Before you file your taxes, there are critical financial planning moves you need to understand. In this episode of The Wise Money Show, we break down the most important tax law changes for 2025 and 2026, including SALT cap updates, senior deductions, child tax credits, and new retirement rules. This isn’t about getting a bigger refund; it’s about using proactive tax planning to pay less tax over your lifetime and avoid costly mistakes.
Season 11, Episode 24
Download our FREE 5-Factor Retirement guide: https://wisemoneyguides.com/
Read our blog! https://www.korhorn.com/wise-money-blog
Listen on Podcast: https://pod.link/1040619718
Subscribe on YouTube: http://www.youtube.com/c/WiseMoneyShow
This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk, including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results.
Transcript: The Biggest Tax Law Changes You Need to Plan For Right Now
It’s time for wise money with Korhorn Financial Group with certified financial planners Kevin Korhorn, Mike Bernard, and Josh Gregory.
Segment 1: Welcome to another episode of the Wise Money Show with Korhorn Financial Group, where every week we’re helping you take your next wise step in your financial life. Thanks for being here, friends. My name is Mike Bernard. I am your host. I’m also one of the certified financial planners on the program. And with me in the KFG studios, my business partners and fellow CFPs, Kevin Korhorn and Josh Gregory. We’re helping you get ready for tax season from a comprehensive financial planning perspective, of course. Now, what new tax laws will shape your tax preparation this year? And how do you optimize your tax planning? Uh, not just for this season, but moving forward as well. That and more on this hour of the Wise Money Show. That’s right. It’s tax season. It is tax season and we’ve got another fresh set of tax laws that you need to incorporate in not only as you’re preparing your return this year, but you’re planning for this year moving forward. If you have a question for the program, we’d love to hear from you. You can call or text us 574222000. That’s 574222000. Online wisemoneyshow.com is where you can find us. Leave questions there as well. And then all over social media, wherever you’re at, we are there as well. Search the WiseMoney Show. So yeah, here we are guys. We’ve been talking about the new tax laws and how they need to be incorporated in your into your plan since they were passed back in the summer. A and yet here we are, I think five out of the last seven years, we we’ve entered tax season where if your thought process or approach has just been, well, it’s going to be pretty similar. I’ll just do the same thing that I did last year or the result will be similar as it was last year. The chances are you’re at best you with that approach you could miss opportunities but at worst you could have an enormous tax surprise. We we want you to capture the opportunities. I I’m remembering uh someone that I had a debate with. It’s been years ago, but they basically were saying that, you know, if you’re in your 20s or 30s, just do a forecast of what the future’s going to hold. Kind of lay out your road map and then just go work the plan and then circle back to it maybe in your 50s or or you know, approaching retirement, then then it will matter again. And I just remember thinking, well, how in the world can you lay out a game plan in your 20s and 30s when the landscape is changing constantly? Like the tax laws alone uh make your planning, it can’t be something where you just set it and forget it. That’s why I think the financial planning, the analogy that it’s a road map is such a crude analogy because when you’re trying to navigate or use your Google maps to get from point A to point B, the landmarks don’t move along the way. You [laughter] know that the highway is exactly where the highway has always been. But in your financial life, those roads and landmarks, they’re moving all the time. Some of them without your control or desire. Tax laws are changing. Others health changes. Others uh times goals change, things shift all the time. And so planning is part planning for an unknowable future, but also planning with confidence knowing that things are going to change. Yeah. I tell people the only thing we know for sure about your financial goals is they’re going to change. Yeah. And so you have to have a flexible plan. That’s where I don’t think of it as necessarily a roadmap. I think about it as going to the dentist because wouldn’t it be sweet if you could just go to the dentist and they fix your cavities and they clean your teeth and no more tartar. All it’s all great and you don’t have to come back to the dentist. uh you can go through your 30s and 40s and just go see the dentist back when you’re 50 and you say, “What in the world would happen if you took that approach?” To all of you that have a dentist phobia, uh your financial planner is nothing like your dentist, by the way. So, okay, we’re talking about taxes and tax law changes. We’ve said before, every single tax season, because guys, it is it’s upon us again. Every tax season when you are getting your taxes done, you’ve got to ask and answer three questions. The first as the return is getting prepared. But before you file it, you do have to review and say, “Yeah, this is an accurate return. I understand where these numbers are coming from. I didn’t miss any deductions. I didn’t miss any sources of income. This is accurate.” And that doesn’t mean you got to be a tax expert, but you you got to review your return and where the numbers came from. And if that’s not if that’s not your thing, your CFP should be doing that for you. Especially right now with so many tax forms being online and so many