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 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 Kreinbrink I have Andy Ferguson back in with me this morning. We are going to talk taxes again. But is it safe to say that… Is it fall yet?
Andy Fergurson:
It’s not fall yet, but school starts like in three days.
Nate Kreinbrink:
I had orientation. I have a middle schooler now. My youngest is in middle school. We had orientation.
Andy Fergurson:
How does that make you, if you’re youngest is in middle school?
Nate Kreinbrink:
Young. I’m young.
Andy Fergurson:
My youngest is still in elementary, so technically I’m still young, I guess.
Nate Kreinbrink:
You are. You are. But no, with-
Andy Fergurson:
My oldest is old enough to have kids, but my youngest is in elementary school.
Nate Kreinbrink:
With a little relief and a little bit more, I think, to come in the next few days from this warm, humid, muggy yuckiness that we’ve had.
Andy Fergurson:
Yeah, the weather’s beautiful. I mean, I went out today and I told my son to mow the grass and I think I told him he needed to wear a jacket when he did it because it was so cool, because he was trying to tell me it was too hot to mow the grass. And I said, “No, no, you might need a jacket today. It’s cold out.”
Nate Kreinbrink:
There are locusts out. It’s starting to get fall. It is really starting to get fall season, football, volleyball, fall sports all around the corner here.
Andy Fergurson:
College football starts this weekend.
Nate Kreinbrink:
Yes.
Andy Fergurson:
I mean-
Nate Kreinbrink:
Big weekend here in a couple weeks.
Andy Fergurson:
… it’s the most wonderful time of the year.
Nate Kreinbrink:
Enjoy it. Leaves will be turning, and then we’ll be saying, “Gosh, I wish it was warm again.”
Andy Fergurson:
I don’t know. Once the leaves turn, then basketball season starts and I get excited about basketball.
Nate Kreinbrink:
That is. It will go quick. It will go quick, but-
Andy Fergurson:
But then we flow right into tax season and that just-
Nate Kreinbrink:
And then-
Andy Fergurson:
… bogs us right down.
Nate Kreinbrink:
Yes.
Andy Fergurson:
It’s like this build up to Thanksgiving and Christmas and I’m so excited, and then there’s the let-down that comes after Christmas.
Nate Kreinbrink:
And then boom, it’s over, and now reality is here.
Andy Fergurson:
Yeah. Then I got to work really hard for a little while and then the rest of my life is-
Nate Kreinbrink:
Normal.
Andy Fergurson:
… a dream.
Nate Kreinbrink:
Normal. It’s a dream. Speaking of dreams, let’s talk more taxes.
Andy Fergurson:
Well, we got to give the people what they want, Nate.
Nate Kreinbrink:
That’s right. We were on last week and we started getting into some of the key points that we had pointed out with this one big, beautiful bill, tax changes that went into effect, or was signed into ordinance July 4th here of this year. Obviously you’ve got a couple pages here. We didn’t make it very far last week-
Andy Fergurson:
No, we didn’t.
Nate Kreinbrink:
… because we were hitting on some of the key points as far as the overtime, the tips. We started talking a little bit about the social security and how it’s not really tied to social security in and of that senior deduction with it. But that is a temporary program that’s not permanent.
Andy Fergurson:
Absolutely. So it’s not tied to social security. It’s tied to your age. So if you are of age, if you’re over 65, you’re going to get this credit. If your modified adjusted gross income is in range. And it’s temporary credit, like you said. It’s around for three years. So that plays into planning. That plays into how we want to realize income if we’re doing Roth conversions. It’s going to play into when we’re turning on social security or not. It’s important to understand that the deduction is not related to social security exactly. So that means you don’t have to have social security to get the credit. So no sense if you’re not on social security and your plan was to wait till 70, don’t run out and turn it on to get the credit, because you don’t need it.
Also, don’t bank on the… I’m sorry, the deduction. Don’t bank on the deduction if you’re not 65. Because you could be on social security, your spouse could be on social security, but if you’re both under 65, you’re not going to get this deduction. So it’s a little bit misleading the way that it’s presented in media when they talk about it as a social security related deduction, but it’s not. It’s related to age. It’s a senior deduction.
Nate Kreinbrink:
Well, and I think when you look at it too, I mean, 6,000, a married couple would get 12,000 if they’re 65 or older and fall on the income limit. So it may allow you to do a little bit bigger of a conversion this year if you’re looking at it as far as, because you get that extra deduction on the return. But on the flip side of that, you want to make sure that any conversions that you are doing aren’t going to possibly phase you out then as well, because that will increase your income above and beyond what that deduction is. So as always, there’s planning.
Andy Fergurson:
Yeah.
Nate Kreinbrink:
There’s planning.
Andy Fergurson:
Yeah, and it depends on your situation. I mean, if you’ve got a million dollars that you’ve got to convert in the next five years, you don’t necessarily want to wait and save this little bit of money that you’re going to get from the deduction. A $12,000 deduction, if your tax rate’s 20%, you’re only saving 2,400 bucks in taxes. So you don’t want to necessarily wait until this deduction goes away to do those big conversions. Because if you then still push to get that million dollars converted before the end of five years, you’ll be paying 42% on that money instead of paying 22% on it.
Nate Kreinbrink:
So all good stuff. Another point that stuck out that you wanted to mention was the child tax credit, and there is an increase to that. So if you have a child that you can get the credit, it’s a little bit bigger than what it was last year.
