Announcer:
It is time now on KROS for Financial Focus, brought to you by Nelson Core 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 Nelson Core 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, Andy Ferguson joining me today. What a difference a week makes. I think we were talking about a polar vortex or whatever last week when it was negative 20, whatever.
Andy Fergurson:
It’s 50 degrees difference. It’s swimsuit weather now.
Nate Kreinbrink:
50 degree difference as far as a week, and I know I’ve seen a joke or whatever, where us Midwesterners say that 30 degrees feels like a heat wave when you’re coming off of-
Andy Fergurson:
Yeah, I didn’t even need a jacket today.
Nate Kreinbrink:
I think you might need a jacket today, but that’s a different story for a different topic.
Andy Fergurson:
Well, you skinny people probably need a jacket.
Nate Kreinbrink:
It is totally different when you have 30 degrees coming off of a winter. Like I always say, 40 degrees in the springtime feels a heck of a lot different than 40 degrees in October and November. Just again, what your body’s used to and what you’re accustomed to with weather. But looks the next probably week taking us into February, looks pretty pleasant when we’re in the mid to upper thirties. I think next weekend I’ve seen maybe even a 50.
Andy Fergurson:
What?
Nate Kreinbrink:
So we’re going to be-
Andy Fergurson:
I’ll get a sunburn that day.
Nate Kreinbrink:
Melting off some of this snow pack, I guess they call it. Then get rid of some of this ice. That ice is treacherous when it’s frozen out there, but we are getting there. It will be spring soon enough.
Andy Fergurson:
I’ll watch it from my window.
Nate Kreinbrink:
You’ll watch it from your window. Spring training will start. You will watch that from afar because it is tax season.
Andy Fergurson:
It’s all but here.
Nate Kreinbrink:
It is all but here.
Andy Fergurson:
It’s happening.
Nate Kreinbrink:
Forms are coming in the mail, people are getting into that mood or whatever. I think you said what Monday is the first day that you can actually file, where the IRS opens up where you can actually submit them, start getting some of those taken care of. But it is here. Documents will be coming, so keep an eye out for them.
Andy Fergurson:
We’re starting to see a little bit trickle in at this point. Those that have fairly simple returns, maybe just a couple of documents, a social security document or a W-2 and a 1099, those are starting to come in. And I would encourage you if you are somebody that has something simple like that, to get in front of the line because very shortly everybody’s going to be getting all their documents and at that point there’s going to be a line. And so everybody wants to put it off. It’s like going to the dentist. Everybody wants to wait or they want to jump the gun, and there’s a delicate balance there. But as soon as you have your documents and you’re confident you’ve got what you have, you can make sure you get it processed so that you’re not one of those families that’s stuck at the back end with no time. There’s a limited number of available preparers, and if you don’t get one of those slots, you may be looking at an extension or whatever other option there is.
Dropping it off so that we can do it in the middle of the night while everybody’s sleeping or something like that. But I would tell you, if you’ve got your stuff, get it to your preparer, let’s go. There’s much more time at the front end of the season for prepares than there is at the back end of the season. But that being said, don’t bring it if you don’t have all your stuff.
Nate Kreinbrink:
Well, and that’s the tricky part with it, like you said, as far as to balance of that. Obviously, I mean, if you have everything that you need, a relatively simple return, you can drop it off now, they can get it ready and then on the 29th you can send that in to get that sent in. But again, it’s different documents are different timelines as far as when they arrive. Retirement accounts, those usually get them sent out relatively quick. Non-qualified accounts, investment accounts where you have certain positions seem to drag on a little bit as far as for that 1099 to come out. And a lot of times people are waiting on that last document to be, when is it going to get here? When is it going to get here? Because they want to get it filed. It’s just waiting for that.
And sometimes they’ll send out a preliminary one, which gives you an idea, but you can’t necessarily file off of that preliminary one. We have to wait for that actual form to come, and that’s a hold up a lot of times, but have everything ready and as soon as you get that, get it turned in.
Andy Fergurson:
Well, and that being said, you can look at last year’s tax return and look at the date that you filed and have a pretty good idea when you’re going to be ready. I mean, your documents are going to come about the same time every year. And so if you filed on March 13th last year, you’re probably going to be ready to file around March 13th this year. Well, don’t wait until March 13th to schedule your appointment. You can call today and schedule your appointment for March 13th. It’s going to be right in the same area of time, but don’t be one of those people that gets left out of the mix because, like I said, there’s a limited number of slots available, and so you want to make sure that you get in one of those slots.
Nate Kreinbrink:
And that all comes into just that preparation and understanding with that. Another item, I think, with filing for taxes is the W form. And we see that a lot of times when that comes up with individuals who maybe switched jobs, had a new income that’s coming in, starting a social security benefit, starting a pension, they get that packet of information and there’s the federal W. There’s the state one that goes along with it and they’re like, what do I put for this? And again, with the Iowa one for this year, that did change a little bit as far as what they’re including and how you fill that out, going from number of exemptions to actually have to physically putting in a dollar amount that equals to that exemption. And again, it throws people off a little bit and understanding what is being withheld so that there are no surprises when you get to tax time and have to settle up with those withholding.