moving parts, that’s critical. That’s that’s question one. Question two and three, that’s where the real planning begins. Okay. Question two, again, that return for last year, your 2025 return is done. You just haven’t filed it yet. Question two, is there anything that you should be doing right now before you file that return to improve your tax to improve last year’s return? What are the tax planning strategies that make sense for you that you haven’t fully incorporated yet or optimized yet? What can you do before you file this thing? And we’re going to help you with that question. But then we’re also going to hit this third question and that is all right. Is there anything changing in your finances or in the in your tax picture this year that here in the spring at the beginning of the year you need to start incorporating into your planning right now so you can capture those those benefits throughout the entire year from an angle of looking at the new tax law changes and how the tax landscape has changed. We’re going to help you answer those questions first. When I think about Oh, go ahead Josh. Well, I was just going to say answering those questions um goes far beyond just treating tax preparation as a compliance act that you just have to get done every spring. No, many people um you know dread the tax man. They dread the whole process. They want to get it done and a lot of times they’ll just kind of hand it over to a CPA or some professional tax prepareer. Give them all the documents. Tell me when it’s done. Show me where to sign and then it’s it’s just complete. And unfortunately, yeah, that gets you past the painful part, but it doesn’t allow you to have uh that that moment of time that you’re describing where you pause long enough to analyze and take uh a planning approach. Um use your own influence, do the things that you can um take advantage of in order to reduce the amount of taxes that you either are paying in the current year or in the future as well. So I man I would just beg and plead with you rather than take a passive approach to taxes this year. What if this is the year where you kind of turn the corner and you say, “You know what? I’m going to I’m going to be more engaged in this process. I’m going to find an advisor or a a service provider that will help me be more engaged in that process. I I I no longer think it’s an option. Personally, we’ve said it before, but there’s just been so many tax law changes. It’s no longer an option to have a passive approach to your taxes. you have to be proactive and we’re helping with that. So, when I think about question number two and question number three, the all right, what what can what can I do right now to improve last year’s return before I file it? What do I need to be aware of right now and adjust my planning for for the for the year moving forward? In light of the new tax laws, I I’ve my brain first goes to the increased number of people that are going to itemize their deductions this year. And a lot of that, there’s a lot of strategies that we can talk through, but all of that is basically paved by the increase in the state and local tax cap, the salt cap. And so, let’s let’s level set what that is. I’m sure you’re aware of it, but let’s just hit some of those rules and then we’ll talk through the planning opportunities with it. Well, they limited what you could take for your state and local taxes as itemized deductions to $10,000. And that came out in 2017. And so what that meant was if you had uh a healthy state income with a healthy state income tax and a decent amount of property tax, you were likely well north of the $10,000. Well, and all of a sudden they said, “Hey, it’s limited to $10,000 that you can take as part of your itemized deductions.” It threw a lot of people out of the world of of itemizing. Yeah. So, they really only would uh claim a standard deduction. Well, now what they’ve done is they’ve added the the salt cap. They’ve increased it to $40,000. So, instead of my max of 10, now I have a max of 40. And that applies as long as my income is less than I think it’s $400,000. Half million. Half million. 500. And then once I get above 600, it goes back to the $10,000 cap. So they call that the salt tax torpedo. Yeah. When you actually do the math, which we’re not going to do right now, but uh we have nerded out on it before as you’d expect us to. the for every dollar your income is above that half million between a half million and 600,000 the amount of new tax that is added because you’re losing this deduction it’s just meaningful when so that half million is a phase out and you might look at that and say yeah I mean that I I won’t get anywhere near that but I mean you could surprisingly find yourself there if there’s a capital gain you realize an inheritance or some sort of payout and you want to be planning ahead I I think that’s the first thing that we would point out with this is make sure that if your state and local taxes are above 10 grand because you have high property taxes, you have high income, you have high state taxes, something like that, that you don’t get phased out if it’s within your planning control. Um, that is a modified adjusted gross income number, that half million. And that is the number whether you’re single or whether you’re married filing jointly. That’s the number. Normally there’s a tier to those. Hey, if it’s what? It’s one number if you’re single, one number if you’re married filing jointly. No, that’s the same number. So, step number one would be to stay below those threshold. But second, then how do you optimize your itemized deductions in light of this salt new uh salt cap? We’ve got that and more coming up here on the Wise Money Show with Korhorn Financial Group.
