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, it is the third Wednesday of the month. This is Nate and Andy.
Andy Fergurson:
Good morning.
Nate Kreinbrink:
Taxes is the topic. But, first, it’s a big week for you.
Andy Fergurson:
It is a big week.
Nate Kreinbrink:
It is a big week for you and it’s an exciting week. Obviously, you got a senior graduating this week, Clint High has graduation, and all that fun that goes with it. But, you also have a state track…
Andy Fergurson:
Two-time state qualifier. So, this is her second year going to state. This year she went in two events. So, Aubrey’s going in shot put and discus this year. So, we’ll leave tonight. We’ll go to Des Moines. We’ll do state track on Thursday, state track on Friday. Then we’ll come back. We’ll have one day to get ready for graduation. Graduation on Sunday and then grad parties Monday. So, yeah, busy programs.
Nate Kreinbrink:
Fun. It’s fun though, Andy. It’s exciting. It’s fun.
Andy Fergurson:
And that’s only one of my seven kids. Yeah. Who doesn’t like to serve?
Nate Kreinbrink:
So, again, exciting time of the year. I think some of the schools graduated last week and a few more of them are this week. So, best of luck to all the area. High school graduates. All those participants in the state track, I know the area is going to be very well-represented. I think with the area schools out there. So, again, best of luck to all those. The other spring sports I think are soccer, golf, and tournament time.
Andy Fergurson:
Yeah, those things are coming to an end.
Nate Kreinbrink:
Baseball, softball, summer sports kicked off last night. So, it’s that time. It’s fun.
Andy Fergurson:
So yeah, it’s one of the most wonderful times of the year.
Nate Kreinbrink:
Kids are out of school, I think either the end of this week, or some schools the end of next week. So, congratulations to them. Good luck to the parents.
Andy Fergurson:
Yeah, it’ll be fun. Summer’s a great time. Then, throw on top of all those other things you throw in your vacations, and your summer camps, and your sports camps, and your summer running, and your on-the-field activities, and all those other things for the sports that aren’t happening in the summer. Let’s just throw in some extra stuff, because who doesn’t have spare time in the summer?
Nate Kreinbrink:
So, again, good luck to everyone, but let’s talk taxes today.
Andy Fergurson:
All right, let’s do it.
Nate Kreinbrink:
And I know, again, this list that you always bring with us, again, all these topics to cover, definitely relevant. Probably could give each one of these bullet points a show by itself, but the top one you have on your list here is, again, letters are starting to come in from the IRS and sometimes those letters then cause instant panic. But, it’s important to understand what it are that they are asking for, before you maybe overreact to it.
Andy Fergurson:
Yeah. I’m pretty sure just about anytime you see the IRS on a return address in a mailbox, I don’t know a lot, I even do it, and I know what most of the letters say, and I know that there’s not anything to be worried about. But, man, when I see the IRS on a return envelope, or as a return address in my mailbox, it makes me nervous, too. So, it’s natural. But, yeah, it’s letter season. So, a lot of letters are automatic. We’ve crossed the first major deadline and so all these letters are coming out. One of the ones we’ve seen a lot of is the IRS sending a letter that says, “Hey, we couldn’t direct deposit your refund, and so you need to do some things to get that.” And that throws some people into a panic, especially if they didn’t get a refund.
We’ve had a couple this year where they weren’t expecting a refund, they paid in, they can see the IRS took the money out on tax day, and they weren’t expecting a refund, but then here the IRS says, “Hey, we couldn’t make a direct deposit.” Immediately, they think this is a scam, this is something that I need to worry about. Somebody tried to file a refund in my name and now my life is going to be hell, because I’ve heard about this for other people who’ve gone through identity theft issues. And that’s a real concern, but what you should know is that the IRS does this every year, where they will get your return and they’ll just change it. If there’s something that you left off that they know you had, let’s say you made an estimate that you didn’t report properly, or your return preparer calculated a penalty, or interest, on your return and then you paid your bill a little bit earlier than expected.
Well, that changes that interest calculation to where they owe you $3, right? And, well, what’s that $3? It’s a refund and the IRS sends this letter out. They’ve always done it, where they’ve sent the letter out. They’ve always done it, where they’ve changed returns, but what is different this year is, we had so many more people who went to direct deposit and direct debit to pay the IRS, instead of putting the envelope into the mail, or something like that, or they paid online, or something like that. And so now, the IRS isn’t sure of your bank account information. They owe you $3, they need to get it off their books, and they got to find a way to get to it. So, what’s important to remember about that letter is that it’s not a big deal. It does encourage you to go on and make an IRS online presence, an online profile and account, because then you can just put your banking information in there.
You can also see exactly what they changed if you do that. So, there’s a lot of value in that, but if you do nothing after receiving that letter that says they owe you a refund, eventually, they’ll send you a check. It may take eight weeks, but, eventually, they’re going to send you that check. So, not something to panic about. As always, if you ever get a letter, you should make sure your preparer gets a chance to see it. So, before you do anything, you should let your preparers see it.
