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. Oh, this is Nate. It is the third Thursday, or third Wednesday of the month. I’m getting ahead of myself here. The third Wednesday of the month, which means I have Andy Ferguson with NelsonCorp Tax Solutions in this morning to talk some taxes. Knows a pretty pleasant a walk up the hill this morning, as opposed to that late July, early August stretch that we had the last week or so.
Andy Fergurson:
Yeah, I’m going to have to take time off after we walk up the hill next time.
Nate Kreinbrink:
No. No kids being finally officially on summer vacation, summer was definitely here, I think, for that first week with mid 90 degree temperatures and just hot.
Andy Fergurson:
Yeah, it seems like my hose is running every day at my house. My kids are out there spraying that hose everywhere.
Nate Kreinbrink:
Spraying the hose, trying to keep flowers, water, grasses watered, and all that stuff. Definitely not complaining because I know I’m middle of January, when we’re we see all that slush and slop and all that white stuff, this is the days that we hope for.
Andy Fergurson:
Yeah, it’s better than the polar vortexes that we get to deal with.
Nate Kreinbrink:
So Andy and I always meet on late Tuesday afternoon, the day before our show, to kind of talk a little bit, as far as what we’re going to cover on this week’s program. He walked into my office yesterday, pulled up a chair and sat down. And when he does that, I know he has a lot to talk about today. So there’s a few different topics we want to try to hit today. Kind of notable recent tax items that are kind of out there. And the first one, and I think it’s kind of the buzzword all of a sudden now because of the timing of it, and it’s starting to get closer to being enacted, but it’s just the child tax credit. People are starting to get letters in the mail, wondering what should I do? Should I take the monthly payments starting next month when they start kicking that out? Should I log in and kind of defer that to my tax return? It’s creating a lot of questions. Let’s spend some time kind of going over that portion.
Andy Fergurson:
Sure. Yeah. And if you got the letter, the letter basically tells you don’t do anything right now. It’s a real effective letter that says, “Hey, this is going to happen, and we’re going to be ready for it, but we’re not yet, so just wait.” But what’s happening with the child tax credit is the Congress has passed a law that increases the child tax credit for 2021 only. And it increases it to $3,000 per child for children six to 17, which is different than what we’re used to. Usually you don’t get the child tax credit in that 17th year. You only get it through the 16th year. And then, it’s $3,600 for children below six. So that’s a significant amount of money for people with children.
Andy Fergurson:
And then, the other part of it is they’re going to start issuing the child tax credit by direct deposit or by check or by debit card starting in July. So what essentially will happen is you will receive, if you qualify for the child tax credit according to your adjusted gross income, you’re going to receive up to half of your child tax credit during the year.
Nate Kreinbrink:
During the year.
Andy Fergurson:
And then the other half on your tax return, which sounds good unless you’re one of those people, one of those many people whose child tax credit is more than what their actual tax refund is. If that’s the case, so if you’re a person who gets normally $4,000 in child tax credit and you end up usually with a thousand dollar refund, you may end up paying into taxes at the end of the year as opposed to receiving a refund because of this additional child tax credit if you take the payments through the summer here.
Andy Fergurson:
So it’s something that you definitely want to consider. You want to do the math on it. You want to talk to your accountant. You want to look at what’s going to happen if you take the money and what’s going to happen if you wait. The good news is if you wait, if you opt out of the advanced child tax credit, what’s going to happen, you’re going to get it on your tax return at the end of the year.
Nate Kreinbrink:
The same way you have been-
Andy Fergurson:
The same amount of money. You don’t get any less by waiting for it. The advantage to waiting is you get to see what it does to the rest of your tax return. You also don’t have to then try and figure out how much you received and reconcile all that information, because that’s a problem. What happens is, just like with these stimulus payments, reconciling that number at the end of the year is difficult because people forget. People forget what they got. They don’t remember what they got in April of 2020 when they’re filling out their 2020 tax return.
Andy Fergurson:
And I asked hundreds of people this year, how much did you get in the first stimulus payment? And they don’t even remember getting it sometimes. And so, that’s a difficult reconciliation. It’s causing a lot of problems at the IRS right now, too. So I’m counseling a lot of clients to opt out of the child, tax credit, encouraging them to wait and get it on their tax refund. But it’s case by case situation. You need to look at your tax return with your tax preparer and see if that’s what you should do.