Break 1: Hello YouTube. Thanks for being here. This is the Wise Money Show. What you’re watching right now is our weekly 1hour talk show that is right here on this channel 10 a.m. Eastern time every Saturday morning. also on podcast at the same time and also on a couple lo local radio stations at the same time as well which is why the content’s broken up the way that it is structured the way that it is with breaks and and all of that and uh but it is it’s long form so we’re going to meander we’re going to debate we’re going to get off topic and that’s sort of part of of the show if you are looking for something more concentrated more direct good news is we’ve got a lot of content uh other videos right here on this YouTube channel next step videos 8 10 12 minutes long and then also shorts as well, to be more concentrated approaches to helping you take your next wise step in your financial life. So, whatever your flavor, we’ve got a uh we we’ve got a fit for you. So, make sure you hit that subscribe button, turn on notifications so you’re made aware every time we drop new content. If you like the content, like the content, leave questions below as well. We appreciate it. So, for every dollar above 500,000 of income, it’s reduced by 30 cents. Okay? So that’s how I So over from 500 to 600 I can go from 40,000 all the way back down to 10 back down to 10. Yes. And so and I mean really who who does this apply to? I mean it’s it’s high earners but a lot of times with a a business owner the business owner is paying the corporate taxes personally instead of the corporation as you would have. So, it would think S corp, that business owner is paying the corporate taxes versus like a CC corp, the corporation’s paying the taxes. Y. All right. Well, pick it back up because we were just barely explaining it. We got to talk about strategies to optimize. So, all right. Here we go.
Segment 2: Are you going to itemize your deductions this year? many people because of the expanded standard deduction for the past oh gosh almost a decade but also because of the state and local tax cap the salt cap a lot of people have just not even thought about itemizing and that that could be a big mistake we’re helping with that right now this is the wise money show with Korhorn financial group thanks for being here my name is Mike Bernard with me in the KFG studios Kevin Korhorn and Josh Gregory stay up to date on all wise money content find us online wisemoneyshow.com and then all over social media or wherever you’re at, we are there as well. Search the Wise Money Show. And guys, I think that’s it. Kevin, you mentioned this when we were first talking about the new tax laws back in the summer. You said, “I think a lot of people are just have it on autopilot that I’m not going to itemize.” And they they they actually would this year because of this salt cap expansion and they’re not going to be able to take advantage of it because they’re not aware. We we want you to be aware. Uh again, it goes back to a comment earlier in the show. Make sure that you’re not being passive in your approach to to tax planning. Make sure that you’re fully engaged and really collaborating with your tax preparer. You know, we were describing here how, you know, over the past roughly decade, as you said, Mike, the standard deductions that that write off that the government is allowing you to take either as a single uh prepared uh return or married filing jointly. The numbers are are double if you’re married. That’s up to $32,200 now. And it’s even more if you’re over age 65 because there’s a kind of an extra um add-on to your your standard deduction as well. So, it’s a significant amount of uh write offs that you have to accumulate before you can get up over that threshold and have a better build your own approach or a an itemized deduction that you um kind of construct by pulling these things together. But this is a really big one because a lot of people pay a lot of taxes on their home uh on their state income taxes. Maybe you have a county tax or even a city tax. All of that gets added on top of things like mortgage interest and charitable giving. And so, you know, we’re kind of back to a point now where the things that you can throw in the pot in order to build your own deduction, they are large enough components potentially that maybe it’s back on the table for you to be an itemized uh deduction filer instead of just taking the standard deduction. Yeah. If you’re 65 or older in 2025, your total possible deduction is 46,700. So all of a sudden, and this is the confusing thing for our folks that are 65 plus and they’re either paying their income taxes via uh IRA distributions and withholdings or they’re doing it via estimates and they’re looking and they’re saying, “Wait a minute, how come I’m paying as much to the state as I am to the federal?” And for certainly in Indiana and Michigan, the state works a whole lot more like a flat tax than the federal does cuz there’s all just with the federal tax, there’s a bunch of gimmies and gotchas. And so you say, “Well, I started with this big number, but it whittleled down to a smaller number.” But 46,700 to over to to get over that with itemized deductions, you you are giving a lot of money away and paying a bunch of taxes. I think you’re including the new senior deduction in that which is going to be on top of whether you itemize or not. You’ll get that senior deduction. Um so the salt cap uh the the other thing so we shared before I would I would run the miles to just double check this year when you’re preparing your return. Am I going to itemize or not? Don’t just make a foregone conclusion. Do the math for all the taxes that we prepare here at Korhorn Financial Group. We are asking everyone, I mean, not to painstakingly go over every out-of- pocket medical expense if they’re nowhere close, but yeah, let’s get all that information and let’s fill out a schedule A, your itemized deduction, just so we know. We’re not guessing. Just just so we