Solutions, I guess the wealth guys are all vacationing and out of town, so they scraped the bottom of the barrel, sent the tax nerds up here.
Mike Van Zuiden:
Absolutely.
Andy Fergurson:
For Financial Focus, which is okay with us. I mean, it just means we get to ramrod some tax stuff down.
Mike Van Zuiden:
Absolutely. There’s always something to talk about as it relates to taxes, I think fortunately or unfortunately, depending on your perspective, I guess.
Andy Fergurson:
Yeah, we’ll have lots to talk about. Man, the weather though, I guess it’s going to be a thousand degrees today and the rest of the week.
Mike Van Zuiden:
And after a good morning rain, it ought to be nice and muggy as well. So yeah, keep your powder handy today. I think.
Andy Fergurson:
Keep your powder. I wore a slightly wrinkled shirt today knowing that I was going to get steamed, so I knew I’d have an opportunity to get a little fresh press out there. So I helped load a friend’s moving truck last night, and I’m pretty sure I lost about four pounds, loading that truck.
Mike Van Zuiden:
I was at the gym yesterday afternoon and it didn’t smell so fresh in there. There was a lot of hard work and a lot of sweat pouring out. So I guess that’s a good thing, right?
Andy Fergurson:
I guess so. Well, it’s a short time, right? In Iowa it only happens just for a couple of weeks out of the year, so I guess we can make it work.
Mike Van Zuiden:
Yeah. Absolutely.
Andy Fergurson:
Well, let’s take advantage of our time without the wealth guys here to keep the reins on us and let’s talk some tax stuff. So Mike and I were talking this morning as we got ready for this segment and thinking about some of the stuff that we deal with as we go through the tax season and some of the questions that we get asked. And as we were talking about it, a funny question comes up, but it’s kind of a serious question as well. I get asked each year, and I’m sure you do too, Mike, the question is, “How come rich people don’t have to pay taxes?” And it leads to some comedic responses for us. But what do you say, Mike, when somebody says, “How come the rich people don’t have to pay taxes?”
Mike Van Zuiden:
I say, “Well, they do have to pay taxes.” I think one of the things is people’s perspective on taxes are different and they look at their situation and try to compare it to someone else, and the realistic response is they do pay taxes. I think one of the things that can help someone, whether you pay a little tax or a lot of tax is strategy, right? You’re probably never going to make all of your tax go away, but there are strategies that kind of help you control the situation with regard to your taxes. And I think it all really comes down to being proactive, right? Seeking out information, seeking out counsel, advice before you do something out of the ordinary. By the time that something happens at tax time, it’s too late to do anything about that. It is what it is at that point. But strategizing and having some communication with your tax person and who you work with upfront can help introduce some control into that situation and maybe minimize or control when you pay the tax.
Andy Fergurson:
Yeah, absolutely. I agree a hundred percent with what you said. I tell people all the time that rich people absolutely pay tax. The only people who don’t pay tax America are poor people. I mean, they’re the only ones who end up with a zero on the tax line, but if you make money in America, Brad Fritz told me, one of the first times I came in here, I was like, “Oh man, I got to tell this guy, he’s got a big tax bill.” And he goes, “Well, make sure you tell him that that’s good.” And I was like, “What do you mean it’s good to have a big tax bill?” And he said, “Well, it’s good if you have a big tax bill because if you have a big tax bill, it means you made money, because only people who make money pay tax in America.”
And so absolutely, I agree with that. And I think you’re absolutely right it too about the idea of control. Taxes a lot of times are reactionary. People, they bring us a situation, they tell us, “Hey, I sold this farm. What can you do to make the taxes go away?” Well, once the farm is sold, there’s not a lot that we can do at that point, especially in March and April, the time for planning for tax for that sale has passed. And so we need to help people understand a little bit better that yes, you can control the tax and you can control what happens, but that control has to happen before the transaction, before you’ve initiated the tax consequence. And I think you’re absolutely right. Whether it’s a lot of tax or a little tax, if you’ve got somebody in your corner, call them and ask them a question.
Mike Van Zuiden:
Absolutely. I think that’s key too. I mean, a lot of people, it’s easier to just do what you’re going to do and deal with it afterwards, when in reality, depending on the situation, you may be able to resolve, get your question answered. And, “Hey, let’s do it this way.” With a simple phone call to your tax person as opposed to some situations will dictate that you need to come in and sit down and really crunch some numbers. But I’ve had a lot of experiences where I think a five-minute phone call between the taxpayer and myself before the event in question would’ve allowed us to do a couple of different things to not make the tax go away, but minimize it or plan for it, however you want to put that.
