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 Inc., a broker dealer member of FINRA/SIPC. Investment advisor representative Cambridge Investment Research Advisors Inc., 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. This is Nate Kreinbrink bringing you today’s program. Almost the middle of March. Hard to believe March is already flying right by. It was good to see January, February pass through. Getting into March. Exciting time. Starting to see a lot of the area schools having a spring break coming up, some of the excitement that brings. And then obviously, the sprint to the finish line to end the school year.
Transitioning to, in the high school sports world, basketball season’s kind of wound up for all the area teams on the Illinois side. You’re starting to see that transition into baseball season, softball season. The Iowa side, you’re seeing the transition into track. A lot of teams have already started that practice and meets, whether they’re indoors or trying to sneak in some early outdoor meets there. Always a fun time to see that. Golf season’s under way, and also spring training. You’re seeing baseball on TV. It’s a fun time.
Warmer temperatures are ahead. Another pleasant morning this morning, but obviously as we all know, springtime March, especially here in the Midwest, Iowa, Illinois regions, you never know what you’re going to get. I’m sure we will have a little taste of winter again, but just know it probably won’t be around long. And again, this time of year, getting into today’s program, talking taxes a little bit. Next week is the third Wednesday of the month. Andy Ferguson with NelsonCorp Tax Solutions will be on, getting a little bit more in depth with what he’s seeing so far in tax season, give you a few pointers, a few heads up as far as what he’s seeing.
Kind of want to talk a little bit bigger picture taxes today. Obviously, you got a little over a month before the tax filing deadline, unless you don’t file an extension. Again, that’s April 18th is the tax deadline this year, so a little over a month. Want to make sure that, obviously, you get everything. Still some loose documents that are hanging out there? Make sure you start getting those gathered up and get them into your tax preparer, so again you’re not pushing that deadline right at the very end of it.
It’s also a deadline if you are still looking at making any IRA or Roth contributions to your account as a 2022 contribution. Again, just as a reminder, if you do have an IRA or a Roth account and you want to make a 2022 contribution, you still are able to do that up until the tax deadline. Again, as long as income wise you’re able to make contributions, as long as you didn’t max it out for 2022, you have that opportunity to still make those contributions.
The limits for 2022, if you’re under age 50, was $6,000 in 2022. If you were over age 50 and still had earned income and were eligible to make those, was the $7,000, is that a thousand-dollar catch-up contribution if you’re age 50 and over into either a Roth account or an IRA. So again, if that is an option, if that is looking at it, a lot of times people, if they are getting a refund back, will take that and invest it right back into their account as a 2022 contribution.
Again, just a reminder, if you are going to do that and you’ve put it into it as an IRA contribution, you will want to make sure that you get that accounted for on your 2022 tax return. So again, don’t get your taxes done. File them, get the refund back and then make an IRA contribution because it’ll be changed. You’ll have to file an amendment. So again, make sure all that is taken care of prior to the tax deadline obviously, and then making sure that your tax preparer knows of your wishes so they can get it accounted for on there.
Again, a lot of times people look at taxes, they look at taxes differently. It’s obviously, looking backwards, it’s reporting what your taxable income was in 2022, what taxes you had withheld in ’22, reconciling that, and you either have to pay something in the remaining balance. Or if you overpaid, you’re going to get a refund back. Understanding what those numbers mean, I think, is imperative to doing future planning. Obviously, if you get a refund back, you overpaid your tax, and essentially they’re returning your own money back to you.
I know Andy’s been on here before and he’s kind of joked about it and said he can pretty much make that number whatever it is that you want it to be. If you want to get a big refund back, we can withhold a little bit more throughout the course of the year in order for you to get that refund back. Again, it’s understanding what that is, and understanding what income you have coming in and what withholdings you have on those current incomes that you have. Maybe you need to adjust it a little bit. If you’re having to pay in a lot at the end of the year and next year is going to be roughly the same situation for you, you may want to go and start withholding a little bit more from a paycheck, from a social security benefit, from a pension amount.
