Announcer:
It’s time now on KRLS 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 of FINRA/SIPC.
Announcer:
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 KRLS. This is Nate, James joining me today. Had to Dodge some raindrops on the way up today, which is kind of nice because definitely needed it. It’s been a while since we’ve got a good soaking like that.
James Nelson:
Yeah, no doubt. My daughter’s soccer, excuse, soccer, softball game the other night, I noticed those fields were really drying out too. So yeah. Nice to get a few raindrops.
Nate Kreinbrink:
It definitely is needed. I know you’re driving out in the country and seeing the fields. And obviously we were talking up our yards and it kind of looked like a late July, early August with some of the brown spots starting to come in already. So the next couple of days looks like we’re supposed to get some more. So I guess we’ll have to put up with it and take a little of the wet stuff for a little while.
James Nelson:
Yeah. As long as it doesn’t affect our Lumber Kings game tonight.
Nate Kreinbrink:
That is right. We have our …
James Nelson:
That’s the one thing.
Nate Kreinbrink:
… Client party down at the ballpark tonight, so hopefully Mother Nature cooperates with us enough to get that. And it’s always a good time and good event and good to be back down at the ballpark after having last year off.
James Nelson:
Yeah, no doubt. It will be a fun night.
Nate Kreinbrink:
So today’s program, I know James and I had a couple of topics that we wanted to hit, but we had a topic that kind of came up a lot recently and just for sure wanted to start with that. I know I had an Andy Ferguson with NelsonCorp Tax Solutions on last week. He briefly mentioned it at the beginning of the show, but it’s the child tax credit and people probably, if you have children between the ages of zero to 17, you probably received a letter in the mail over the last week or two just stating that the child tax credit is going to be coming.
Nate Kreinbrink:
They’re doing a little bit differently with some new legislation for the second half of 2021. And essentially what they’re doing is they are prepaying that child tax credit, a portion of it over the next six months, so from July to the end of the year. If you don’t do anything based off that letter that you received, you will receive a monthly payment of half of the child tax credit by the end of the year. If you want to opt out of that, you would have to physically go onto the child tax credit portal through the website and opt out of that.
Nate Kreinbrink:
Again, that portal is not yet up and running. They’re hoping to have that up and running by the end of the month, early July for those people that want to opt out of it. But again, you would physically have to go in and opt out of it to keep it the same, to take that whole credit on your tax return if that’s the way you want it to go. But again, it raises a lot of questions and a lot of unknowns and a lot of questions that people don’t necessarily realize how it is going to impact them. It’s not just some new money that they’re sending you.
Nate Kreinbrink:
It’s actually a prepayment of that tax credit and I think that’s where people get a little bit confused on.
James Nelson:
Yeah. So instead of waiting until you get your return done like normal, you’re getting that kind of ahead of time, I guess, and paid over a monthly basis versus a lump sum payment if that were to come back to you in the past. The numbers are about $3,600 per child under the age of six. Again, assuming your income falls within those thresholds and then $3,000 per child from ages six to 17, which again translates into about 300 a month for those younger kids, 250 for the older kids. And again, that’s going to be paid on a monthly basis, so it is different.
James Nelson:
The idea is to help some families out paid over an extended period of time versus a one-time payment. For budgeting purposes and whatnot, that I think is the idea behind it. There’s going to be some kinks to probably work out. Anytime we do anything new like this, same with the stimulus money, those checks, the first one or two were a little rocky and had some trouble with that. But I think over time, it’ll probably straighten out and they’ll get their arms on the situation. But anyway, that’s coming down the line along with maybe some new tax proposals with the plan that may be coming down the line here, but time will tell if that that comes to fruition or not.
Nate Kreinbrink:
Right. And James mentioned the tax thresholds as far as the income limits to see if you’re eligible for that. What they’ll do is they’ll go off of your last filed tax return to see if you’re eligible for that. For those that filed the extension, it would have been the 2019 tax return. For those who have already filed their 2020 tax return, that’s the income that they would go off of to see if you would be eligible. Those eligibility income limits are pretty close to what they were for the stimulus payments that went out.
