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 Kreinbrink. I have Andy Ferguson joining me today. It is not the third Wednesday of the month, but it feels kind of like the third. It’s flying by.
Andy Fergurson:
Yeah, it’s cold and dark all the time.
Nate Kreinbrink:
Not until Saturday. It’s 70.
Andy Fergurson:
Yeah, I know.
Nate Kreinbrink:
Winter’s over.
Andy Fergurson:
Swimsuit weather on Saturday.
Nate Kreinbrink:
Winter is over. We made it through it. Congratulations, everyone. Spring is here.
Andy Fergurson:
So now we’re going into third summer.
Nate Kreinbrink:
Yeah, pretty much.
Andy Fergurson:
Did you see the Northern Lights last night?
Nate Kreinbrink:
I did. It was pretty cool.
Andy Fergurson:
That was pretty awesome.
Nate Kreinbrink:
Pretty cool.
Andy Fergurson:
It’s the first time I’ve ever been able to see them without my camera.
Nate Kreinbrink:
Mm-hmm.
Andy Fergurson:
You know what I mean? You can go put your camera on the sky and see the stuff, but I could see them last night without my camera in town.
Nate Kreinbrink:
Yeah. It was pretty impressive. Again, you could see the tints of the color, but younger son, Brax, he sent me like 543 pictures that he took last night. They were cool. It was very awesome to see.
Andy Fergurson:
I’ve never seen it that bright before, so I think it’s super cool. I was sending pictures to all my family that doesn’t live-
Nate Kreinbrink:
Yeah.
Andy Fergurson:
… as far north as me and showing them, and my sisters and parents were kind of jealous that I got to see them in person and they didn’t.
Nate Kreinbrink:
Yeah. No, it was definitely very cool. So neat to see that. November’s moving right along. High school basketball started.
Andy Fergurson:
I know.
Nate Kreinbrink:
Winter sports started, for girls.
Andy Fergurson:
Yeah. Girls started practice.
Nate Kreinbrink:
I would say that boys start this coming week, but it’s hard to believe that season is here.
Andy Fergurson:
Yeah, two weeks we’ll be watching basketball games again.
Nate Kreinbrink:
Yes.
Andy Fergurson:
I can’t wait. I love basketball season.
Nate Kreinbrink:
It’s a good time. It’s a fun time. And again, area schools, wish them the best of luck this year. It’s always exciting as you transition into a new season, you kind of have that anxiousness in what’s going to come out, but it’s-
Andy Fergurson:
The only thing I don’t like about basketball season is before basketball season is over, we’ll be in tax season.
Nate Kreinbrink:
Well, let’s talk taxes then-
Andy Fergurson:
All right.
Nate Kreinbrink:
… because you had a Do Not Disturb sign on your door yesterday because you were in tax school.
Andy Fergurson:
Yeah, I was at Illinois Tax School. It’s the time of year when we go and get our continuing education, and Illinois Tax School’s a real good one. So yeah, every day this week I’ve got four-hour sessions of continuing education webinars to learn the updates on taxes. And it was good yesterday, they started out with the Big Beautiful Bill. I learned a lot of things that I hadn’t read for myself before and they brought out some things that were interesting.
Nate Kreinbrink:
Well, and I think, again, you always jot down eight pages of notes that you bring up here, and I see the reoccurring theme that we have on a lot of these, what you have is … well, kind of.
Andy Fergurson:
Kind of, yes.
Nate Kreinbrink:
Because none of it was exactly clear when it was unveiled, exactly what qualifies and all the specific kind of qualifications that you had to check to be eligible for it. And now that they’re — excuse me — starting to come out, it is going to have an impact as far as who does qualify and who maybe not qualify, more importantly, with it.
Andy Fergurson:
One of the things that I thought was interesting yesterday, one of the presenters said, if you were paying attention while this bill was being developed, you would hear something that Republicans would say about the bill, you would hear something Democrats would say about the bill, then you would hear something the House would say about the bill, and then the Senate, and then the President; and he said sometimes that was five different things about the same aspect of the bill. And so what actually is true and what actually can we depend on is important information.
And more than anything, I think this year, you need a tax preparer. You need somebody who has studied this law. If you’re one of those people who does your own tax return, more power to you, but just please be careful. Make sure you’re looking because there is a lot of stipulations. And like you said, I wrote down all the different key components to the law that everybody’s focused on. And almost all of them, I’ve got the word ‘false’ or ‘kind of’ behind it because it’s not exactly what you heard in the news.
A good example is the Social Security’s not taxable. I’ve already had people come to me and say, “Hey, President Trump said that Social Security’s not taxable this year.” Well, no, that’s not true. He made that promise, but when they went to write the bill, they found out that they couldn’t make Social Security not taxable based on the way it is written into the tax code. And so instead what they did is they created a deduction. It’s not a credit, it’s a deduction. And that deduction is a senior deduction; it’s not at all related to Social Security. So if you have a pension, but no Social Security because you worked for, I don’t know-
Nate Kreinbrink:
The railroad-
Andy Fergurson:
… the railroad, or the-
Nate Kreinbrink:
… or Illinois school teacher-
Andy Fergurson:
… yeah, Illinois municipal group, you are still eligible for the senior deduction. It’s age-based. It’s not related to Social Security at all. So you might be 62 or 68, and have not taken Social Security … well, not 62. If you were 65 but you hadn’t taken Social Security yet, you are still eligible for that deduction.
