In today’s episode, I’m interviewed by Matt Robison in his on-air radio show Your Money - where we talk about the latest Stimulus package. Have you received your checks? Does the unemployment benefit continue or increase? What are the changes when it comes to taxes and deductions? And be sure to listen to the end where we discuss what wasn't included this time.
- Are Americans getting checks in the mail again?
- What amount should we expect?
- What provisions are included in the stimulus package?
- Is there anything for the unemployed?
- Anything to note when it comes to tax-filing time?
- Anything that was not included?
Michael: [00:00:00] Welcome to real financial planning with Mike Morton. In today's episode, I'm interviewed by Matt Robison in his on-air radio. Show your money where we talk about the latest stimulus package passed earlier this year. Have you received your checks? What else is in the stimulus that might affect you and be sure to listen to the end where we summarize the important points to consider?
Enjoy the show.
Matt: [00:00:28] This is where we dive into how you manage your money and time to help us do that. I'm very happy to have Mike Morton of Morton Financial Advice. Mike, welcome.
Michael: [00:00:39] Thanks, Matt. It's great to be here.
Matt: [00:00:41] Well, it's awesome to have you. And before we get into any specifics and there's a lot to talk about today, just tell our listeners, what do you do?
What kind of advice do you give? How do you help people manage their money?
Michael: [00:00:53] Yeah, I'm a fee-only financial planner, which means that I work a hundred percent for my clients. I work as a fiduciary. For my clients, helping them with all aspects of their money and their financial situation. I work with a lot of clients between working careers all the way through retirement, helping them figure out the best uses and smartest uses for their money.
Matt: [00:01:19] So you're a fiduciary. That means you only have an obligation to your clients and everything we hear on the air with you is the kind of advice that you would give your own clients and your responsibility to help them do the best they can to plan their retirement, help put their kids through college, save, invest, and generally thrive in their lives.
Michael: [00:01:37] Yeah, absolutely. We, we often work through everything soup to nuts, you know, from the insurances through to investments and everything in between. So, absolutely. Well, that's
Matt: [00:01:48] fantastic. So no one better to help us understand one of the biggest inputs to people's financial pictures. That's coming down the pike and I'm talking of course, about the COVID relief bill that we saw passed, right at the very tail end of 2020, and now beginning to affect people's personal financial picture.
So. Let's start with sort of the big picture here for our listeners, for people who really haven't read up on the whole, you know, you hear a number like 900, but it sounds like something like Dr. Evil would say, right, like a kajillion D billion. So like there's a lot of money being thrown out there. What should people really pay attention to in terms of what will affect them?
Michael: [00:02:28] Yeah, there's a lot of different bits and pieces to this bill that Congress recently passed and was signed into law. And so we'll definitely get into some of those, but at the high level Congress , passed the consolidated appropriations act of 2021, right at the end of the year. And got signed into law and it's a $2.3 trillion spending bill with a lot of different moving parts.
And so there are parts for individuals and families and businesses. And when it comes to filing your tax returns, lots of different bits and pieces that went into this over 5,000 pages of law. And so I'm excited to dive into some of that, especially for people listening, just to try to help them out, give them context what to expect.
Matt: [00:03:12] So one of the big items in there was checks going into the mail. So is that a, is that a big piece that people should be? I imagine everyone's excited to get money in the mail. Is that, is that, is that something that people are paying attention to?
Michael: [00:03:25] Yeah, that's, that's definitely, you know, top of mind, right?
What am I going to get my check? How much am I going to get? What's it going to be? And so this was in the new appropriations bill. As you recall the middle of last year at the beginning of the pandemic there was the big multi-trillion dollar bills. Well, I gave people checks and it's very similar that's right.
Cares act. Right. So it's very similar this time. And so the details are a little bit different but a lot of the checks have already been mailed out. Right. So they did this very quickly this time. A lot of them got direct deposited in fact, because it was based off of your. 2019 returns. So let me just go through a couple of the details that people may have already seen or expecting to see right here, right away.
