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.
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 with me. It is mid-July, pretty close-
Andy Fergurson:
July 15th.
Nate Kreinbrink:
Yes.
Andy Fergurson:
Yeah. Yeah, that’s pretty significant. Feels like July 15th.
Nate Kreinbrink:
It does. It does. It’s definitely summer. It’s hot.
Andy Fergurson:
Yeah. I heard the weatherman say it’s going to be a rinse and repeat day, but I don’t think there’s any rinse. I think it’s just the same old hot, no moisture whatsoever.
Nate Kreinbrink:
Yeah. Next week, I think down into the 80s. So that’s…
Andy Fergurson:
All right.
Nate Kreinbrink:
It’ll be good.
Andy Fergurson:
I’ll take it.
Nate Kreinbrink:
That’ll be bearable, I think. But no, summer’s here. It is nice. It’s kind of weird to say, but I think about a month until school.
Andy Fergurson:
Yeah, I think I had a board meeting on Monday night and I said that. I said about a month and I was quickly corrected to six weeks.
Nate Kreinbrink:
Six weeks. Okay.
Andy Fergurson:
They don’t want us taking away any of those days. So six weeks till they open the school door.
Nate Kreinbrink:
So a little over a month. We’ll go with that one.
Andy Fergurson:
Yeah. Month and a half.
Nate Kreinbrink:
Yes. So hopefully everyone’s enjoying their summer and a lot of the youth activities for summer, baseball, softball, all the travel, all that stuff is kind of-
Andy Fergurson:
Yeah, vacation, summer camps, all that stuff.
Nate Kreinbrink:
… winding up, and so enjoy it. Get out there, spend some time, see all the great activities, attractions and everything we have in our area.
Andy Fergurson:
Yeah. Get to the pool, get those opportunities to do those things that you can only do for a few weeks in the summer.
Nate Kreinbrink:
Because again, it’ll be here quick. It will be here quick. So again, this time of the year also, we kind of see from a tax front, it seems to be, I guess you would almost call it like letter season. It is letter season. Notices, all that stuff.
Andy Fergurson:
Yeah, it is letter season. And I always want to put together with that the idea that that means it’s scam season too, right?
Nate Kreinbrink:
Yes.
Andy Fergurson:
So always remember, the IRS is never going to call you. They’re never going to call you and say, “Send me an Amazon gift card to eliminate your IRS debt.” That’s never going to happen. They’re always going to send you a letter. But it is the time of letters. It is the season of letters. You’re going to get notices. We’ve seen a lot this year for notices that talk about we changed your return. Now you’re due a refund, but we don’t have your bank account information, so give us your bank account information. A lot of people think that may be a scam. It’s not. You can go online, set up an IRS profile and put in your bank information and that’s really safe to do.
But we also see other notices that are coming out. A couple we’ve seen lately have been the failure to prepay penalty. And what that is is the IRS has… Well, not just the IRS. The IRS in most states, I know Illinois and Iowa both do it. They have the right under the Constitution or under the code to charge you a failure to make estimated or timely estimated payments penalty. What that means is if you owe more than $1,000 at the end of the year, even if you’ve made estimates or you’ve had withholding or something like that, they can charge you an additional penalty for not prepaying enough taxes. I think it comes from years back when maybe people would owe 40, 50, 60, $70,000 in taxes and they would just wait until the last day and pay it because it made more sense for them to hold their money through the year than it did for them to prepay.
And so that law eliminates your ability to hold off paying your taxes if you know they’re going to be there. And so you could have a failure to prepay penalty. It’s 100% legal. There’s nothing you can do about it. You can’t get it wiped away. It’s just one of those things where you got to be prepared to pay it. So it’s important to kind of know where you’re going to be through the year to make sure that if you’re withholding through your paycheck, usually if you’re withholding through your paycheck, you’re going to be fine. Unless you’re one of those people who goes in and turns off withholding a couple of times a year or says, “Hey, you know what? This is a big overtime check, so I’m not going to withhold anything on it. I want to get the biggest bang for my buck out of that.”
That’s fine. You can do that. Just be prepared. You may end up with a penalty at the end of the year. And it always feels like the IRS is kind of sticking it to you when that happens. Everybody will call me and be upset and say, “How can they do this?” I’m like, “Well, it’s the law.” And they’re like, “Well, I didn’t even know that was a law.” And I was like, “Ignorance of the law doesn’t protect you from the law.” Just like if you’re driving down the highway and all of a sudden, or you’re driving through some rural area and you’re going 60 and all of a sudden it’s a 30, you didn’t see the sign and you go 60 through town, you’re still breaking the law. I mean, just because you didn’t see it or didn’t know doesn’t protect you. So just be prepared for that.
It’s better to make sure that you’re paying the right amount. If you’re one of those people who likes to kind of keep it just about break even, that’s fine too. Just understand the risk that you’re taking. If you get above a thousand dollars, you could owe some more money both to the Fed and to the state.
