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 joined this morning by Andy Ferguson with NelsonCorp Tax Solutions. I know Andy and I have been talking the last couple of days, this dog days of summer, get past the 4th of July. This year, because of the CARES Act and the extension of the tax deadline, July 15th, upcoming next week, has new meaning as opposed to what it has in years past.
Andy Fergurson:
Yeah, one week, one week from today. So it’s interesting, everybody who had any kind of tax return due after March 17th, so whether that was your standard 1040, or if you had an 1120 due, or if you had some other form that was due after March 17th, all of those forms come due one week from today, and we’re starting to feel it a little bit.
Nate Kreinbrink:
You had a couple tax deadlines this year.
Andy Fergurson:
Yeah, it feels like this tax season has been an eternity, which is okay. I mean, we’ve been able to spread it out, and that’s been healthy and good for us. Not nearly as many 18-hour days in there as we have had in the past, but now it’s coming to the end and everybody’s starting to remember.
Andy Fergurson:
I was mentioning to you earlier, the nice thing about an April 15th deadline is that the whole country is focused on April 15th. Whereas, you get into these obscure deadlines and you get into everybody forgets until July 7th so that they got to have their taxes done in a week. And so it’s just a different year, it’s a weird year, one that, as we do retrospectives and look back, we go, “Man, there’s not a whole lot we can take from this year and take forward because it’s just been so weird.”
Nate Kreinbrink:
It has been. I know that the deadline that we’re talking about is the extension of the tax filing to July 15th in response to the CARES Act that was passed back in March in response to the COVID-19, and the pandemic, and things along those lines. But it’s not just the filing of your taxes by July 15th, there’s also a few other things that people need to keep in mind as far as contributions to IRAs, Roth IRAs, those types of things, and that they also need to keep in mind.
Andy Fergurson:
Yeah. The first thing I’ll say is it’s a filing deadline and it’s also the deadline to have your taxes paid, so if you want, you can still have an extension. Normally, the extension would be six months, which would take you out to October 15th. This year, you can still file for that automatic extension, only it’s only three months, so you still only get the October 15th date.
Andy Fergurson:
What’s important about that extension is it does not extend the deadline for when your taxes have to be paid. So if you owe tax, you still have to pay your tax by July 15th or face a penalty for failure to pay. If you don’t owe tax, the penalty is zero. So because all the penalties are based off of tax owed, so the same for the failure to file penalty, it’s based off of the tax that you owe, and so if you owe no tax and you file on July 19th, your penalty for failure to file on time is based off zero tax owed therefore, the penalty is zero. And so it’s an important thing to remember. Just getting your taxes filed on time doesn’t get you all the way through the picture. You got to make sure that you get your taxes paid on time, which means they need to be postdated by the 15th of July in order to be considered on time.
Nate Kreinbrink:
Right. I think it’s what you said too, those that have IRAs, those that have Roths or whatever, that contributions that they can still make up until July 15th, if they haven’t already maxed out their 2019 contribution, can still be made into those types of accounts and still be treated as past year’s contribution and still keep 2020 completely full.
Andy Fergurson:
Sure. Yeah, we did it just this week. I actually did an amendment for a client this past week where they decided to put some extra money in, even though they filed their taxes way back in March or February. They decided they wanted to put a little more in to their HSA, and we filed an amendment and they got a little bit more money back because of that. So yeah, the deadline for the HSA contributions for 2019 is also on July 15th. The deadline for traditional IRA contributions for 2019 is on July 15th. That’s important if you use that as a tax strategy. If that’s one of the things that you use to minimize your tax, it’s important to make sure that those contributions are made by the 15th, even if your taxes aren’t filed by the 15th. Those contributions have to be made by the 15th in order to be effective for 2019.
Nate Kreinbrink:
So we talked a little bit as far as the upcoming deadlines and for those still needing to file their 2019 tax return, but even for those that have already filed and we talked to… Again, I think every day I’m back in the office or whatever, as far as just the different planning that people still can look at, even again, for those who have already filed their taxes, their taxes aren’t done and out of the way until March of 2021. There’s still some things that they can do from a planning standpoint yet this year and implement them and still have time for that to really take place and have a benefit for they’re filing their taxes yet this year.