know. I think that’s where a lot of people can find an additional advantage this year is, oh, when you do that math, I that’s right, it actually is going to be in my favor to itemize this year. But then second, I think you’ll also realize, well, if if you’re close to itemizing or you do itemize, then you can begin working with your certified financial planner on, well, how do we optimize this? Because this expansion in the salt cap is not permanent. It’s temporary for tax years 25, 26, 27, and 28, and then it reverts back to 10 grand. So, if we’ve got an opportunity right now to have bigger deductions, well, how can you optimize that? So, you’re going to look at and consider strategies like a donor advised fund or some advanced giving strategies, something like that, so that you can combine two tax benefits together to make an enhanced benefit. That’s something you’ll want to work with your CFP on. And then last one on on my radar from a salt cap standpoint is if you find out that yeah, you do need to pay estimates or you’ve needed to pay estimates, something like that, know that your state estimate, your fourth quarter state estimate isn’t due and hasn’t been due until the 15th of January. But if you need to pay estimates in 2026, if you pay that l if you pay all your estimates during the calendar year, it’s going to count towards that salt deduction, that salt cap for 2026. So be aware of that. Even if you might have missed that opportunity for 2025, capture it for 2026. And the the PT uh the pass through entity tax where you’re paying your state taxes at a corporate level still applies. So that you may want to say, “Hey, if I’m above the 600,000 and I’m getting phased out, I’m back to 10 grand. I might want to pay my state tax bill at a corporate level.” And that’s a little bit more complicated. That’s if you’re a business owner. But I would definitely pay attention to that because that can be real money. Yeah. All right. So Kevin, you were taking us there already with the new senior deduction. But I I first when I think about tax planning with the new tax laws, I first think about the number of people then that we’ll itemize this year. And so how do you optimize that? But then second, I think about new deductions for seniors and the biggest one being the senior deduction. Okay, so uh before we talk about some of the planning strategies along with that guys, just again let’s level set. How’s it work? Well, essentially this is just another write off that is new um here recently started in 25. It only lasts for four years as well. So keep in mind that this is another one of those temporary strategies that you want to get your mind wrapped around and just be aware of because uh essentially it’s another $6,000 per senior that you get to write off on your taxes. This is above and beyond that itemized deduction or standard deduction, whichever one applies to you, that we were just talking about. And so, you know, in many ways for a lot of seniors, this is essentially what eliminates the tax um that they end up paying at the federal level. If social security and maybe some small distributions from IRA and things like that is all the income that you have, this could be enough. uh stacking the all these different deductions could eliminate so much of your income that it either pushes you down into a very low bracket or maybe takes you out of paying federal taxes entirely. And that’s where I I you know that’s where I’d want the proactive planning uh approach to to take place is if it does if there’s an opportunity for you to use up and soak up this this temporary deduction and um and shift more of your financial life to growing taxfree. I would I would take advantage of it. So So $6,000 per senior and what does that mean? Age 65 or older. Okay. But that’s not the only qualification. The other qualification is your modified adjusted gross income needs to be below certain thresholds. For single filers, that’s modified adjusted gross income of 75,000 and lower. And married filing jointly, 150,000 and lower. A lot of folks early in retirement that are age 65 or so that have done a decent uh have saved up a decent amount for retirement, a lot of that is in pre-tax and they’ve been looking at, well, how do I do Roth conversions? and and so on. And oftent times there’s been a strategy to do Roth conversions up to and in into the 22% tax bracket, but up to the income related monthly adjustment amount threshold, Irma, so that you can um shift as much money as possible over to the Roth side of the ledger without having to pay the search charge on Medicare. Well, if you do that, you’re actually going to be above this threshold and you’re going to be giving up a decent amount of this new senior deduction. I’m not saying that you would never do it. I just would want you to be planning around it. Yeah. If if I was going to restate what you just said, it’s essentially, hey, whatever threshold you thought applied to your planning situation before, maybe needs to be re-examined because maybe you don’t want to go quite as high because of this deduction. It’s uh something that you don’t want to disqualify yourself for just because you took your income too high. But also the other end of the spectrum, you may be falling so low in income and it might feel like an amazing win, but philosophically we always are challenging clients and challenging you as listeners. Paying too little in taxes can be a mistake as well. And so, um, just making sure that you and your certified financial planner are figuring out where is the sweet spot for your taxable income this year. There’s just more moving parts than ever. And, and that’s why we say the goal of tax planning is to pay the least amount of tax over your lifetime, if not multiple lifetimes. So, if you’ve got a bigger deduction this year and for the next three, capture that to pay the least amount of tax over your lifetime. All right, we’ve got more coming up here on the Wise Money Show with Korhorn Financial Group.
