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 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. James, joining me again this morning, middle of January, fun time of the year. Kids are all back into school, getting back into that normal routine. It’s that fun time in January, and hopefully it continues to go by fast, as we have extremely cold temperatures rolling back in again.
James Nelson:
Exactly. That time of year though.
Nate Kreinbrink:
It is that time of the year. We’ve been spoiled the last couple of days, actually, with some warmer temperatures, snowfall hasn’t been too bad. So I guess I will get and stop complaining with it and just take it because it’s not going to do any good anyways. This time of year also brings about another exciting time, the third Wednesday of every month is normally we talk taxes with either Andy Ferguson or Mike VanZuiden with NelsonCorp Tax Solutions. Unfortunately schedule wise, we had to kind of change that up a little bit today, but James and I decided we’re going to continue that tax topic and talk on some of those things as we get to that time of the year and enter into that famous tax season. And obviously a lot of times people are this time of year getting documents in the mail, be sure to save all those, because again, you’re going to want to need them. And there’s a few other ones that’ll be new this year that people haven’t had in the past.
James Nelson:
Yeah, exactly. And that goes back to probably some of those stimulus payments that nobody can remember if they got them in 2020 or 2021. There’s that transition period. But yeah, there’s going to be a new tax document coming from the IRS, just showing that you either received the stimulus payment or didn’t receive it. And if you didn’t and there was issues, then you’ll get it when you file your tax return, if you qualify. But that’s a new document that people need to be aware of and need to remember to bring in to your preparer. Like Nate said, just the normal tax documents that come each and every year. If you don’t know, hold onto it and might be relevant. But yeah, this is going to be a little bit different year. Feels like we’ve said that the last couple years, but having an extra document to kind of remember will be something that everybody’s going to need to remember, I guess.
Nate Kreinbrink:
The stimulus document and also the child tax credit document, there will be a specific one that’ll be coming out whether you opted out to not receive the automatic payments of that credit, starting back in July every month, or whether you actually went online and physically opted out if you were eligible for it. So again, you get anything that’s in question in the mail and you’re not sure if you should need to turn it in, put it in your pile, give it to your tax preparer, let them decide if they need it or not. They’d much rather have it that way and them get rid of it than for you to get rid of it and then absolutely need it as you go forward into there.
James Nelson:
And then we get into the normal tax stuff and that’s going back to sometimes what we’re we’re dealing with is the IRA contributions. That’s always a big item because that’s one of the few things that you can do to impact your tax situation, after the year’s over. You can’t put 401k contributions then, you can’t do some of the stuff that you’re doing throughout the year, but you can make an IRA contribution now for last year. So always a topic, IRA contributions, traditional IRA contributions, which are deductible, depending on your income and then Roth IRA contributions, which are not deductible, but still worthwhile. And a lot of people still like making those contributions kind of after the fact.
Nate Kreinbrink:
It is. And I think it gives people a little bit of a leeway, as you mentioned, IRA contributions are deductible. So you do have a little bit of play there as far as maneuvering that tax number a little bit. If you still are able to contribute to an IRA and are still able to get the deduction for any IRA contributions, that is still an option. And again, obviously the Roth and then I think a lot of times people look at as depending on if you get a refund back, maybe use that money to put in a previous year contribution to one of those vehicles, if you have room to do it and start using that money efficiently, as far as that savings.
Nate Kreinbrink:
But I think looking back and people aren’t usually aware that they’re able to do that, because they see it as a 401k contribution. It’s 1231, you have to have those monies contributed, whereas an IRA and a Roth, you have up until the tax deadline to make a previous year contribution if you still have room to do that. So again, any big chunk that you put in and you still have room, let’s kick it back to last year, fill up last year, so that way you allow your 2022 contribution to fill up, still that full amount, should be able to take advantage of that.
James Nelson:
This is also the time of year to probably be considering what you should be doing for 2022. It’s easy to kind of let those tax items go and push them down the road and then all of a sudden, you’re at the next tax filing time. But this is where you do the planning and this is when you kind of map out, I want to put X amount of dollars in my 401k, or I want to move this or move that, or I want to get this conversion done. This is really when you should be doing the planning, looking forward for 2022 versus just getting to tax time. And I pay whatever I owe and I haven’t given a lot of thought. So there’s a big difference between tax preparation, which is the period of time that we’re going into and tax planning. Tax planning takes place throughout the year and that’s what we really harp on. And that’s where we really spend a lot of our time is planning versus the preparation just one time of year.