Nate Kreinbrink:
Well, and I think too, it’s important to keep track of that. And one way that the IRS and kind of you guys as tax preparers as well are looking at doing it to make it easier is creating an IRS profile and being able to create an account with the IRS essentially to keep track of what it is that you may have paid or what it is that you owe or to look at a letter that you may have lost or said you didn’t get or whatever the case it may be. But that is coming more common and they’re kind of pushing people to do that.
Andy Fergurson:
Yeah. And I would totally do it. There’s a lot of advantage to having that IRS profile. Eliminating the phone call is the biggest thing. Most people call about, “What’s my balance?” Well, if you had a profile, you could see it just like you could a credit card statement or a bank statement. And so I think it’s important while you can to set up those profiles. Now, here’s the interesting thing. If you’re married, you need to set one up for yourself and for your spouse. I had a case this year where the IRS changed a person’s return. They had made an estimated payment that I didn’t know about. And so the IRS is like, “Hey, you’ve got some money coming back to you.” But what was interesting is there was an estimated payment made in the husband’s social security number and then there were a couple of estimated payments made in the wife’s social security number.
Well, the IRS wasn’t linking those payments together, and so the IRS was like, “Hey, we owe you a couple thousand dollars,” when actually the IRS owed them like $8,000 instead of like $2,000. And so for some reason the IRS isn’t linking those spouses together very well, but it’s important to have an IRS profile. It’s important for both of you to have an IRS profile so that you can see what payments you’ve made, see what your balance remainder is.
Nate Kreinbrink:
Right. And I think that’ll just help you with any questions going forward. And again, when we talk about time of the year and we talk about kind of tax topics and what we’re looking at, one big one right now is looking at kind of if you need to change any of your 401k contributions and what they may look like. And again, understanding some of those new laws that went into effect as far as, again, if you’re maxing it out, what those catch-up contributions need to look like this year going forward compared to maybe what you were used to doing in the past.
Andy Fergurson:
Yeah. So that’s a big change this year. For high earners, the IRS changed the catch-up contributions. So if you made $150,000 or more in your box one of your W-2 from an employer, your catch-up contribution cannot be put into a traditional 401k. It has to go into the Roth version. So they want you to pay tax on that catch-up contribution, and that may change the way you want to strategize. I know couples who maybe the higher earner in the family is maxing out their IRA contributions and the lower earner is not putting anything into a 401k. And so it may be one of those things where instead of the higher earner putting $30,000 in, they may want to put 24,500 and then have the lower earner put some into their 401k and offset more tax that way.
So it’s just something to be aware of that contribution limit to the 401k has shifted just a little bit. It’s not going to impact a lot of people, but it’s going to impact enough people that it’s worth talking about. And so if you are one of those people who maxes out your 401k, make sure that you’re able to max it out to where you get the best benefit for it.
Nate Kreinbrink:
Well, and like you said, I mean, if you don’t, I mean, you’re still able to save. It’s just going to look different on your tax return slightly because you’re not getting that full deduction for that maxed out contribution.
Andy Fergurson:
And then there’s not anything wrong with putting money, the catch-up contribution into a Roth. It’s just usually if you’re a high earner, you’re at your highest tax rate, probably that you’re going to be in your whole life. And so we don’t want to pay tax at that rate. That’s the value of the 401 contribution. We want to kick that can down the road and pay tax at a lower rate at a later time if that’s possible. And so it just changes your strategy. It’s worth looking at. And so just be aware that that changes for 2026.
Nate Kreinbrink:
Right. And then lastly, again, there’s always a talk, and again, I think it’s important to look at this, and again, not that that’s why you give, but there is an additional benefit as far as any charitable distributions, or charitable contributions and being able to maybe take a deduction above the line depending on what your tax situation looks like.
Andy Fergurson:
Yeah. That above the line deduction means that when you take a deduction for charitable contributions, in years past, you had to itemize in order to benefit from that charitable contribution. Well, above the line means that you’re going to get a deduction this year if you don’t itemize. And so there are tons of people who give a couple hundred dollars to their church, maybe a couple thousand dollars to their church who aren’t even reporting it to their tax preparer because it doesn’t matter. Or in years past, it didn’t matter. Well, in 2026 and going forward, it does matter. So it’s important to report those charitable contributions or keep track of those charitable contributions. Maybe you give 200 bucks a year to the YWCA or something or the Humane Society or something like that. Hasn’t been enough to make a difference. Well, this year, 2026, it will because you’ll get a deduction above the line for that.
And you want to make sure you keep track of those and make sure they report them. I know tons of people who live in Illinois who haven’t reported their charitable contributions for years because it’s been a hundred years since they’ve been able to claim any of that. And so now it’s going to matter. So we want to make sure that we get those reported and recorded.
Nate Kreinbrink:
All great stuff. If you’ve got further questions, give them a call. He’d be happy to kind of go through this stuff. Did want to mention real quick here before we run out of time that every month, NelsonCorp is featuring a new charity of the month. For the month of July, we are focusing on the Big Brothers Big Sisters Over the Edge for Kids’ Sake Event. Andy, I appreciate you joining me today.
Andy Fergurson:
You’re welcome.
Nate Kreinbrink:
Enjoy the rest of your summer. And again, this is Nate and Andy with 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 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. For more information, visit our website at www.nelsoncorp.com.