So we have, if you are a single filer, And you make under $75,000 last year, then you will receive full benefits. So there's two parts of this. How much are you going to receive? And who's going to receive it. So you will receive full benefits. If your income is less than 75,000 as a single filer, if you are a family, So if you file your taxes, married, filed jointly, and you have income of less than 150,000.
You will also receive full benefits from the checks being mailed out. And if you're a head of household, it's going to be somewhere between that 75 and 150,000. Now for every, if you're over that limit how much you made for every thousand dollars over you get. $50, less in benefits. So it does get phased out.
If you're just a little bit over those incomes all the way through. If you make, if you make a lot of income, then you will receive $0. Okay. So this is really for helping, helping people out at the middle lower income. I see.
Matt: [00:05:03] So just to do a little quick math in our heads, so full belt benefits was $600.
Michael: [00:05:09] Correct. So the amount that you'll get is $600 per eligible individual. So if you're a single filer, that's 600 bucks. If you're married, filing jointly as 1200 plus $600 per child.
Matt: [00:05:24] Got it. And so the phase out happens with, with $600 being the total that, that you can get as an individual, that $50 phase out per every thousand dollars you are in your income, your adjusted gross income on your tax return.
That, that that's a cliff that slopes downward pretty fast. So if you are. In a slightly higher income bracket than that. You're not, you're not going to be expecting a check or a direct deposit here.
Michael: [00:05:55] That's right. It gets phased out pretty quickly. Now, again, if you are say married and you have two kids, well that's $2,400 and it's $50 per thousand.
So it phases out a little bit. You know it takes longer to phase out of course, but yeah, it drops pretty quickly. So, let me ask
Matt: [00:06:11] a seemingly dumb question about this. I, you know what, this may not make a lot of sense to me and I used to work on tax policy in Congress. So this is income that you're getting from the government.
So do you potentially pay taxes on the income? Is, is there that kind of like a circular wash going on or is all of this tax-free.
Michael: [00:06:32] This is a credit and so it can come back as a credit off of your taxes. So. I
Matt: [00:06:40] see. Okay. So it's, it's not like I get with one hand and then give it away with the other hand in a few months, when it's time
Michael: [00:06:47] to pay my taxes, it is a refundable credit.
So there's one of the details in here that gets a little tricky into how it plays out when it comes to tax time. But at the same time, it is money that you were just given. Yup. Got it. So
Matt: [00:07:01] let's talk about another one that, that grabbed a lot of headlines and people. Unfortunately, maybe having to pay attention to what if you're unemployed?
What if you're drawing unemployment benefits what's in here for you? If you fall into that category,
Michael: [00:07:15] right? So again, with the cares act, we got a lot of unemployment benefits. And if you recall at the time they gave an extra $600 a week. If you're unemployed beyond the normal. Unemployment package.
And that was fairly significant. In fact, it pushed a lot of base incomes way up. There were articles even that people were not going back to work at that time because the unemployment. A benefit was so great. They were making more kind of being unemployed and collecting those benefits, then bit just being aligned, cook.
And so it was a great use of money to help people out who are unemployed and it, but it was also a great boost for those people. So we have the same sort of thing this time around very similar there's an extra $600 a week of unemployment benefits. So if you're filing for unemployment, you're going to get the regular benefits, plus an extra $600.
A week. It also gives you an extra 11 weeks of benefits. So of course there's a cap on the amount of benefits that you can get. So it stretches that out for people that are unemployed for a longer period. And also there's some details that if you didn't previously qualify for unemployment, you can still collect unemployment.
And so they've loosened up who is eligible for unemployment benefits. Right. So
Matt: [00:08:34] this is the kind of thing where you really want to look carefully because it does sound like down at a detailed level. If you're trying to figure out. Am I going to get some help with, with some income right now? Do I qualify?