Andy Fergurson:
Yeah, sure. One of the things that’s important to understand about W forms is that they’re independent to the source of income. So if you have three jobs and you fill out three different W-4 forms, those three jobs can’t see each other. So if you put married on all three of those W-4 forms, each one of those forms is going to do, when it’s entered into the software, that software is going to do a calculation like you are married and getting a married exemption on that income. Well, if you think about that, what that means is if the married exemption is $25,000, each one of those incomes is going to exclude $25,000 from your taxable income, which if you add all three of them together, that’s $75,000. Then you get to the end of the year and you’re only going to get 25,000. And so what ends up happening is when people fill out all their W-4 forms for their multiple sources of income the same way, they end up under withholding pretty severely.
And so it’s important to take that into consideration. The other thing to consider about that W-4 form is that if you follow the instructions, the W-4 form is probably four or five pages long. If you fill out all the worksheets and you follow the instructions to a T and you put all the numbers in exactly, and you do all the calculations, that form is designed so that you end up with a zero at the end of the year, meaning that you pay in exactly enough tax to cover your tax burden. No more, no less. Well, that’s not always where people’s comfort spot is. I don’t like being, well, actually, I would love to be exactly at zero, but a lot of people don’t like to have to pay in anything to the Fed or to the state.
And so they would rather over withhold than under withhold. And so if you under withhold because you filled out that form the exact same way on all those forms for all those sources of income, you may be staring at a four or $500 tax bill to the state when you get to the end or to the Fed. The Fed does the same thing. So it’s important to understand your situation and how many sources of income you have, and the more sources of income, the more likely it is that you’re going to need to put an extra amount in the bottom of that form for extra withholding to make sure that you get enough withholding in there if you’re somebody that is averse to paying in on tax day. The other thing to consider would be the Iowa form for 2024 did change. It used to ask you to list the number of exemptions you want, and like you said, now it lists the dollar amount for the exemptions that you want.
Well, if you were somebody before who took zero exemptions, zero exemptions is equivalent to $0 of exemption. So that’s pretty easy. But if you were somebody who took two exemptions, two exemptions is very different than $2 worth of exemption. And so that’s going to mess up your withholding pattern or your withholding amount as you go through the year. And it’s hard to notice if you do it that way because if you get a paycheck, if you’re a salaried employee who gets the same paycheck every week, it can be expected that your tax is going to be pretty close to the same as it was the year before. So let’s say you had 2200 dollars in tax in Iowa in 2022 or 2023, if you’re withholding at a rate that you’re only going to get to $1,600, you’re going to be short. But that $1,600 or that $600 that you’re short over a year isn’t going to look very big. It may only be a couple of dollars a paycheck, and you might not even notice it if you’re not getting a physical stub because a lot of us get our checks direct deposited.
So it’s just something to pay attention to, something you want to be very careful with. Make sure that you know your situation. I can’t tell you how many times I’ve had somebody come into my office and they’ll say to me at the end of the year when they get their W-2, “I can’t believe I’ve worked for this company for the whole year and they took no withholding.” And I’m like, “Well, how many paychecks did you get?” And they’re like, “Well, I got 35 paychecks.” “Well, how many did you look at?” Because if you had no withholding, you had no withholding on every single paycheck. So we got to take some responsibility for that and figure it out because your company won’t own it. They’re not going to come back and say, “Oh, my bad. We should have taken withholding.” They’re going to be like, “Well, we sent you a pay stub” or whatever. So you got to be aware of what’s happening and what’s going into your bank account and what should be going there and make sure that you’re keeping yourself on track for a happier tax season.
Nate Kreinbrink:
Right. And I think that’s all what it comes down to is just knowing and being aware of what is being withheld. If something doesn’t look right, well, what can we do moving forward to change that? And again, during that tax planning time, not during tax preparation time, not during that is probably not the time to really sit down and dive deep into that. But after tax season, we talk tax planning, all that type of thing. Let’s look at what our withholding is, what do we want it to be and what adjustments that need to be made. The W-4 is, again, it’s a complicated paper that, again, they keep changing on everybody when they get it. They don’t necessarily understand it. So if you have questions, make sure you ask somebody before you turn that back in.
Andy Fergurson:
And if you normally get a standard paycheck and your paycheck went up $20 and you didn’t get a raise, something happened.
Nate Kreinbrink:
Something happened to
Andy Fergurson:
You need to figure out why it’s higher than it should be, and make sure that you make an adjustment, because if you let that run the whole year, $20 times 50 paychecks is a problem.
Nate Kreinbrink:
Again, we are running out of time here, Andy. I did want to mention though that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of January will be donated to the Adopted Closet Program in Dewitt. Again, Andy Fergurson with NelsonCorp Tax Solutions, 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 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, 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.