Looking at all that, if you’re getting a large refund back, and maybe we need to dial that back a little bit. If you’re taking IRA distributions and you’re withholding something, maybe we need to look at dialing that back in order to control that, either the refund or the amount that you’re having to pay in there at the end of the year. Imperative to understand that. Imperative to do some planning and being able to understand how you can adjust that number and what adjusting it will mean for you next year when you’re looking at doing that.
A big issue that we see with that is individuals who are retired, maybe just social security income is the only income that they are getting. All of a sudden something comes up and they take a large distribution from a tax deferred account, so a traditional IRA or a traditional 401(k), and they wonder why all of a sudden they have a big tax liability when they file taxes for that year.
Previous years with just Social Security coming in, they really didn’t have to either one file or they pretty much broke even with their tax filing. They take that big distribution and wonder why they have to pay in a big amount when it comes tax time. And the reason being is, Social Security in and of itself is not taxable. If Social Security’s the only thing that you are getting in, there’s a good chance that you’re not paying any taxes on it; or if you are, very little. There’s different thresholds, however, that make Social Security taxable, and that’s dependent on your income. If you’re single or if you’re married, there’s different thresholds that, again, bring up to 50% of your social security benefit taxable. Or if you’re over the other one, up to 85% of your social security benefit would be taxable. Again, not taxable at 85%. 85% of your benefit is taxable at the tax rate that you are in.
Where we see the issue with this is, all of a sudden you take that large distribution from an IRA account and it puts you over those thresholds. Previously, Social Security wasn’t taxable. You take out those large distributions from IRA or 401(k) account, it pushes you over a threshold. All of a sudden, now it’s bringing Social Security dollars into the taxable equation. Again, imperative to understand exactly what any distribution will do, not just from an immediate tax point with what you want to withhold from that distribution, but how it may impact any other income that you have. And again, as I just mentioned, impacting that social security benefit is the biggest kind of challenge that we see there as far as taking distributions. Also, if you are doing a Roth conversion, we’ve talked about the benefits of looking at those numerous times on this program. But again, that does raise your income in the year that you do the conversion.
We want to look at how much we’re taking out, how much we may potentially be doing a conversion of, and how is that going to impact any other income that we have. Again, work with your tax preparer, work with your financial advisor. Make sure that you have the answers to the test before you do anything, because again, as it is so much with this stuff, once you do it, there’s not a lot of redos where you can go back and undo it, so understanding that is extremely important. And again, it just brings in the picture as far as the importance of tax planning. We’ve mentioned, too, a lot of times as far as the difference between tax preparation, basically what we are going through now, looking at last year’s income, withholdings, and basically reconciling that with the IRS, versus tax planning.
Tax planning is looking forward and understanding what our tax was, what can we do to make it more beneficial for us for the next year when we do file. Again, a lot of your tax preparers aren’t going to be in the mood to do a lot of tax planning right at the moment, but as soon as tax season is over, the dust kind of settles, make sure you go in there. If it didn’t turn out the way you had hoped or had expected this year, sit down with them after tax season, after the tax deadline. It still gives you plenty of time throughout the course of the rest of the year in order to make any changes that you would need to do to make that, 12 months from now, your tax filing for 2023, a little bit more easy to swallow as far as any changes that you would want to make.
Again, a lot of great stuff. Just again, a reminder. If you have not got your stuff altogether, don’t wait till the last minute. Obviously, your tax preparer will be happy that you don’t wait till last and try to push that thing through. I know they’re filling up and they still have some openings. If you’re still waiting, feel free to give either Andy or Mike at NelsonCorp Tax Solutions a call. They’d be happy to get you taken care of.
They will be on next week, diving a little bit more in the taxes. Hope everybody’s well. Did want to mention real quick before I run out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of March will be donated to the summer reading program at the Comanche Public Library. Again, this is Nate Kreinbrink with NelsonCorp Wealth Management, 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 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 Inc., a broker dealer member of FINRA/SIPC. Investment advisor representative Cambridge Investment Research Advisors Inc., 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.