Maybe I was told before that I didn't qualify. It's really worth looking into, because you may newly qualify and you may be getting more for longer than you. You might've thought.
Michael: [00:08:56] Yeah, that's absolutely the case. If this applies to you, I would definitely look into the details and work with the local unemployment offices who will be getting up to speed on these issues of course and definitely follow through on that because there is a lot of money geared towards those that are out of work which is a great place for putting that money.
Matt: [00:09:15] Right now I know a lot of this does flow through state unemployment offices, and there has been some reporting on the fact that they're in different places with their administrative systems and how quickly they can roll changes out. Have you heard from your clients or from, you know, you, you monitor very closely all these mechanisms and how they're playing out.
Are you getting a sense of how quickly these unemployment changes are being put into place? Are they beginning to flow through for people or, you know, if you're sitting there, not sure if you might qualify, might you expect that there's a little bit of a gap and you have to let it play out a little bit longer.
Michael: [00:09:54] I haven't heard anything firsthand, but I would expect that, yeah, it's going to take a little bit of time to work through the system. Now, hopefully they're up to speed a little faster than it was last year. And so I'd hope that's for that, to be the case. But I would just definitely kind of work through the system and also read up about it.
So the more that you're aware of your benefits the more you'll be able to work with the local agencies,
Matt: [00:10:18] of course, one of the pieces of standard advice that people get when they lose their job and they might qualify for unemployment is get going in the system as soon as you can. There's, there's a little bit of a.
I set up like there, is that something that you advise people who find themselves in this situation to, you know, put, put your foot in the queue as soon as you can.
Michael: [00:10:39] Yeah. Yeah, absolutely. You want to get going on any of these fronts when it comes to financial advice, you want to get going as quickly as possible.
Now at the same time, you want to be careful about what you're doing, but yet in this instance, as soon as you're out of work, I would definitely get going on, figuring out everything that you are allowed to claim. So,
Matt: [00:11:00] I know I brought up before this kind of question of you, you know, you get the $600 check.
What, what happens do you, do you end up getting money, kind of drained out the other end when it comes to your, what about the tax front? We're not that far away from the time where people begin to annually think most about their taxes. Are there changes that people need to start to anticipate in how you file what you claim, any relevant changes that are going to affect your taxes this year under this
Michael: [00:11:28] new bill?
Yeah. And I remember we were talking a couple of different things. One, the tax season is almost upon us, but that's for 2020. Right. And so a lot of those things have already happened. You had to do them within that calendar year, which has already passed. Now, some things you can still do in the first quarter, That will affect your 2020 tax returns.
But what we're about to talk about is for your 2021 tax return. So things that you can do throughout this calendar year in terms of claiming taxes, or what's going to be on your taxes for the 20, 21 year.
Matt: [00:12:00] Oh, I see. So this is, this is about the changes that we saw in the bill and what we're going to talk about here.
This is about. Doing things now to plan ahead. I don't know. It's hard. It's hard for me anyway, but to plan ahead for a year from now, when you're going to have to pay for this tax year, the 20, 21 tax
Michael: [00:12:15] year. Yeah. That's exactly right. So there are three major things that are in this new bill. And the first to talk about is the above the line charitable deductions.
So you can claim up to $300 of charitable deductions as a single filer or 600. If you're married, filing jointly straight off the top of your income tax return or for 2021. Now in 2020, we had a $300 limit. So if you had a charitable contribution in 2020 of $300 or more, you can claim $300 above the line, which means you're saving.
You know, if you're in the 20% bracket, you're saving 20 cents on the dollar out of that $300 even. If you don't itemize. So typically charitable deductions come under your itemized taxes. And most people now do not itemize only, you know, five to 10% of people itemize their deductions because the standard deduction is so high.
So most people aren't getting any benefits, tax benefits. For their charitable contributions in 2020, the government wanted to boost that people, you know, people giving to charity. And so they allowed 300 up to $300 to be deductible, even if you itemize. So that's potentially
Matt: [00:13:30] a big deal. If you aren't in a position to consider charitable donations this year, you're getting a pretty good incentive.