Andy Fergurson:
I think you’re exactly right. Not avoid the tax, but minimize it. And that’s the trick. You can control tax to the effect of how much you pay and when. There’s a lot of things that people don’t understand about the tax law and you’ve either got to make the choice to learn it and understand it, or you’ve got to trust somebody to help you. And you think about the other things that people will ask advice on. I mean, you’ll ask advice on how to treat your lawn, but you won’t ask advice about how to deal with your taxes.
And so there’s components to it that people need to consider. For example, not all income is the same. There’s qualified income and there’s non-qualified income, there’s ordinary income, there’s capital gain income, there’s business income, and all of those incomes are treated differently on the federal level and on the state level and the way that you realize those incomes may change the equation when we’re figuring your tax. There’s other things to consider there as well. The timing. I’ve had a lot of situations, I’m sure you had too, Mike, where we’ve had people come in and there’s a big difference between taking money out of an IRA in November and taking it in January for somebody. There’s not a lot of difference in their need and how they’re going to realize that money, but there’s a lot of difference in how it plays out on their taxes.
And so timing can be a consideration there. Brackets are a consideration, something that people should consider. I think about all this … You see all these newspaper articles that come about, especially with the lottery being big right now, all these newspaper articles come out and they talk about how much you’ll take home from winning the $910 million. And it reminds me, I had a conversation with a client one time, and we talked about paying tax, and she was complaining about paying some tax and I said, “If you were a professional athlete and you made $20 million, you pay almost half of it in tax each year.” And she’s like, “That’s just crazy. I mean, that’s an enormous amount of money. Why would anybody do that?” And I said, “Well, I’ll do it because the other $10 million is still a great deal.”
But the brackets come into play when we start talking about large amounts of money and even small amounts of money. If you’re in between the 10% and the 12% bracket, there’s a huge difference in how you pay your tax. So just there’s a lot of strategy that’s available to you there. What we can’t forget either is there’s also an emotional component to paying tax. Sometimes, Mike, have you ever given somebody any advice and them not take your advice?
Mike Van Zuiden:
Absolutely. It was just, “I just want to make this go away. I want to take care of this now and be done with it.” And because there’s the peace of mind that comes with that, and if it costs them a little extra money out of their pocket to acquire that peace of mind and the fact knowing that this is off my plate, it’s worth it to them.
Andy Fergurson:
So sometimes people are willing to pay a little more to the federal government or the state government just to be done.
Mike Van Zuiden:
Yep. And that’s not wrong.
Andy Fergurson:
No.
Mike Van Zuiden:
I mean, you have to decide what’s right and wrong. It’s just …
Andy Fergurson:
Yeah, we were talking about this morning and I was telling Mike, I said, “I’ll give somebody a better way.” And then I had to catch myself because it’s not necessarily better. It’s a different way. I say better because I think it’s better because you pay less tax, but less tax isn’t always better. Sometimes the comfort of getting a refund is more important than paying less in tax.
And so that emotional component is a big part of it too. And what has to happen for anybody, as you think about the strategy involved in paying taxes, you got to find your sweet spot. You got to get comfortable with your tax preparer. You got to talk out the situations that are coming down the road, not just after they happen, but before they happen. If you’re expecting to inherit an IRA or if you’re going to sell a piece of property, or if you’re nearing retirement, or if you’ve got a kid going to college or any of those life changes, if anything significant is happening in your financial situation, it’s important to talk about those things with your tax preparer because there may be something that you don’t know in the tax law that can help you.
Mike Van Zuiden:
Sure, seek advice, let somebody that understands the process lay out the options for you, and then ultimately, you as the taxpayer make the decision, “Well, I want to go this way, that way.” Emotion comes into play, peace of mind comes into play. The math behind it, the dollars and cents piece, it’s hard to put a price tag on peace of mind for some people. So ultimately though it’s never a bad idea to seek counsel, seek advice based on your situation and make the best decision for you, and only you will know what that is.
Andy Fergurson:
Absolutely. Well, just like always, Mike, we came up here with 15 things to talk about, and we talked about three, so we always run out of time. It seems like we get lost in the conversation, and again, we could talk about it all day. So we appreciate you listening. And before we go, we got to say that this month, NelsonCorp’s charity, we wear jeans each Friday and the charity that we’re supporting this month is Grove Pocket Park, created by Gabby Bird Art, and that’s in Clinton. Thanks again for listening to Financial Focus. We’ll talk to you again next week.
Mike Van Zuiden:
Stay cool, everybody.
Andy Fergurson:
All right, thanks.
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 of 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.