Break 2: So, do we need to explain how that phase out works? Because the phase out is from 75 to 175 if you’re single. It’s from 150 to 250 if you’re married and it’s just 6%. So, if I if I am married and my income is 200, I’m 50 above. So I basically that deduction that that bonus senior bonus deal gets cut in half for own up to I mean well I don’t know I mean I yeah I mean this is the thing it’s a big deal to those people it’s a big deal to but it it’s not a big deal to everyone I think pointing out that there is a phase out allows people to maybe go because the do the digging Yeah. I mean that to me I’m looking at this I I I I do have a little bit of a point to make. Yeah. Good. So, okay. So, uh we’re going to hit we’ll wrap this up. We’ll hit a couple about kids and then we’ll hit the ones for business owners, including the PTE. Uh that’s right there in the notes. And let’s make sure we hit that one. [laughter] And QBI. So, not not a ton to hit with kids and not a ton to hit with business owners. Um but certainly some Yeah. items to mention. Most of the business owners tune in to the later half of the show, so All right, third segment. Here we go.
Segment 3: It’s not just those of you on social security that are eligible for the the new senior deduction. There’s also benefits for those of you on your taxes because of new tax laws for those of you that have young kids at home that have that have families. We’re going to explain that right now to help you plan ahead. This is the Wise Money Show with Korhorn Financial Group. Thanks for being here. My name is Mike Bernard with me in the KFG studios. Kevin Korhorn and Josh Gregory. Every episode of the Wise Money Show is on podcast wherever you listen. Just search the Wise Money Show. Subscribe to the show there. Rate the program there as well. We appreciate it. That’s helpful feedback for us. We’re breaking down the new tax laws, but all in light of of being being planful. I Kevin, I tried not to say it. Sorry. It’s it’s one of Kevin’s buzz words. Actually already said another one of Kevin’s buzz buzzwords earlier. It just hates. And uh so we want you to take a planning approach, a proactive approach to your taxes so that you can pay the least amount of tax over your lifetime and avoid tax surprises. All of that means capturing opportunities for you to pay less tax, keep more of your hardearned dollars in your pocket so that you can compound wealth, achieve your goals, and uh and have all that goodness. So talking about the new senior deduction, yeah, Kevin, we left off on a couple things. Well, as a young financial planner, I I always thought here’s what I need to do. I’m working with these clients. I need to help them get retired. And as soon as they are retired, their financial life is going to absolutely simplify. It’s going to be easy, especially as it relates to taxes. And the inverse was true. As soon as you retire, it’s even more complicated. So, you get this senior bonus deduction for a few years here. So, you have to make provisions for that and say, “Hey, I’m aware of it. If I’m over 65, if I can hop on one foot, pat my head, and rub my belly, I get this 6,000. And if I’m married filing jointly, I get 12,000. Now, that phases out from $150,000 to $250,000. Married filing jointly. Married filing jointly. Um, if you’re single, it’s 75 to 175. So there’s a there you basically have a $100,000 of runway there and it’s 6% for any dollar over where the phase out starts. And so to all the only point is as I’m looking at this and I’m saying if I’m married filing jointly, anything above 150 uh starts to phase that out and it I get rid of it at 250. Well, there’s another number in there that I’m thinking about if I’m 65 and that’s the Irma number. And so this is where you want to have some sort of coordinated overlay of your tax situation and say, “Hey, where is the goodness?” Because like Joshua was encouraging folks, make sure you pay as much tax as you can in the lowest possible bracket. And most people stop as soon as they hear pay as much tax as you can and they can’t hear anything else that you say. But I we were working with some folks and they were really focused on their investments and that’s what they especially in this meeting they cared the most about and but we were talking and said hey you probably should fill up the 12% tax bracket and pay t pay as much tax as you can at 12%. And it didn’t it was lost on them. It it was hard. And this we do it every day. The folks that we work with do it a couple times a year. And so I don’t expect them to travel as quickly through these topics as we do, but I would say lean in because it didn’t even make sense. He’s like, I’m retired. How am I going to have more income? And so I had to go through, well, look, if you pull monies out of certain accounts, that adds more income to your tax return. Man, if if you’re listening and your head is spinning right now because of what Kevin just said that the idea of intentionally paying more tax in the lowest possible tax bracket, if that is just flying in the face of what your own personal philosophy has always been, and that is how do I get the biggest refund possible? How do I pay as little in taxes this year possible? I I would encourage you to zoom out for a moment and maybe examine your retirement accounts and and look at what you’ve accumulated in IRA and 401ks, some of these accounts that um they are tax deferred, not tax-free. And there’s a big difference between those two. stopping and recognizing that correct you you’ve been piling money into retirement accounts. You’re not being taxed along the way, but someday you will be taxed on that. And there is an unquantified amount of IOU to the government embedded