From the government to keep, to keep that rolling. And the fact that you do it above the line, and even if you don't itemize are sort of big pieces of that
Michael: [00:13:47] incentive. Yeah, absolutely. I mean, it's wonderful to be able to have that from the government. And last year, there was a big question. That 300. Was that for single filers, did married get double that now it was 300 for either single or if you were married this year, it's 300 single and 600.
If you're married that you will get as a deductible tax deduction, even if you don't itemize.
Matt: [00:14:11] Now, is there anything more on the charitable front? I thought I heard about some, some other provisions that that might affect your, your incentives too
Michael: [00:14:20] generous. Yeah. Well, this year, the same as last year. In fact, there is an incentive.
If you want to give away even more money, you can deduct that. Typically when you give away cash or appreciated stock, depending on where you give it to there's all kinds of rules on how much you're allowed to deduct. All right. So there's a lot of different rules. One of the rules that changed this year is that you can give away 100% in cash, 100% of your income and deduct 100%.
So literally if you make a hundred thousand dollars, you could give away a hundred thousand dollars and have zero on your tax return.
Matt: [00:14:56] That is the kind of problem I would love to be able to have. Now this is a slightly depressing question, but I mean, obviously the pandemics on all of our minds, and I recall we were talking about this a little bit before the show.
There's something in here on medical expenses. What what's that all about?
Michael: [00:15:13] Yeah. Well, before I go to the medical expenses, let me just give you a situation on the. The previous comment, you know, a great, great problem to have given away a hundred percent of your money. It doesn't apply to too many people.
However, you know, it could, right? Like you might got, you might, you've got an inheritance that you weren't expecting. And so you have a couple of hundred thousand dollars you know, more than you were expecting to have, and you really want to help out some local charities or national charity or something you really believe in.
So there's a lot of different situations where you might end up with. Or you're planning on giving money away over a period of time. And so you can just kind of front-load that now the money does have to go directly to charities. It can not be a donor advised fund in this case. But you can give away a significant portion and really save on your taxes.
So it is a great, just be
Matt: [00:16:02] careful about, about where you're giving. There are a few P's and Q's to mind.
Michael: [00:16:06] God. Yeah, that's exactly right. But there are some situations where it could apply. And so, you know, that's why I do mention it because there are situations out there where you know, people could take advantage of this.
That's interesting. And one other point on that is pulling income. Inheritance could be one, or it could be a Roth conversion for people that are familiar with that, you can pull income into this current year. And then. Also give away a significant amount of income, thus, you know, offsetting extra income in one year by giving away a significant amount of income.
Normally you can only do 60% deduction this year. It's up to a hundred percent.
Matt: [00:16:39] Got it. So if you're considering making changes to your retirement, again, the kind of thing where you want to talk to a financial advisor, you want to make sure that you're really doing things right. But there are some potential benefits.
Michael: [00:16:52] Absolutely, absolutely. Let's do that.
Matt: [00:16:53] Let's do the medical one. This is, this is a potentially depressing one, but it's nice that the gun. Yeah.
Michael: [00:16:58] Well, this is kind of going back to a few years ago. There's there's a floor there's if you have a significant amount of medical expenses in a year, typically, you know, you have income.
You have expenses and you can't deduct these things. They're just normal expenses. But on the medical front, they do give you some tax deductions, if you have significant medical expenses. So what does that mean? If you have over seven and a half percent, Of your income in medical expenses, you can start deducting those expenses off of your income and pay less than, so this really applies maybe for people that are in or around retirement, that don't have a lot of income and then maybe have some kind of unforeseen medical expense that really is significant.
Anything above the seven and a half percent of your income can now be deducted. It was 10%. So that drops back down. And that was the law quite a few years ago. And now it's just kind of back to that.