Nate Kreinbrink:
Well, and I think, too, you mentioned it there that the IRS is kind of following suit with every other agency and that’s encouraging you to do your transactions online, and that’s creating that IRS account, being able to make changes, or whatever. So, again, that’s the way that everything is going to, so you can kind of push it to the side for a little bit, but eventually that’s going to be how everything is going to be done.
Andy Fergurson:
Yes, that’s how business is going to be done. We’ve seen another letter, a couple of times too, where the IRS is asking people to verify their identity. Used to be you could call, or you could fill out a form and send it to the IRS to verify your identity, but now you’ve got to go online and do it, and that’s scary for people who aren’t comfortable with doing things online. The difference between the IRS and, say, your cable company is your cable company makes it really, really easy for you to give them money online and to set up your profile. They’re not nearly as worried about identity theft, and stuff like that. The IRS makes it a little bit more difficult. You got to jump through a little bit of a few more hoops, but on the back end, you’re in a much more secure environment when you do that.
So, it’s just changing times and it’s no fun, but we got to do it. And so, we’ve run into a couple of situations where people come in and go, “This is way outside of my scope to be able to set up an online profile.” But, unfortunately, we got to figure it out. We got to figure out a way to do it. And maybe that means you have somebody in one of your service organizations that’s helping you do that. Maybe it’s calling your kids, or your grandkids, over and getting them to help you do it. I mean, your kids and grandkids are super familiar with the things that the IRS is asking you to do, so it’s not the end of the world. And once you get through that process, man, if you have that IRS account set up, your life is going to be so much easier.
Nate Kreinbrink:
So, again, with that, and again, changes is kind of inevitable and it’s become the new norm and kind of our joke in the office is that, again, it’s your job security with changes in the tax law. And one of the ones that kind of sticks out a little bit, coming into this year, is the premium tax credits and how that affects those on marketplace insurance.
Announcer:
Yeah, this is a big one. In years past, premium tax credit, or advanced premium tax credit, has been… If you remember back to 2017…
Nate Kreinbrink:
That’s a while ago.
Announcer:
… 2016. I know, I can’t hardly remember that. I’m trying to think how old I was then. But, way back when, if you went over your projected income on your advanced premium tax credit, you had this… It was a cliff. If you crossed over a certain number by $1, all of a sudden all of your premium tax credit was repaid. And so, that created a lot of shocking off for people in tax time. Well, then we went into this phase after 2017 where we started to, maybe it wasn’t 2017, maybe it was 2020, we started to see that premium tax credit not be as much of a cliff and more of a phase out. So, if you went over by a couple bucks, you had to pay a couple bucks back. But, this year, 2026’s tax year we go back to the cliff and so, it’s a big deal now more than ever.
If you are getting a premium tax credit, if you have marketplace insurance, you need to make sure you are planning your income correctly, or don’t take the credit. So, one thing that I would tell people is, if you don’t take the credit and at the end of the year they owe you a credit, you’ll get it. You’ll get it on your tax return. But, if you do take it and you’re not supposed to get it, you’re going to pay all that back. So, if you get three, four, five, 10, $14,000 in credit and you cross that line, add $14,000 to your tax bill and that is a shock. That is scary.
Nate Kreinbrink:
Well, and I think, too, when you look at this, I mean this, when we talk the premium tax credits, it’s for those individuals that are on marketplace insurance. Marketplace insurance is most notably for those individuals that are retired, they don’t have access to a company retirement plan. They’re not yet 65, so they have to go out and buy insurance, and that’s where this is coming into it is and because that insurance is tied to your income. The higher your income, the less credits, the more you’re going to pay for your monthly premiums. The lower your income, the more credits you’re going to get, the lower you’re going to pay for those monthly premiums. And so, when you estimate what your income is, that’s what they’re basing it off of, and those are the credits then that you’re talking about.
Announcer:
Well, and another thing that happens with that group of people, it’s also a time when they do some tax-planning. It’s a time when they try and realize income or, “Hey, I’m going to cash in this annuity, or I’m going to do a Roth conversion, or I’m going to do this, or I’m going to do that,” because they’re in between working and retirement and so, just be advised that those things, those plans, oftentimes, are going to impact your income. And if they impact your income, it could have an adverse effect. You may think you’re saving some money by doing a Roth conversion and you may end up paying out an extra $10,000 because you cross the line. So, now more than it’s been in the last couple, five years, you need to make sure that you’re talking to an advisor when you’re doing that, make sure that you’re planning your income properly.
Nate Kreinbrink:
All great stuff. And, again, I think it all goes back to if you have questions, don’t try to do it yourself ask for help. This is a time of year where you can sit down with individuals and kind of go through some of this stuff, do some of that planning, but, again, don’t make that mistake and then pay for it in March, or April, or whenever [inaudible 00:12:20].
Andy Fergurson:
It’s so easy to talk to somebody. Just let somebody help you do it. Somebody who kind of knows what’s going on, and like you would do with any other thing. If it’s outside your comfort zone and it’s taken down a tree that’s next to your house, you don’t do it by yourself. You call in an expert to do it and let them help you.
Nate Kreinbrink:
All great stuff. Did want to mention, real quick, is that every month the Nelson Corp team is featuring a charity of the month. The charity for the month of May is the God’s Wills Giving Center in Morrison, Illinois. Again, Nate and Andy 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, 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.