Nate Kreinbrink:
And I think, again, as you switch the calendar year to 2022, if you had a change in possibly your income for the year, whether you had a pension that started in January, whether you got a difference in pay, you got a raise in January, are you still, the withholdings that you were taking out of your paycheck? Are those still good for that new change in income that you’re going to have? Making that change now is going to have a much bigger impact than waiting until December, making that change and really not being able to do much by the end of the year. So any changes that you have in your financial situation, make sure you bring that up with your tax preparer as well, to make sure that again, if you were withholding a certain percent, is that percent still good given that change in income?
James Nelson:
And the trend, at least nationwide, is that wages are going up. And I think that’s true for a lot of people in our area as well. And that’s maybe an opportunity too, to put a few extra bucks in the retirement plan, act like you don’t see it, you get a 2 or 3% raise, maybe a good opportunity to put those dollars into the retirement plan, if you can do it and kind of forget about it. Those are nice opportunities to increase your savings without necessarily impacting your day to day spending. And again, we’re seeing wages grow in the area. It’s a perfect opportunity if you can do it to save a few extra bucks on a monthly basis.
Nate Kreinbrink:
All great stuff that we had there. Another topic that we did want to touch on towards the end. And again, we’re going to kind of continue this on as it kind of develops, but it was news coming out last week that during the Iowa State of the Union Address, Governor Reynolds kind of came out and signed that her support as far as a $2 billion tax cut, which essentially makes it a state tax at a flat level. And then also kind of exempting the taxable income from a state level on retirement accounts, annuities, pensions, those type of things.
Nate Kreinbrink:
So again, that’s a big sweeping change as far as that. That’s going to draw a lot of attention. Obviously there’s a lot of other parts to the bill. It’s not even into effect yet, but these were some of the key parts that come out to it. But it is a change and it will have some impact on people. And I think people need to, again, not necessarily make any changes because of it now, because it’s not into law yet, but keep it on the horizon, that there are some change comings and it will impact you.
James Nelson:
Yeah. And we’ve kind of been moving that direction. Iowa income tax has been coming down the last couple years and will continue, I believe, for the next four. And that’s kind of her phase in period, if this were to pass, to get down to, I believe a flat 4% income tax, which again is significantly different from where we were at about 9%, cutting that down. I don’t know how they plan to address spending because if there’s tax cuts, there’s probably some spending cuts elsewhere as well. But yeah, you’re right, that would be significant.
James Nelson:
And that would really put us more on an equal playing field with the state of Illinois, assuming they don’t change things, that’s been talked about too. But they don’t pay any state income tax on those retirement accounts and pensions and those type of distributions. So there’s always been at least a small percentage of people that move from Iowa to Illinois when they get to retirement age. Now, maybe you can’t really make that argument if this were to pass. And we kind of get put back on a level playing field. So could be really significant and something that hasn’t been changed in quite some time.
Nate Kreinbrink:
And another aspect that obviously will affect a lot of people in this area is how the sale of farmland rents, farm rental income is going to be taxed as well. That could possibly be included on being exempt as well. So again, a lot of stuff that’s kind of getting thrown in there, again, nothing is set at this point in time. As it develops, we’ll obviously continue to keep that as a topic on the show and kind of getting those facts out there and how it impacts people. But again, just something to keep on horizon. And again, you mentioned it the other day and kind of as we were coming in today, as far as how things just continue changing. And if you’re not keeping up with some of those changes, you’re kind of falling behind on a tax standpoint as far as how it does impact you.
James Nelson:
Yeah, no doubt. Staying on top of things is absolutely key, especially in today’s world where it seems to change on an annual basis.
Nate Kreinbrink:
If you got any questions on any of the topics that we talked about today, obviously give us a call. Contact NelsonCorp Tax solutions. Andy, Mike, I’m still happy to sit down with you. I want to mention here real quick that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. The money raised in the month of January will be donated to the Synergy Class Murals Project. As always James, appreciate you joining me this morning.
James Nelson:
No problem.
Nate Kreinbrink:
Talking a little bit of taxes, Nate and James, with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again 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.