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. What is the third Wednesday of the month, which means we are going to talk taxes today. I’m joined this morning by Andy Fergurson with NelsonCorp Tax Solutions. Appreciate you joining me today, Andy.
Andy Fergurson:
No problem, bud.
Nate Kreinbrink:
Again, moving right along, we’re a month past the tax deadline.
Andy Fergurson:
I can’t believe it.
Nate Kreinbrink:
It’s been a month.
Andy Fergurson:
It’s been a month.
Nate Kreinbrink:
Which means, again, there’s a lot of big dates coming up. If you got any kids in school, or teachers even for that matter, I’m sure they have the deadline or the countdown to the final days of school very much readily available. Ask them. It’s right on the top of their head, end of school, you’re winding down, which means end of some of the spring sports seasons. You have a lot of local athletes heading out to state track this weekend. Want to wish them a very best of luck as they represent our area. It always seems we’ve got a pretty good representation from the area schools here that make appearances out there. Baseball/softball season getting underway. Soccer season, winding down or whatever.
Andy Fergurson:
Yeah, we finished soccer last night.
Nate Kreinbrink:
You had a little unfortunate force to end of the season, I guess you would say.
Andy Fergurson:
Yeah, we’re okay though.
Nate Kreinbrink:
Daughter had a little injury, which will put her out for a few weeks.
Andy Fergurson:
She cut her season one game short, so that’s okay. But yep, she’ll be done for the rest of the year. Now both my daughters that play high school soccer will be done for the year.
Nate Kreinbrink:
I would be amiss if I did not mention Major League Baseball underway. National League Central, which is well represented by fandom, I guess you would say in our office, has flipped upside down.
Andy Fergurson:
It is. The Cardinals are in last place in the Central this year.
Nate Kreinbrink:
My Reds are not in last, so I’m going to take advantage of this.
Andy Fergurson:
Everybody enjoy it. We’ve given you a nice headstart, so hopefully you can hang onto it.
Nate Kreinbrink:
Oh, all in good fun. All in good fun. All in good fun. But again, we’re a month after tax season, as we mentioned, which always brings back questions, topics as far as, again, moving forward with that where things sit. Again, there’s still some questions that still revert back to the end of 2022 tax filing season, a lot of times, again, depending on how quickly they get to it, how quickly it gets processed, but checking on refunds.
Andy Fergurson:
You have a lot of people that’ll call and say, “Hey, we filed our return. Can you tell me where it is?” Maybe it’s the state refund. Maybe it’s the federal refund. “Hey, where’s my refund?” Well, you can check. A lot of times your preparer is not going to know any better than you will, but you can check online. Most states and the federal they all have, where’s my refund trackers? You just get onto their website, either the IRS or on the revenue websites, and just type in, where’s my refund? You put in a little bit of information and they’ll tell you exactly what the status of your refund is, whether it’s in process or whether they’ve sent it or whether they need more information.
Don’t call them because the people that you call are going to have just as much information as is on the website there. Unless there’s a note on there when you put your information in that says, we need you to call us. But other than that, just check those websites and they get updated every day. That’s the first place to go, where’s my refund? If you’re in Iowa, you just go to the Iowa Revenue website and type in, where’s my refund? Or if it’s federal, you go to the federal website. Illinois has the same thing.
Nate Kreinbrink:
Getting all good stuff. Again, it always seems if you owe them money, you’ll get a letter the next day. And if they owe you money, they are processing it. Be patient at that point in time, right?
Andy Fergurson:
Hurry up and wait.
Nate Kreinbrink:
Yes. Along with I guess the refund topic, I think a lot of people after they get done filing their taxes for last year, maybe refunds weren’t quite as big as what maybe they had anticipated in years past due to varying factors, which we’ve talked to on the show. But again, one thing that they can look at if they want to get that back to where it maybe was, was look at their withholdings. I think that’s a big part as far as with that going forward, especially changes to some of these tax laws, tax codes, things like that.
Andy Fergurson:
I read an article yesterday that the IRS is reporting that overall refunds were down across the board this year. The cause for that is the Tax Cuts and Jobs Act. If you remember back in 2017, they passed the Tax Cuts and Jobs Act right at the end of the year, and everybody was excited because we got a little more money on our paychecks each week. Well, that money came directly out of our withholding. What happened in the Tax Cuts and Jobs Act is they changed the calculation on how they figure your withholding.
