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 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 today. It is the last day of the third quarter. Last day of September.
Andy Fergurson:
Last day of September. Yeah. My house is covered with Halloween decorations.
Nate Kreinbrink:
Teepee?
Andy Fergurson:
No, that’s the homecoming decoration. Yeah. Halloween decorate… My kids get into it, and so now my house looks like a lot of people were murdered in the front yard.
Nate Kreinbrink:
We’ve got some fall decorations, and it is starting to feel that time of the year, I guess you would say, but I think rain can be done though.
Andy Fergurson:
Yeah. I’m done with the rain too. My dog was headed to the library this morning with my wife, and she goes, “I’m going to put him in his Halloween costume.” I said, “It’s September.”
Nate Kreinbrink:
It’s not even October yet.
Andy Fergurson:
But she said they’re doing a Halloween costume drive where they do a swap. You can bring in your kid’s old costume and maybe pick up a new one. So I was like, “Well, he’d be good advertising for that if he’s walking around in his Halloween costume.”
Nate Kreinbrink:
What’s his costume?
Andy Fergurson:
He is Woody from Toy Story.
Nate Kreinbrink:
Is he excited about that?
Andy Fergurson:
I don’t know that dogs show excitement for being in a costume. They always look sad when you put them in a costume.
Nate Kreinbrink:
Yeah, like, “What are you doing to me?”
Andy Fergurson:
But yeah, he’s Woody and the other little dog at our house is Buzz Lightyear. So they’re a pair costume.
Nate Kreinbrink:
It is good. No, year is definitely flying right by. It is hard to believe that we are, again, tomorrow, October 1st, flip the calendar over, beginning of the fourth quarter. October also is a kind of big month in tax time too with the extension deadline coming out there October 15th.
Andy Fergurson:
Yeah. The final deadline is in two weeks. Two weeks from tomorrow is the final deadline, October 15th. So what that means is, if you applied for an extension before April 15th, they give you an automatic six months. That six months is October 15th. So it’s time. For those of you who haven’t brought your tax stuff in, it’s time. If you haven’t brought your stuff into your tax preparer at this point, you are rolling the dice, because although it may only take an hour or so to do your tax return, you have to remember that you are not the only procrastinator on the earth and your tax preparer probably has about 30 or 40 of them that are all going to wait until the last two days. So then it’s going to be first come, first served.
So you might as well get in now or you’re possibly not going to make it, which isn’t that big of a deal if you don’t owe any tax. If they owe you a refund, you’re fine. You’re not going to face any consequences from being late. But if you owe tax, that tax was due on April 15th. So now, if you file late, you get a late filing penalty, a failure to file on time penalty, and they will charge you interest since April 15th for anything that was due. So you owe a thousand bucks and now all of a sudden that thousand bucks that you owe in tax is $1,200 because of the failure to pay on time or the failure to file on time penalty and the interest that you’re paying on top of it.
So really, there’s no reason to wait anymore. You have all your stuff. You should be getting it taken care of or you’re going to pay the consequence for it. Most people at this point know that they’re facing a consequence, but that doesn’t make it any more fun. Nobody should pay $200 or $500 or $2,000 more than they have to. Just rip that bandaid off. Let’s get it done.
Nate Kreinbrink:
Again, get that in. October 15th is that deadline, official deadline, but as Andy said, get it in earlier.
With this year too, as we continue to go, I mean, I know we always talk changes with taxes. Obviously, last year with the One Big Beautiful Bill Act that came in, was kind of a sweeping changes to a bunch of stuff. One big thing that really I think is going to impact a lot of people this year is those advanced premium tax credits. This refers to those individuals that are on marketplace insurance and maybe getting some credits based off of their income to determine what they’re paying for premium. It used to be kind of a graduated or a gradual kind of increase as far as income goes higher, credits go down. Well, now, for ’26, it reverted back to the old laws where it’s essentially a cliff. There’s no gradual phase in. If you go over by a dollar, you lose everything. I think a lot of people realize that and probably will find out not in their favor when it comes to tax time that they’re going to probably need to pay back some of those credits.
Andy Fergurson:
Yeah, it was very easy in the last couple of years. So I think it was 2022 when the Biden administration put some relief into that advanced premium tax credit. What that meant was, if you went over the modified adjusted gross income limitation, which was 400% of the federal poverty level, if you went over that amount, say you went over by, I don’t know, 300 or $500, then what would happen is you’d get a gradual walk back on what your advanced premium tax credit should have been, and you only had to pay back a portion of what you were overextended.