Andy Fergurson:
Yeah. If you want to see a nerd get excited, talk to your accountant about tax planning because that’s the stuff that’s fun for us. The opportunity to help somebody avoid tax just by playing by the rules is super exciting. We’ve done some really neat things for people where we’ve saved them thousands and thousands of dollars. I’ve had experiences this year where we found people that actually pay less tax by not prepaying their withholding. By not taking withholding out, they pay less tax. And so there’s all kinds of things and it depends… It’s so individual. It is one of those things where I can’t sit here and say, “Oh, everybody should go and try this” because it is so individual. It depends on your status in life, where you are in your family, if you’ve got kids at home versus if you’re nearing retirement, versus if you’re in retirement and receiving social security, all those things are serious contributing factors.
Andy Fergurson:
But if you take the opportunity to go and plan and to sit down and say, “Here’s what I see coming down the road. Here’s what’s going to change in my life, I’m going to have this change. I’m going to have this change. I’ve got a kid getting married. I got a kid moving out. My wife’s going to start taking social security”, or, “I want to retire next summer”, or whatever the life change is. But if you can see that coming and talk to your tax accountant about it, you can make some significant impact on taxes. I know we talk all the time, I’ve heard you say a hundred times, that the biggest expenses you have in retirement are medical expenses and taxes, and I tell people, “You can’t control medical expenses.”
Nate Kreinbrink:
You don’t know what they are.
Andy Fergurson:
I mean, you have no control over it. You’re sick, you pretty much have to pay whatever they say to get better. But you can control taxes. If you make choices, depending on how and when you’re going to pay your taxes and what strategies you imply… And it’s something that’s too much for an individual to do on their own. You really need to talk to a tax professional. You need to talk to somebody who can say, “Here are your options, here’s what you can do, and if you pull this string at the right time, you can avoid some tax consequences.”
Nate Kreinbrink:
Right, and I think those two key terms that we always say, as far as the tax portion, is tax planning versus tax preparation. Most people look at and they get their taxes done, that’s tax preparation. They’re looking backwards and basically just reporting numbers that have already happened to the IRS. Tax planning is taking what we’ve already done and now looking forward, as Andy mentioned there a lot, as far as what can we do to better our situation from a tax standpoint. I know we talk about these things a lot, but I know you do too as far as some of those tax planning meetings with individuals, and those are those funky Roth conversions that people always mention and people just… I don’t still don’t think they quite understand the magnitude that these things can really do to benefit you. I know you sit down and explain these things to a lot of individuals when you do that tax planning step of it and how that really can help them not only now, but again, we’re looking down the road and how it really can help them.
Andy Fergurson:
Yeah, and the best thing about that is the idea behind a Roth conversion is the idea of controlling tax. Not avoiding tax, but controlling tax. You can take and determine when you want to pay your tax when you’re in that area of your life where you’re looking at a Roth conversion. You can choose to pay tax today or you can choose to pay tax later. If you believe that the opportunity to pay tax today is financially better for you, then the Roth conversion makes sense. The problem is some people don’t have the stomach to pay the tax.
Andy Fergurson:
For years and years and years, we’ve been taught that we should avoid tax and pay tax only when you have to, always kick the can down the road as far as you can. And for years, and years and years, that was a great strategy because taxes were high, but the difference is taxes now are low. And so it might be in your best interest to sit there and bite the bullet and say, “Maybe I should pay some tax right now and maybe I make that conversion so that I can get some of that taxation out of the way while I know that taxes are low.”
Nate Kreinbrink:
Again, all fun stuff. Again, Andy, you and I get up here, talking taxes on a early Wednesday morning and, look at this, time flies by. We’re almost out of time again. But did want to mention real quick that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of July will be donated to the Big Brothers Big Sisters, Over The Edge for Kids’ Sake with WHBS, Andy McCray. Andy, as always, appreciate you joining me this morning.
Andy Fergurson:
No problem.
Nate Kreinbrink:
Again, Andy Ferguson with NelsonCorp Tax Solutions, Nate Kreinbrink 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 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. For more information, visit our website at www.nelsoncorp.com.