in in those accounts. You’re going to pay tax on that money, in other words. And sometimes we kind of lose sight of that. We just think of it as a big account balance, almost like a bank account. Whatever’s in there is for me to spend. Well, inside of your retirement accounts, some portion of that has to be earmarked for government um confiscation. I’ll say it that way. Uh we’re not supposed to be political on this show, but So, you got to pay the freight. So, that’s right. And and so that is the confusing thing because I if I look and I’ve got a million dollars and it’s all pre-tax, I think my brain says, “Hey, I can go spend a million dollars.” Right. And so if you if you pause and just recognize that there is an IOU to the government embedded in that account, then it becomes a question of well, how much tax am I going to end up paying? And it all depends on well, what tax bracket are you in are you in in the year that you take money out of the account? And if you have the ability to take money out now in a low bracket and avoid potentially a higher bracket out there in the future, you have to be at least considering it every year. And that’s really what we’re talking about when we say pay more tax this year, get yourself all the way up to the upper edge of that ideal tax bracket and not leave some cheap tax um withdrawals on the table that you don’t take advantage of. And this is where I think we we start bleeding into that question number three of of tax planning and that is all right well what changes are happening in your taxes or in your financial life that need to impact your planning right now. If you are hearing all of this and saying h I actually didn’t increase my Roth conversions or withdraw more because of the senior deduction but I’m going to be eligible for it and uh you know I got a bigger refund this year. We’re not saying, “Oh, you did something, you know, terrible.” That might actually even be the right thing to do. But right now, as you get your return prepared this season, whether it’s in a couple weeks or in a couple months, I would be looking and saying, “Well, does this need to shape my planning for 2026? Do I like how this return played out? And then, should I make any adjustments for 2026?” Need to sneak in a few more here, guys, and keep us moving. um mentioned that not enormous changes for those of you with young kiddos at home, but there are some other uh there are some tax law changes that you need to be aware of that can impact your plan. One starting in 2025, the other starting in 2026. The 2025 is the child tax credit didn’t get as much of a move as what some were pushing for, but it did increase. It went from $2,000 to 2,200. It’s not an enormous number from, you know, nominally, but well, if you have a lot of kids, it could be. Um, I looked at you, Josh, when I said that, but uh but but that’s that’s a that’s a 10% increase in the child tax credit. There have been a lot of other creative ways to expand this and they expanded it in in some ways during during COVID to help with stimulus and whatnot, but uh eligible kids and that is, you know, your dependent children that are younger than age 17, as long as your income is below the phase out thresholds, then that child tax credit is going to be a higher amount, 2,200 bucks. And then so that starts in 2025. That could influence your refund and may impact your planning. And then two, the dependent care credit. So if you’ve got young dependent kids and you are uh using child care services in 2026, that has been expanded a little bit as well. One of the things that has always driven us crazy about this is in order to be eligible to claim a tax credit for your dependent care expenses, childare expenses, you need to be working outside of the home. And yet the biggest benefit for the dependent care credit is if your adjusted gross income is below $15,000. Now, how much sense does that make? Can you afford can you be working outside of the home and afford child care and have your adjusted gross income be below 15 grand? I’m going to say no. Prove it to me. And yet they still that’s the most lucrative part of the tax benefit. But this tax benefit has been expanded. The thresholds have been expanded. So, even though I can still gripe about that, it has gotten a little bit better. That’s going to start in 2026. So, make sure you’re aware of that. Both the child tax credit change and the child independent care credit expansion. Does it influence you? Well, it could. If if you are again trying to optimize your tax that those may be reasons to say, well, maybe we should invite a little bit more tech. Maybe instead of contributing pre-tax to the 401k, let’s shift to Roth because we’ve got such a good deal going with these expanded credits. Yeah. Well, they made the child tax credit permanent and index for inflation going forward. That’s huge in my opinion. And that So now it’s amazing. And we’d rather have a credit than a deduction, but do you know in Poland I think if you I’m not exactly sure how this works. I think you have two or more kids, you pay no taxes. Oh my goodness. Yeah. So they’re they’re trying to get a little baby boom going over there. [laughter] All right. So that starts that starts sort of feathering into Well, again, how do you use this tax season? the taxes you’re about to prepare, how do you use that as sort of step one in your tax planning for 2026? Be aware of these rules. Now, if you own a small business, there’s a few tax changes that you need to be aware of, but then there’s several others that will that should incorporate be incorporated into your planning for 2026. We’re hitting that and much more coming up here on the Wise Money Show with Korhorn Financial Group.