Nate Kreinbrink:
Or if you’re 62 on Social Security, you’re not eligible.
Andy Fergurson:
You’re not eligible, right.
Nate Kreinbrink:
Right. You have to be age 65 or older.
Andy Fergurson:
Right. Age is the restriction, and the other restriction is income. And so if you have too much income, that deduction starts to phase out. And because it has an income restriction on it, that means it’s not eligible to anybody who files married filing separately. So if you’re a married filing separate filer, over 65, and would otherwise qualify for the deduction, you’re not going to get it simply because of your filing status. So it’s important that you consider things like that. If you are somebody who’s a married filing separate filer, consider the reasons you file separately because it may be worth filing jointly just for this temporary deduction. It’s only three years. The Social Sec- I’m sorry, the Additional Senior Deduction is what it’s called. That deduction is only available until 2028. Most of these things that are in the new tax law are available until 2028 or 2029. I think that’s an interesting thing, as well.
Nate Kreinbrink:
Other than tax brackets.
Andy Fergurson:
Other than tax brackets, those are permanent. Other things are permanent. The gift tax exemption, or the gift tax lifetime limit, being higher at 13 million now, that’s permanent as well. It’s going to be indexed for inflation. So there were a couple of things that were made permanent. All the new stuff is temporary, and so that’s important. So that changes how you plan for doing things.
Nate Kreinbrink:
Well, and I think that’s extremely important. Like you said, if you’re doing it on your own, again, I know all the additional studying, and the additional rules and regulations and codes and everything that get added, it’s just a lot for one person to be able to take on if you’re doing it by yourself. And again, understanding some of these things are very specific to see if you qualify. And part of those, the three main points of that tax bill as it was being discussed, and debated, and thrown out, was obviously Social Security. The next one was no taxing on tips. And that has a lot of different qualifications to it. And again, it’s not as easy as, “Hey, if I make tips, they’re not all taxable.” Well, there’s qualifications to those as well.
Andy Fergurson:
Yeah, and there’s a limit. There’s an income limit threshold, which again makes it to where, if you file separately, you’re not eligible for that. The tips have to be in an approved tip industry. So one of the presenters mentioned yesterday, he saw a TikTok where a mechanic said, “I’m going to charge $1 for service, and then the rest is going to be a tip. I’m going to encourage people to pay me $500 for a tip and I’m only going to bill them $1 as well.” Mechanics are not in a generally tipped industry, so it has to be those ones that are regularly tipped. Food service, hospitality, those types of things, are in regularly tipped industries. Those are going to be qualified tips.
And then there’s an income limitation and a deduction limitation, like the deduction is limited to $25,000 and it has to be money that’s already been included in your income. So if you have a W-2 and your W-2 says that you made $50,000, and then you come in to prepare and say, “Well, I also got $20,000 in cash tips,” well, those tips are already not in your income, so you don’t get a deduction for those tips because they’re not in there. If those cash tips are counted into your income, then yeah, you would get a deduction for those.
Nate Kreinbrink:
And again, married filing separately is not included.
Andy Fergurson:
It’s a no-go for married filing separately. That’s because of the income limitation. If you’ve got a doctor who makes $300,000 a year and then somebody who works in the service industry and works primarily on tips, they don’t want them filing separately so that they get the deduction.
Nate Kreinbrink:
And lastly with that is the no taxing on overtime. And again, that one, everybody thinks like, “Hey, if I work 40 hours and my 41st hour, it’s all completely not taxable,” and that’s simply not true.
Andy Fergurson:
It’s simply not true. So a better example might be you work … you have, I don’t know, $75,000 in overtime on your check for a year. You’re a construction worker, you work and you make $60,000, but then you made 75,000 in overtime. Well, that’s not all overtime. The only part that’s deductible is when you think about time and a half; the only part that’s deductible is the half. So you would have to figure out what is the half of the overtime. So if you’ve got 50 hours of overtime, you got to figure out what your overtime rate is and then just take the half as the deductibility part. That’s going to be a responsibility of employers to help get that number.
But again, there’s other limitations. There’s income limitations. If you work at a factory and you make $160,000, you’re probably not going to qualify. So it’s important to make sure you know the limitations on all those things.
Nate Kreinbrink:
Again, all great stuff. And again, if you got questions, call now.
Andy Fergurson:
Call now and make sure you got to prepare this year or you’re using … I guess the other thing I would say is use software. So if you don’t have a preparer, make sure you’re using some kind of software because the software has to have all this stuff caked into it. And so just don’t do one by hand because you’re going to miss something. And it could be to your advantage, it could be to your detriment, but you’re going to miss something if you’re doing it by hand this year.
Nate Kreinbrink:
All great stuff. And again, as long as schedules work out, you’re coming back next week-
Andy Fergurson:
All right, let’s do it.
Nate Kreinbrink:
… because we got a lot more bullet points to hit.
Andy Fergurson:
Let’s do it.
Nate Kreinbrink:
Again, want to mention real quick before we run out of time, that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of October will be donated to the Dolly Parton Imaginary Library of Clinton County. 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 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.