Or let’s say that you went way over, there was also a limitation based on your income on how much you had to pay back. So you might have gotten 10% of it or something like that. All of that softness in the law is gone. In 2026 tax year, like you said, you crossed the line, you crossed the line by $1 and now you may be looking at a $10,000 tax bill depending on what your advanced premium tax credit was. We saw this in 2020 and 2021, and even in ’17 and ’18, when we had that advanced premium tax credit where we’d see people go just barely over and then they’d have this huge reckoning that came. Sometimes there’s things you can do. I mean, there’s things that you can do where you can-
Nate Kreinbrink:
Lower your income.
Andy Fergurson:
… lower your taxable income, but all of those things have to be done by April 15th. So as we’re talking about tax year 2026, we’re talking about April 15th, 2027, there’s definitely things you can do during 2026 to lower your taxable income. You can increase contributions to your 401(k). You can make contributions to an HSA if you have one. You can make charitable contributions. You can try and increase your itemized deductions, things like that. All of those things would impact your income. Itemized deductions don’t really help with the advanced premium tax credit as much, but the pre-tax options through payroll definitely do. So HSAs, the other one, the flexible spending accounts, those were all things that can reduce your taxable income, 401(k) contributions, IRA contributions outside of work, all that stuff. So that can be significant, especially if you’re right on the edge.
There’s other things that have income limitations as well. I think that the advanced premium tax credit has the lowest income limitations, so that’s something to consider. But there’s other things that have income limitations as well. Maybe it’s a credit for a kid going to school. If that AGI limitation there is at 170,000 and you’re at 175 in your household, you might be able to do something. You might be able to get that $5,000, put it into your 401(k) and get the credit instead of losing the credit or having it phased out. So, definitely important to know where you’re at right now.
Nate Kreinbrink:
Absolutely. Like you said, I mean we still have a little bit of time left before the end of the year deadlines. Some of the accounts have deadlines as of 12/31, your retirement accounts at work, but like you said, the HSA, the IRAs, and that stuff has a April 15th deadline.
Part of the changes last year, and I think this was a big one that, again, got a lot of press as part of the new tax bill and obviously changes when it came to filing tax returns, but again, ongoing for 2026, and that is the difference in tax treatment for overtime and tips. And that’s, again, another big one that will show up on tax returns when people get them done for ’26.
Andy Fergurson:
Yeah. One of the things that I would consider with overtime and tips, in 2025, when you were earning your overtime, your employer did not know that that overtime was not going to be taxable. Or let’s say you were earning overtime in the second half of the year after the bill passed, they knew that it wasn’t going to be taxable, but they didn’t have a way to take the withholding off of your check. So what ended up happening is anybody who had significant overtime had all of this extra withholding that was taken because the way that the law changed, it changed in the middle of the year. Well, in 2026, that’s been corrected. So you may have noticed that on your overtime checks in 2026, you didn’t have as much withholding when you had overtime. And that’s because the employers were able to account for that when they were paying you, and they just didn’t take the money in the first place.
But what that does is, those of you that had a big cushion that came from no tax on overtime, that cushion is going to be significantly reduced because the money didn’t come out of your check in the first place. The overtime’s still not taxable, but you didn’t withhold anything against it. So what you may see is that even though you have the same amount of overtime, you’re going to see a reduced refund or maybe even a balance due because that no tax on overtime or no tax on tips may have propped you up in 2025.
Nate Kreinbrink:
So yeah, again, everything stays the same and you have those changes maybe on the way. Lastly, as part of that bill last year was the senior tax deduction.
Andy Fergurson:
Yep.
Nate Kreinbrink:
Again, with where that comes in, if you qualify 65 or older and your income is below certain thresholds, you get an additional $6,000 deduction on your return. So again, making sure we plan that, and does it allow you to maybe do some additional tax planning maybe in the form of conversions?
Andy Fergurson:
Yeah, that enhanced senior deduction is automatic, but so is the phaseout. So if you start to make too much money, they’re going to start to pull back on that enhanced senior deduction. So again, it’s an opportunity to plan, to know where you are. If you’re right on the edge and starting to lose some of that enhanced senior deduction, maybe there’s something you can do to draw that income back a little bit. And it may be something as simple as if you are taking IRA distributions and taking withholding, maybe don’t take the withholding because that will reduce your income and then you could get more of that enhancing deduction.
So again, it’s a planning opportunity. That enhanced senior deduction isn’t really a game changer. I mean, it’s not costing people tens of thousands of dollars on their tax return, but nobody wants to pay more than they have to. So if that enhancing your deduction can save you $1,200, you should do it. If it can save you $20, you should do it.
Nate Kreinbrink:
All good stuff. Again, tax planning time of the year, got questions, give us a call. Did want to mention real quick that every month NelsonCorp is featuring a new charity of the month. For the month of September, we are featuring the Hand in Hand out of Bettendorf, Iowa.
Again, this is 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.