Break 3: Paying no taxes is not the same as, you know, fully covering the cost of a child. Big difference there, huh? Mhm. But that is interesting how, you know, legislatures can create incentives of all all types, including baby boomers. Well, that is what the tax code inevitably ends up being. If Charlie Munger is right, you show me the incentive and I’ll show you the behavior. The tax code in and of itself creates incentives. And some people say, “All right, well, I am going to give to a charity because I have a tax incentive to do so.” And some people say, “I’m going to give to a charity because I believe that’s what I should be doing.” And so it doesn’t it it isn’t perfectly true, but it is true. Yep. Well, and and I don’t know where Poland rank. I actually hadn’t heard that, Kevin, but you know, the replace the population replacement rate is a hu huge concern in Europe for sure and almost everywhere in and US is on is on the verge. And um that’s, you know, scary. That’s long-term scary for sure. Okay. So, let’s touch on just do a fly over of business um tax law changes just to be uh just to communicate those and then talking about some of the tax law changes that will likely shift your planning in 2026 and then wrap it all up. So, four segment land on the plane. I it has felt harder to get in a groove this show. Yeah. So, and and we have to keep pointing back to planning, planning, planning, planning. I mean, that’s again I it’s no longer even an option, I don’t think, just because of all these changes. So, all right, here we go. So, who can maybe just do a a quick fly over just hitting bullet by bullet of those business owner changes. Not to explain all of them in detail, but I can. Okay, cool. Here we go.
Segment 4: Thanks for being here. This is the Wise Money Show with Korhorn Financial Group. My name is Mike Bernard. Here with me in the KFG studios, Kevin Korhorn and Josh Gregory. Every episode of the Wise Money Show, as well as a lot of other content, is on the Wise Money YouTube channel. If you haven’t gone there yet, make sure you go to the Wise Woney YouTube channel and uh and check out I mean well over 2,000 videos. Chances are if you’ve got a financial question or issue that you’re wrestling with or maybe just want to learn a little bit more about from a comprehensive planning perspective, we’ve got some helpful content there for you. Go to YouTube, search the Wise Money Show, subscribe to the show there, turn on notifications your mawware every time we drop new content and you can leave questions and comments there as well. We appreciate it. All right, we’re helping you get ready for tax season. It’s officially here and the IRS has just officially started accepting returns. You’re likely getting all your documents in the mail and it’s time to start getting that return prepared. Before you file that return, step one, make sure you know where every number’s coming from and that you understand, yep, I’m getting all the deductions I’m I I should be getting. I’ve got all the income accounted for. I understand where these numbers are coming from. That’s question one. Question two is before you file that return, is there anything that you could be doing right now to improve last year’s return? Things like maximizing HSA or maybe contributing to an IRA. Maybe contributing to a Roth IRA doesn’t improve last year’s return, but you help shift more of your your your finances to growing taxfree and helping your tax return out there in the future. And then question number three is here at the beginning of the year, does this tax year, does preparing your 2025 return reveal something that is changing in your financial life or in your taxes that you need to account for your planning right now so that a year from now when you show up to do your taxes in 2027, for 2026, you’ve been able to take advantage of it. And and we’re sort of starting to turn the corner there. Before we do, there’s several other just tax law updates that you need to be aware of if you’re a small business owner. Josh, we’re not able to go too deep into these, but hit hit a flyover. Well, and I would just point out that if you are a business owner, being proactive in your planning just got even more important uh than before, but many of these apply to businesses that we would refer to as pass through entities. If you think of or if you’ve ever heard of an escorp or a partnership, many LLC’s, they don’t pay taxes at the business level typically. Instead, they pass the income or the profits through to the owners. The owners counted on their tax return and pay whatever taxes due on that income. And that might sound like, well, that that’s a ripoff. Why would you want to do that? Why would the business owner want to pay the tax? Well, it’s because business owners pay at different tax rates than what corporations do. And if you can pay one time instead of the corporation paying and then you as the owners paying a second time, you can avoid double taxation. So, it actually is a pretty wonderful thing. And many of the write offs that are available to businesses, they fluctuate. They change over time. Think about when you buy a piece of equipment or a um maybe a vehicle or something for your business. Usually, historically, you have to write that off over the useful life of of the asset. So, you get to take a tax benefit in little installments over a number of years. Well, now um just like in some of the recent years, you have the ability to take bigger deductions or faster deductions, write it all off, the entire vehicle in one year, for example. Um they have expanded how much you can write off. They’ve expanded the percentage that you can write off in any given year. And you need to be strategizing on this with your CPA and your certified financial planner because the bigger the write off you take, the smaller your income goes. And it might actually push you into a lower tax bracket than what you really want to be. And that can be a choice. That could be a choice right now. If you own a small business and you purchased assets last year, you’re going to want to make that conscious choice with your CPA. Do I take this bonus depreciation? Do I take a section 179 or do I delay it? That’s that’s a choice you get to make. Kevin