[content_block id=1187]
Announcer: It’s time now on KORS 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 KORS.
Well this is Nate. I got Andy Fergurson with Nelson Corp Tax Solutions joining me today.
I know for most people, middle of April here, spring time weather, changes, Easter weekend coming up, but this time of year to you Andy, April 17th, has a big meaning and a different meaning to you doesn’t it?
Andy Fergurson: Absolutely, absolutely. We’ve made it through the big rush of another tax season. I only had to work eight or nine hours yesterday. It was great. It’s nice to be able to go to your kids sporting events-
Nate Kreinbrink: I can imagine.
Andy Fergurson: And to eat dinner with your family and all that stuff so it was a long season but it was a good season. We got a lot of stuff done.
Nate Kreinbrink: That’s good, that’s good. I know seeing you guys down the hall down there just putting in the long hours and as you get closer to that deadline it’s just that finality of it and making sure everything is kind of finished. I know from you guys, I’m sure to get back to a normal schedule is much welcomed.
This year’s filing season was kind of a big one. We had the Tax Cuts and Jobs Act for 2018 was unveiled. We talked numerous times as far as some of the changes that people may see in 2018, and how it may impact them a little bit. But until we actually had year where people went and filed their taxes, we didn’t really know necessarily how those changes to the tax law were going to impact them when it came to filing their tax return.
Maybe go through some of the changes that you kind of see and some of the big things that maybe stood out on a regular basis to you because of the changes that happened.
Andy Fergurson: Absolutely. Yeah, we got the opportunity to see if the projections that we put out for people really came to fruition, the way we told them they would.
What we saw is, for the most part, or for a lot of tax payers I’ll say, the Tax Cuts and Jobs Act had a positive impact on their overall tax due, but a lot of people may not even realize that or may not feel that on their tax return.
Part of that is because their withholding changed also. We talked about that a little bit last year when we were talking about, in January withholding changed, everybody got a little bit more money to take home on their paycheck. Sometimes ten, fifteen, twenty dollars taken home on their paychecks. Well that money came directly out of their withholding amount. And so what we saw, for the most part is, we saw tax amounts go down or tax percentages went down, but they didn’t go down as far as withholding went down, and so people’s returns moved a little bit, moved down a little bit. So they may have moved a couple of hundred dollars. We saw some people move as much as thousands of dollars. It was impactful. We saw a lot of things and a lot of times people want to look at their tax return and they want to look at the bottom line number. They want to say, “How much money did I get back? Well, I got less back than last year so I must have not done as well on my tax return.” Well that’s the wrong [metrane 00:04:02] to look at.
Nate Kreinbrink: Right then I think Ken has said a little bit there as far as looking at that bottom line you say, “Okay hey I got less back in a refund, I didn’t do as well,” but in essence you may have gotten roughly the same amount back it’s just you got that difference paid back to you over the course of every paycheck throughout 2018 rather than in the larger chunk at the end of the year.
Andy Fergurson: And really most people got more back. The real number to look at is your marginal tax rate. Okay? So the percentage of your taxable income that you pay in tax. You can’t even just look at taxable income because the credits changed and moved. The child tax credit was double what it was the year before, older kids were worth a credit this year, there was a qualified business income credit or deduction that was available. You can’t even really look at taxable income and compare, you really need to look at that marginal rate. And what we saw was most people’s marginal rates, dropped. You know, anywhere from one to two to three percent.
Nate Kreinbrink: Right, so then obviously that’s less in taxes that they are actually paying but whether they view it as that as such. I mean there was a benefit to them as far as with the new tax code.
I know we talk a lot as far as… Over the past few months, we’ve been doing tax preparation and basically looking back to last year to say, “Hey this is what we had for income, whatever it may be, report it, this is either what you owe or this is what you get back.”
We look at it now, we transition into that tax planning stage. So with maybe some of these changes that you can do now that we still have plenty of time left in 2019, for people to make some changes and still have it have an impact on there when they file again ten months from now, 11 months from now, for 2019. What are some of the things maybe that we can look at to say “Hey, maybe make these changes and it’s going to impact you a little bit for next year when you do file.”
Andy Fergurson: Yeah absolutely. We had these conversations a lot this year because the surprise of where people’s tax refunds or tax due landed was something that caught people off guard a little bit.
It’s important to remember that there’s only a few numbers on that tax return that you can control. Right and one of those numbers is your withholding amount. If your tax refund wasn’t where you wanted it to be or if you owed tax, you can control that withholding amount. You can fill out a W4 with your employer or you can submit estimates, if you’re self employed or retired. You can do things like that to control that amount that was withheld to protect yourself from future tax payments.