Nate Kreinbrink:
So, like you said, essentially you’re getting roughly the same amount of credit as far as the child tax credit. It’s just, do you want to take it all as kind of a chunk, as a credit on your tax return like you normally would when you file your returns? Or do you want to get that credit kind of paid to you in installments every month, starting in July throughout the end of the year. So again, as you said, there’s some options to it. And I think the default is if you do nothing, you’re going to start getting the monthly checks whenever they start coming out. You have to physically log into the system, which you said is not set up yet.
Andy Fergurson:
It’s not ready.
Nate Kreinbrink:
But in order to opt out of it and defer all to your tax return, you would physically have to go in and opt out of it through their system whenever they get that up and running.
Andy Fergurson:
Yeah. And really, I think the key is my personal choice is to take it on my tax refund, but it could be advantageous for you to have it during the year. If you can avoid putting money on a credit card by having the child tax refund, then maybe you should take it during the year. My suggestion would be don’t make that decision without looking at your tax return or talking to your tax professional and saying which way is going to be more advantageous to me, or what’s the risk if I take it now versus take it later? I’m not a big proponent of letting the government keep money that’s coming to me, but I worry about getting to the end and having to pay that number.
Nate Kreinbrink:
Right, because I think a lot of people will find that a scary situation when they do file their taxes, because assuming they’re going to get a refund back, and then all of a sudden they have to, oh, and they’re wondering why. Well, you’ve got your refund kind of paid back to you a little bit over the course.
Andy Fergurson:
Yeah, you got that credit during the year.
Nate Kreinbrink:
During the year.
Andy Fergurson:
So now you’re a little short. You got to pay.
Nate Kreinbrink:
So I know another question that continues to come up, and most people think we hit that extended deadline of May 17th, which was this year, they think tax returns are done, not necessarily the case this year with some of these recovery rebates that continue to come up. And what you said is kind of what’s holding the IRS up a little bit with moving forward with a little bit of these things.
Andy Fergurson:
Yeah, we’ve have a lot of clients call and they’ve electronically filed their return. And that electronically filed return back in February or March is still not processed. And what’s causing that a lot of times is as the IRS receives returns, the computer checks 90% of them, and the computer says, “Okay, this one’s good to go,” and sends it through and sends the refund. That other 10% though gets flagged for manual review. And there are millions of returns right now that are sitting at the IRS waiting for manual review, and those manual reviews to take a person to do them, and that’s a little bit slower process. And a lot of the things that are being flagged for manual review are, again, that reconciliation of the stimulus payments, and how much you actually got versus how much you said you got on your tax return. And then, that manual process is holding up a lot of returns. I have several clients who are 15, 16 weeks that their return has been in process and not yet received, so.
Nate Kreinbrink:
Which is uncommon. But again, as you said, in that manual review, not having enough manpower to actually physically do them is the hold up that goes into it. And again, additional checks then as far as being issued with that kind of goes right along with that, maybe talking and explain what that means.
Andy Fergurson:
Yeah. So on March 15th, they changed the rules. They changed the law. I think I was up here two days after that, talking about it, but they changed the rules for the filing season. And what that means is that there were several taxpayers who had already filed their return. And those people who had already filed their return, if they’re return changed due to the tax law, the IRS said, “Don’t issue an amendment. We’re going to send you the money.” Well, now those checks are starting to come through. And so, we’re seeing people who are getting checks and they’re calling and going, “I don’t know what this check is for. Why are we getting this?” And we can go in there and see all of this is because of your unemployment, or this is because of the premium tax credit being returned to you or something like that. So it’s always good to call and ask. It’s always good to ask your preparer, “Hey, why did I get this money?” But if you’re somebody who filed before March 15th, you may be getting an under an additional check that you weren’t expecting.
Nate Kreinbrink:
Again, all good stuff, and I know we are getting close on time here, but again, the child tax credit, again, it’s not going away. It’s going to be really enacting here. If you have questions on it, to see if you should, again, take the monthly payments, defer it to your tax return like you normally would as far as that credit, give us a call. I know Andy and his crew up there love sitting down this time of year and planning and not having that kind of deadline per se, as a tax deadline with it, but.
Andy Fergurson:
Yeah, let’s talk about it and not have any surprises and make sure that you understand what’s going on and we understand what’s going on and get everybody ready to go.
Nate Kreinbrink:
Again, want to mention real quick before we are out of time that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of June will be donated to the Qantas Club of Kent Clinton. Andy, as always, appreciate you joining me, talking taxes, all good stuff. Andy Ferguson, NelsonCorp Tax Solutions, Nate Kreinbrink, 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 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.