Nate, when you and I grew up and when we were starting to become employed, when you filled out your W-4, which is the form that you allocate withholding, we calculated single or married, and then we put in a number of exemptions that we wanted to claim. At that time on our tax return, you claimed your income, and then you claimed a standard deduction, and then you claimed the number of exemptions that you were going to take. Well, with the Tax Cuts and Jobs Act, that changed. The number of exemptions went away and the major factor became the standard deduction or the itemized deduction.
Consequently, the W-4 form changed and the value in the exemptions went away. But people’s mindset didn’t change. Everybody, as they filled out W-4 forms as they change jobs, continued this mindset of, oh, I just need to mark single and zero or married and zero and I’ll be fine. But the problem is that that W-4 form is used to tell the software that calculates your withholding how much withholding to figure. Now, instead of taking a number of exemptions, it’s calculating the standard deduction. Well, what happened to the standard deduction with the Tax Cuts and Jobs Act is it doubled. It doubled for you and it doubled for your spouse.
If you and your spouse are both marked married on your W-4 form, but then you go to file your tax return, effectively what’s happening is the withholding on your paychecks is being calculated with double the correct amount of standard deduction. Most people that have multiple income streams have way too little withholding because that calculation is way, way off. Even in retirement, if you have an income from wage and income from…
Let’s say you have two jobs and you have a pension and you have IPERS and you have an IRA and you have social security and you have all these different income streams, if all of those income streams are doing their own calculation on what the withholding should be and they’re all figuring you as married and taking that standard deduction into consideration, they’re all under withholding.
Nate Kreinbrink:
Essentially, if you had your current job prior to the Tax Cut and Jobs Act and have not filled out an updated W-4, it’s still withholding on the previous kind of…
Andy Fergurson:
Yes. Yeah, it’s on the 2019 form. But here’s the other thing that happens is also the withholding tables are moving during that time too. If you’ve done nothing since 2017 or 2019, still your withholding is shrinking each year. If you had roughly similar income, made no changes to your W-4, you would see that your tax refund or tax balance due, whichever way it goes, your refund is either shrinking just a little bit each year or your balance due is getting just a little bit bigger each year. And that’s because the tables are moving.
Nate Kreinbrink:
I think too another one that I think we touched on it just briefly at the end of last month when we came on was with that W-4 as far as the married or single box that you have to check, and I know some direction that I’ve heard that you have given before as far as a married couple may check single on that withholding status box. That’s not again…
Andy Fergurson:
It’s not fraudulent.
Nate Kreinbrink:
It’s not fraudulent. It’s not anything. That’s not where you’re claiming your status. That’s how you want your withholding to be withheld accordingly. I think that’s what throws people off a little bit too. Even personally, when, again, filling out an updated W-4 for me, when they’re asking you as far as advice how to do that through that again and explaining it, it makes sense. But when you’re just going through it and filling it out, you’re just going through checking the boxes, that’s where it’s maybe some of the confusion as well comes into play.
Andy Fergurson:
Yeah, there’s a lot of fear around those forms. The Iowa W-4 form even says on it, if you put bad information on this form, there’s serious consequences and penalties for filling this form out incorrectly. Well, those serious consequences and penalties are taxes. The way the verbiage on the form makes you feel like you’re going to jail if you do it wrong. You get worried that you’re defrauding the government, and that’s not the case. Those forms are for your HR office. They are so that they have documentation on how you want your withholding calculated.
It doesn’t have anything to do with your tax return. You’ve never turned one of those W four forms into your accountant. He’s never seen it. He gets your W-2. Your W-2 is calculated off the W-4 data that is put into your HR software. They’re totally unrelated. That form does not go to the IRS. Nobody at the IRS ever sees that form. That form is a tool for the company that you work for, so that they have documentation on how you want your withholding calculated.
Nate Kreinbrink:
And again, it all comes down to planning. If you didn’t like how your return ended up last year, now is the time to meet with your tax preparer to say, “Hey, how do I change that?” Let’s take a look at what your current withholding is and how that is going to be projected out to next year and what that is going to be. This is the time of year you like to do that planning.
Andy Fergurson:
I would say for most people, if you ended up owing money, the first thing I would do is look at that withholding status. If you’ve got multiple incomes in your household, chances are you or your spouse is marked married on that form and you’re under withholding.
Nate Kreinbrink:
All good stuff, Andy. I appreciate you joining me this morning. Did 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 May will be donated to the YWCA Children’s Center. 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 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. For more information, visit our website at www.nelsoncorp.com.