also mentioned that the pass through entity tax option for small business owners that is available as well. They’ve they’ve extended that. And then same with the qualified business income deduction, QBID, that’s been extended. All of those are planning opportunities, creative tax planning opportunities. If you own a small business, work with your CFP on that. All right, guys. Turning the corner. I mean, we’ve feathered it in some of the I I mean, each of these areas you need to be aware of how it’s going to impact last year’s return, but also begin planning for it for 2026 if you haven’t already. But there’s a couple items to definitely point out that are changing in 2026. The first one we’ve been trying to warn you about and so that you’re not caught off guard, but I I think a lot of people will be and and this is the mandatory Roth catchup contributions to your 401k, 403b, your 457, those retirement plans that starts in 2026. And and here’s there’s a big catch with this is even though if you make over a certain amount, I’ll explain the details here in a second. You’re now required that your ketchup contributions have to go to the Roth side. Many people interpreted that well it’s now required meaning my hands are tied. There’s nothing I need to do. Guys, for a lot of businesses, it does require that you take action. I’ve seen a couple where the individual has reached out to their employer and they said, “Oh, no, no. We are automatically we’re going to take care of that for you.” But I’ve seen several others and some warnings by thirdparty administrators that manage 401ks where they’re saying, “No, it’s on you as the individual. If this applies to you, you have to go in and change your catchup contributions to be Roth. Otherwise, you’re going to need to fix it. If you fix it during the year, not a big issue. Uh they’ll be able to do that. there’s not going to create a penalty or any problems. There could be some underw withholdings. But if they don’t, if it’s not fixed until after the calendar year, then you’re going to get a a 1099, basically a tax form saying, “Oh, you had this go pre-tax. It was a deduction. It now needs to be added back as income. There’s not going to be any tax withholdings on that. Could be a big surprise.” So, if you are doing catch-up contributions, this is for those of you age 50 or older to your 401k, 403b, so on. And if you made more than $150,000 last year, the original number in the Secure Act 2 2.0 was $145,000, but they index that for inflation, so it’s it’s technically $150 grand. Did you make from your employer $150,000 or more in 2025? and you’re going to be contributing catch-up contributions in 2026. If so, those catch-up contributions have to go to the Roth side. And if so, you likely are going to need to take some action. Mhm. What I’ve wondered about, maybe you’ve looked into this quite a bit, but you know, for the first so many paychecks per year, you’re contributing normal contributions, and it’s not until you exceed the base amount and now you’re into catch-up contributions um that you you’ve got to make that switch. So, this has to be something that you’re monitoring, watching. Um I I wouldn’t count on payroll to notify you. you need to be watching your paychecks uh very very closely so that you know when you’ve maxed out the 401k and now you’re getting into catch-up contributions that have to be Roth. Yeah, that’s right. You need to be aware of this. Obviously, this starts in 2026. However, you know, people are turning 50 every year and therefore if this new change, new complexity isn’t on your radar, it could create a big surprise. Have Have you advised anybody? Um, you know, most employers will let you do some of your contributions as traditional and some as Roth. Do you [snorts] just figure out what is the ratio that you need to be at by the end of the year and say, “Hey, I I’m going to do uh 7% of my income into traditional and I’m going to do 4% into Roth and then I just know I’m kind of spreading it out and I don’t have to rethink this or catch myself later on.” That’s a good question and it really depends on your your payroll and how your company sets it up. A lot of times there is a a a separate catchup election and and if there is, you need to make sure that that catchup election is Roth. It’s it’s required. Okay. And a little bonus if you’re younger and you’re listening to this and say, I don’t want to I don’t I don’t want to hear it uh for all you old folks. I want what what applies to the younger folks. Here’s what applies to you. You’re young, you’re doing your 401k, you’re getting the company match. Those are pre-tax dollars. And you say, “Wait a minute. I’m putting all my money into the 401k. I’m 25. I’m 30. I’m 35. I’m putting it all on the Roth side, but I’m building up this this uh pre-tax money. I don’t want pre-tax in there.” You can do what’s called an inplan conversion and convert from uh pre-tax to Roth. Those match those match dollars. Okay. Last thing and and we’re just going to hit a fly over on this as well. Charitable deductions, those are changing in 2026 as well. Starting in 2026, you will be able to get some deduction up to a,000 or 2,000 depending on your situation for uh for charitable donations even if you don’t itemize. Those of you that do itemize because again we started with that the salt cap has has increased all that sort of stuff. your charitable deductions that you’re going to be eligible to take now will have a threshold they need to exceed just like the out the the after tax uh excuse me out of pocket medical expense guys it’s changing you need to be planning for it and that’s really the premise of the entire show tax laws are changes changing you can no longer take a passive approach you need to be proactive working with your CFP on that that’s all the time we have for today on behalf of Josh Gregory Kevin Korhorn all us at KFG have a great weekend we’ll see you next Saturday for the wise money show with Korhorn Financial Group securities offered through Silver Oak Securities member FINRA/SIPC. [music] Advisory services offered through KFG Wealth Management LLC. doing business as Korhorn Financial Group. KFG Wealth Management LLC and Silver Oak Securities Incorporated companies are unaffiliated.