The other number that you can control believe it or not is the top number, which is the amount of money that comes to you through wages or through your incomes. You can control that wages number but the amount of contributions you put into pretax benefits that are offered through your employer. Those can be 401(k), HSA, Flexible Spending Accounts, any of those things that are offered that are billed as pretax at your employer. You put money into those things, and your top number, the first number we start with on the tax return, moves down, right, and if that number moves down consequently all those other numbers move down.
Sometimes you can control things with deductions. With the increase to the standard deduction that got a lot harder for everybody to do, because that hill that you have to climb is just so much bigger than it was last year.
There’s a few things you can control without doing major financial tools or something like that. There’s a couple of those numbers that you can control, and if you know which ones they are you can make an impact on your tax return.
Nate Kreinbrink: So let’s switch gears just a little bit and kind of go on the flip side.
So we talked as far as, “Okay what can we do now to lower our taxes this year? Let’s lower our income whatever, we’ll have less income that we’re going to have to pay taxes on.” That’s going to be great when you go next year to go file your taxes.
I know you and I have had a lot of conversations about, that it may not always be the best option as far as looking at driving your tax rate down this year. So again, part of that tax law was the lowering of tax brackets, so 25 down to 22%, 15 down to 12%.
I know again we don’t know what the future’s going to hold, but best case scenario if tax rates stay the same we may look at a ROTH account or ROTH IRA, ROTH conversions or something like that where, yes, we may pay a little bit more in taxes in these next couple of years, but it’s at a lower rate rather than down the road when it potentially and possibly could be higher. And I know again that’s going back and forth a little bit, but again, understanding things that we do now, not just for that immediate savings and for that immediate refund this year, but let’s look ahead ten years, 20 years, 30 years down the road, and what they may impact you as.
Andy Fergurson: Yeah, so traditional accounting wisdom is going to say don’t ever pay tax until you have to pay tax. Right, that’s what they teach you that’s what you tell people and in the old model that was true. Back when taxes were 40, 50, 70% for high earners, that was a good model. Don’t pay tax until you have to. But now, we sit in a situation where we have a known quantity of where taxes are, and most people can project pretty well where they think they’re going to be going forward. Because you have to pay tax at some point on all your money, no matter what, you have to pay tax on it at some point. You either have to pay tax now, or you have to pay tax later. Well, you only have to pay tax on it once, but you have to pay tax on it.
Nate Kreinbrink: Mm-hmm (affirmative).
Andy Fergurson: So, if you believe that the tax rate now is lower, then those pretax benefits that we talk about, we just mentioned them, 401K and stuff like that, may not be the right thing because you are avoiding a low tax when it’s possible or when you think it’s going to be a higher tax down the road. Now might be the time to pay tax. I know for me that’s something that we’re considering in our family is whether we want to move some of that money into ROTH types of tools to avoid paying the tax later when we-
Nate Kreinbrink: Don’t know what it’s going to be.
Andy Fergurson: We don’t know what it’s going to be but we’re confident that it’s pretty low right now.
Nate Kreinbrink: Right and I think those are powerful things and I think those are more in depth planning concepts that I think a lot of people overlook and then again when you sit down with people to start kind of having those discussions with them and those considerations, again looking at their big picture and saying, “Okay, these are some options that during these next couple of years we may want to take advantage of.”
Andy Fergurson: Yeah, it’s a valuable time to sit and talk with a planner.
Nate Kreinbrink: Because you actually have time now right?
Andy Fergurson: Yeah well for sure.
Nate Kreinbrink: A financial planner, tax planning or whatever you have time [crosstalk 00:11:19].
Andy Fergurson: Or both together you know, sit down and talk and say, “Lets see, where do we think taxes are going? What do we think it’s going to be like when that magic number comes?” Because we’re all working for that day right when we get to retire? So what’s that day going to look like? Politically and tax wise and if it’s going to be different than it is today, which we’re sure it will be different, which way different, who knows? Look at that day and see if there’s an advantage to doing something today, that you may not have done two years ago, because we were in a different situation, but we do have a little bit more information and now we can make an [crosstalk 00:11:56].
Nate Kreinbrink: Right I know I’ve always asked that question when I sit down with people and obviously I’ve never had anyone that’s says, “Yeah I want to pay more in taxes”. But yet the decision making that they’re doing as far as when they are paying taxes on some of those retirement accounts is the complete opposite so again it’s just that understanding and having people know what their options are and projecting ahead and looking at it.
Andy we are out of time. I did want to mention real quick that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of April will be donated to the Fulton Food Pantry Expansion Project.
Andy, appreciate you joining me today.
Andy Fergurson: Thanks, glad to be here.
Nate Kreinbrink: Again this is Nate with NelsonCorp, Andy with NelsonCorp Tax Solutions 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 of FINRA SIPC.
Investment advisor representative Cambridge Investment Research Advisors Incorporated our 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.
[content_block id=1539 slug=button-for-all-tv-and-radio]