Andy Fergurson:
Yeah. What’s interesting to me about this is if we remember, it feels like a hundred years ago, but before the Tax Cuts and Jobs Act, the child tax credit was only $1,000 per kid. And then it went up to 2,000. And then we also got all the stimulus is and stuff that came through with COVID. And so that feels like a long time ago that it was 1,000. But that’s what it was going to go back to. It was headed back to 1,000. If they didn’t pass this law. They passed the law and they bumped up the credit. So now it’s 2,200. Remember, all the other rules are the same though, so it’s still your kid has to be 16 or younger for you to get the credit. They have to live with you. They have to be dependent and all this stuff for you to get the credit. And there’s still income limitations on that. But it did jump to 2,200, which will be benefit to a lot of people.
The other thing that happened is one of the credits that came from the Tax Cuts and Jobs Act was the other dependent credit. The other dependent credit, remember, is for if you have a parent that’s dependent or you have an older child that’s still living at home that’s dependent, doesn’t have income, you can get this other dependent credit. So that credit has been made permanent, and so when it was written into law, it was a temporary credit, but now that credit’s going to exist forever, you’ll always have that. So if you’re one of those people that has parents living with you and they’re dependent on you, you can get that $500 credit for the rest of their lives.
Nate Kreinbrink:
A lot of good stuff. The other part, again, you start talking about, again, this is a thousands and thousands of page bill. We’re just picking and choosing some key points that I think are going to maybe impact some of the masses or that are out there that may be a little confusing. One of the ones that was thrown in there that’s not getting a lot of notice, but I think may have some clarification needed is the car loan interest deduction. So this does not go to any car that you buy. Any car loan that you have does not apply to this. Again, reading through this, it only applies to new car loans. And with anything else, there’s caveats.
Andy Fergurson:
There’s caveats.
Nate Kreinbrink:
And you have got to meet certain of these caveats, whether it’s income, that type of stuff, in order to do it. But mostly just remember that it’s not for used vehicles. This is only for a new car loan, you’ll be able to deduct some of that interest from there.
Andy Fergurson:
So this one’s interesting because it is coming into play in 2025. It’s temporary, so it’s just for ’25 through ’28. But it’s new car loan if your modified adjusted gross income fits the threshold, and if final assembly is in the United States. So you don’t credit for, or you don’t get to take the deduction for the amount of your payment, but the amount of interest that you pay on that loan. And so people who bought new cars in 2025 might want to wrestle up those papers, especially if you bought a new American-made car. Because if you didn’t pay cash for it, if you took a loan and you have interest on it, that interest number’s going to be something we need to get you that deduction.
There’s a couple other credits in there that we’ve used in the past. The clean vehicle credit and the residential energy credit have been things that you had to pull them out of people because people didn’t know they were credits. They were credits for a couple years. Now they’re gone. So no residential energy credits in 2025. And the clean vehicle credit is repealed as of 9/30/2025. So if you buy a new car that qualifies for the clean vehicle credit, you have until the end of September to make that happen. If you don’t do it by the end of September, you buy that car on October 1st, you lose the credit. So those two credits were ones that we were just getting used to and now they’re gone.
And so maybe you were somebody who put in windows or siding or a new front door and you were spreading it out over time. That’s what I was doing. I was putting in new windows, but I was spreading it out over time to try and maximize that residential energy credit. But as fast as I got used to it, it’s gone.
Nate Kreinbrink:
It’s gone.
Andy Fergurson:
So now I just get new windows. I don’t get any credit.
Nate Kreinbrink:
Well, and I think with that, I mean we will continue to get more into this and specific situations that come up and as we know more. I mean, some of these, again, we were surprised that they went into effect in 2025. So again, why we’re hitting on those. One that will be pushed a little bit to ’26 is the new Trump child savings accounts that are going to go into it. Those don’t become eligible until 2026. So as we get closer, we’ll talk into those. But again, with this and with everything that we’ve just went over, there is a lot of nuance. So there’s a lot of caveats, there’s a lot of bullet points, there’s a lot of, well, if you qualify. Understanding what those qualifications are and understanding that sometimes what you do if you’re going to add income isn’t going to jeopardize any of these, and that’s where it’s important to look at these as far as the timing of doing it now versus waiting and how that applies to, as you always talk about, the planning process.
Andy Fergurson:
Yeah, and that’s something that I think is a little bit more unique with this particular bill is the timing. Some things come into play in 2025, some things come in 2026. So if you hear something on the news, you think that there’s an opportunity for you to be tax advantaged, make sure that you understand which part of the bill that is and whether it’s at 2025 through 2028 deduction or whether it doesn’t start until 2026. There’s a lot of stuff in there. There’s a lot of good things that can be used in your tax planning, but you got to make sure you’re pulling the trigger or pulling the lever at the right time.
Nate Kreinbrink:
Well, I think looking at it too, there’s a lot of misinformation out there where it’s not a blanket deduction, it’s not a blanket qualification. So again, tax season is going to be a fun one.
Andy Fergurson:
Yeah.
Nate Kreinbrink:
Yeah.
Andy Fergurson:
It’s interesting, people use words like credits and deductions interchangeably. They’re very different. And think about the people that are reporting on these things that they see in the tax bill, it’s very easy for them to say the wrong word while they’re reporting it. Most people don’t have a solid understanding of tax law. I don’t know that it’s malicious, the misinformation. I do think that there’s, some of it is, what narrative do I want to tell related to this bill? But some of it is just an oversight or people not understanding exactly what’s going on. I have people all the time who come in and tell me they got a letter from the IRS, and it clearly says that it came from the state of Illinois. So the state of Illinois is not the IRS. People just don’t know very much about this subject, so be careful what you hear. Make sure you do your own research. Make sure you know, make sure you talk to a professional.
Nate Kreinbrink:
All good stuff. Before we run out of time here, do want to mention that every Friday, NelsonCorp team members are wearing jeans for charity. Money raised in the month of August will be donated to the Midwest Pets for Life program here in Clinton. Andy, Nate 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.