Matt: [00:17:52] One of the themes that I'm hearing in here is that this whole discussion is really relevant for you.
Whether you have more income in your financial picture, or you have a little bit less, whether you're currently employed, retired, making a change to your retirement savings you know, or, or unemployed, it sounds like there's a lot of fine grain detail in here that may apply to you depending on your circumstances in life.
But don't assume. Just because you kind of fall into one category that none of this is relevant to you.
Michael: [00:18:24] Yeah, that's right. I mean, there are over 5,000 pages of law here, a lot of changes. And so it applies to a significant number of people. And even if it doesn't directly apply, trust me, you know, when it comes to tax filing and stuff, there's going to be things that you need to be aware of where your accountant needs to be aware of.
So there are certainly a lot of different planning opportunities within these changes in the law. Now
Matt: [00:18:48] in that 5,000 pages, as you say, chock full of changes and things that can affect people's financial picture. Is there anything they missed? Is there anything that surprised you that wasn't included this time around?
Michael: [00:19:00] Yeah, there's certainly a lot of things that were debated towards the end of the year. Right. That got, got left on the cutting room floor. So there's always, you know, trade-offs when you get to these large bills on what's going to be included, there's probably two things I would highlight that were not included this time that were there last time in 2020.
We had a suspension of required minimum distributions or RMDs. So if you were required to take a distribution from your IRA or 401k you did not have to do that last year, that it was not included in 2021. So we're back to, you know, taking out your RMDs in 2021. And I was sort of surprised to see that, but remember the government wants their money too.
And so they want you to take the money out and pay the taxes rather than just leaving it in there. Tax-free so be aware that in 2021, you have to start those RMDs again. The other thing that was not included was a deferment of the student loans. So student loan payments were deferred last year and the interest rate was set to zero on government student loans for a period of time, that is still the case through the end of January.
But then that will no longer be the case. So back to paying off those student loans and they're going to start accruing interest again. So
Matt: [00:20:18] maybe if Washington gets going again under a president like Biden, you might see some of those things sneak into a future billers. There's no way
Michael: [00:20:27] to know. I mean, there's no way to know right now this, remember this is a massive bill that took quite a while to get debated and put through Congress, even though everyone was kind of in favor, right.
Of, you know, giving some more help out to the country. It's still takes a long time. So I wouldn't hold my breath on any more recent changes. Got it.
Matt: [00:20:44] All right. Well, look, we've got about a minute left, so I'm going to turn the floor over to you for anything that we missed in here. Any, any odds and ends that you, you want to make sure our listeners at least put on their radar screen, you
Michael: [00:20:57] know, we've covered a lot of the personal.
Touches. So within this bill, so things that affect individuals and families, but one of the things we haven't touched on is the business side of things. And that was a massive part of this bill. There is another PPP loan infrastructure, you know, a lot more money earmarked for helping out. Small businesses.
So if you're a small business, definitely, you know, you probably already know about that, but there's more money available within the the PPP program. And then the other small point for those business owners are working in business. Is that meals. And entertainment are not a hundred percent deductible, usually are 50% a deductible, but there are now a hundred percent.
I think this is a great move because it's supporting those, the industries that are really hurting the restaurants, the local restaurants. So now businesses can frequent those places and deduct a hundred percent of those costs, which I think is great.
Matt: [00:21:50] Well, it sounds like a little bit of something for everyone in here.
Definitely worth paying attention to the details, reading up, consulting a financial advisor. If you have one Mike Morton, Morton financial advice. Thank you very much for running down this very complicated piece of legislation for all our listeners. And look forward to talking to you again next time.
Michael: [00:22:11] Thanks for joining us on real financial planning. If you liked what you heard, please subscribe and rate the podcast on iTunes. Google play Spotify or wherever you get your podcasts, you can connect with me on LinkedIn or at mortonfinancialadvice.com. We'd love to get your feedback. Did you have a comment or question, please email us at firstname.lastname@example.org until next time.
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