Nate Kreinbrink:
So if you received a stimulus payment last year, a multiple of them, you probably will be getting a notification that you would qualify for the child tax credit. Where it comes into play is just understanding how that pre-payment of that child tax credit will impact you when it comes time to file for your 2021 taxes. Now, it’s obviously not to raise your income any, it’s not going to change your income limits based off of that money coming to you. But what it will do is essentially you won’t have as much credit to be able to put on your tax return because you’ve got a prepayment of that amount already to you.
Nate Kreinbrink:
It’s essentially saying like, if you were supposed to get a $2,000 return on your tax return, you get a six payments of that refund early. Okay. Now all of a sudden you only get a portion of that refund. You got the same amount of money. You just got a portion of it prepaid to you. And where it will impact people is those that are either one real close to either having to pay in or get a refund or people that are essentially thinking they’re going to get a decent refund, now they may not get as much of a refund because they don’t have that full credit to be able to put on their tax return.
Nate Kreinbrink:
So essentially, they’re going to have to probably pay in at that point in time. That’s the impact that people don’t necessarily understand. Again, it’s the same amount of money you’re getting, whether it’s prepaid, half of it prepaid to you, or you’re getting it all in one chunk being able to have that credit on your tax return. It’s just understanding if you do take those six payments early, you’re not going to have as big of a credit on your tax return, which is essentially maybe impact you negatively when you go to do that.
Nate Kreinbrink:
And again, it’s not a one size fits all as so much is in our industry. It’s an individual situation. So if you do have questions on whether or not you should take it, whether or not you should continue to defer it like you did before and then take that full credit on your tax return, you need to probably talk to your tax preparer, have them run some numbers for you before you go ahead and make that decision.
James Nelson:
Yeah. In other words, don’t get comfortable with where you were last year because there’s obviously some changes here. And like you said, Nate, there’s a lot of people kind of expecting that big refund and get used to that. May not be the case if they’re getting the credit throughout the year. You’ll wind up in the exact same spot, but you’ve got some of that money over six months period versus one-time payment. So transitioning gears just a little bit, we wanted to touch base on maybe a few of the proposals that are coming down the line here as far as the tax changes that have at least been floated out there.
James Nelson:
Again, nothing’s been passed. Nothing is obviously permanent at this point and maybe nothing will change. But there have been some pretty significant changes kind of floated out there and I think the biggest one as it relates to maybe our industry and what we do on a daily basis is the change to capital gain rates or maybe elimination of capital gain rates altogether at certain income levels. And that would be a big change. I mean, usually, from an investment perspective, we can hold onto an investment for 12 months or more, and we can get some tax favorable treatment a little bit better than ordinary income rates for some, a lot better than ordinary income rates for others, for those higher earners.
James Nelson:
And if that were to change, that would really affect what we do and, and really affect a lot of people’s situations. So I think that’s a big one. The other one is potentially the elimination of step-up in basis. So step-up in basis is paying 20 years ago for something that had a very low value and has appreciated over a period of time and then somebody passes away with that asset, say a stock, farmland, whatever the case may be, they pass away with that asset, the family gets a step-up in basis to data death value.
James Nelson:
They could turn around and sell that asset, whether it’s farmland or a stock and pay nothing in taxes. That very well could change. And again, another big item, as far as what we deal with on a daily basis, we could see either those or both of those scenarios really rocking the boat as far as we’re concerned.
Nate Kreinbrink:
Right. And again, if any of that legislation does go through, again, as you mentioned, it’s not into law, it’s proposed. But again, that has a tremendous impact on a lot of the planning that individuals that we have kind of looked at for people that we’ve met with. So again, it’s important to, again, have a little eye on that as far as going forward to see how that’s going to impact you. We talk all the time tax planning, tax preparation. We are in tax planning mode right now. And again, if you’re having questions on the child tax credit on how maybe some of this new legislation would impact you based off plans you maybe have, it’s probably time to sit down with someone again and start going over all of this and seeing where it really hits you.
Nate Kreinbrink:
Because again, we don’t want to be hit with any unknown decisions later on that is really going to hurt us if there were some things we could have done ahead of time. So we are out of time. Again, questions, give us a call. Did want to mention real quick that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of June will be donated to the Kiwanis Club of Clinton. James, as always, appreciate you joining me.
James Nelson:
No problem.
Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again 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 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.
Announcer:
Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice for more information. Visit our website at www.nelsoncorp.com.