Jim Hallisey – Financial Strategist$IMPLY $MART $OLUTIONS, LLC

Patrick W. Deakins, CPA

2013 FISCAL CLIFFPreparing for what’s ahead

This presentation is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that each individual’s financial situation presents a unique set of circumstances and opportunities. We encourage everyone to pursue the services of a tax or investment professional. The information shared in this presentation is for educational purposes only, and should not be solely used as the basis for making any tax or investment decisions.

Before we begin

1) What is the “fiscal cliff”

a) What are the causes?

b) What are the changes?

2) Provide information

3) Strategies/Opportunities

Agenda

A description of the potential year-end 2012 U.S. fiscal changes

Expiration of Bush tax cuts and payroll tax cut at year end

New 2013 taxes (including

a 3.8% Medicare surtax)

Scheduled spending

cuts in 2013

Concerns of double-dip recession in 2013

What is the ‘Fiscal Cliff’?

If lawmakers cannot agree on how to address the pending “fiscal cliff,” $7 trillion of tax increases and spending cuts begin to go into effect in January 20131; with potential reduction of our GDP by 1.3% in first half of 20132.

Why is the “fiscal cliff” important?

1“Fiscal cliff: What’s really in it?” CNNMoney, August 6, 2012,2”Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013”, Congressional Budget Office, May, 2012

Gaining Perspective:This stack of money is $1 million

100 packets of $10,000

Gaining Perspective:This is $1 billion

Fits on 10 standard pallets

Gaining Perspective:This is $1 trillion

Notice the pallets are double stacked

2011 Total Federal

Government Revenue1

$2.4 TRILLION

2011 Total Federal

Government Net Cost (spending)1

$3.7 TRILLION

2011 Total Public

Debt in 2011(borrowed) 1

$1.3 TRILLION

Federal Government Budget Fiscal Year 2011

Problems of our national debt

1 A Citizen’s Guide to the 2011 Financial Report of the U.S. Government: http://www.gao.gov/financial/fy2011/11guide.pdf

Federal Government Budget Fiscal Year 2012

Total U.S. Public Debt outstanding 20

12

$16.24 TRILLION

Possible options: Decrease spending Increase taxes Print money (deflate the value of the

outstanding debt)

How to solve the national debt?

1 http://www. usdebtclock.org/

Problems of our national debt

(as of December 10, 2012)1

“Sequestration”

FISCAL CLIFFFISCAL CLIFF

Automatic spending cuts starting in 20131:

Defense – potential $55 billionNondefense – potential $55 billion

Total spending cuts of $2 trillion spread over 10 years1

Expiration of the Bush tax cuts

1) What is the Fiscal Cliff?

What all is in the Bush tax cuts?

EXPIRATION OF BUSH TAX CUTSIncome tax cuts

Capital gains cuts

Earned incometax credit

Child tax credit

Qualified dividend rates

Marriage penalty

reliefAmerican

opportunity tax credit

Estate tax exemption

Gift tax exemption decrease and rates increase

Tax Changes Taking Effect January 1, 2013Tax Change Tax Increase

(2013 over 2012)Expiration of the 2001-03 tax cuts (not including estate) $156 Billion

Expiration of the payroll tax holiday $125 Billion

Failure to patch the Alternative Minimum Tax $88 Billion

Expiration of business expensing $48 Billion

Expiration of other “tax extenders” $40 Billion

New PPACA (Obamacare) taxes $35 Billion

Expiration of the 2009 stimulus $11 Billion

Estate tax increases $10 Billion

Total tax increases $514 Billion

Source: Tax Foundation; Congressional Budget Office; Joint Committee on Taxation; Office of Management & Budget.

2011 & 2012

Proposed2013 & beyond

10% 15%15% 15%25% 28%28% 31%33% 36%35% 39.6%

For taxpayers in:2011 and 2012

rates

Proposed 2013 & beyond1

A bracket < 15% 0% 10% / 8%

A bracket >15% 15% 20% / 18%

Tax bracketsordinary income

Long-term capital gains tax rates

1NOTE: In general, the 8% and 18% capital gains rates only apply to long-term capital gains on property that has been held more than five years at the time of sale.

For the 18% rate, the property must have been purchased after December 31, 2000.

Source: Internal Revenue Code Sec 1(i)

Taxation rates

Payroll Tax Holiday Impact on Payroll TaxesPayroll Tax Component 2010 2011 and 2012 2013 (unless

changed)*Employee Share

Social Security 6.20% 4.20% 6.20%

Medicare 1.45% 1.45% 1.45% Subtotal, Employee 7.65% 5.65% 7.65%

Employer Share

Social Security 6.20% 6.20% 6.20%

Medicare 1.45% 1.45% 1.45% Subtotal,

Employer 7.65% 7.65% 7.65%

Total Payroll Tax** 15.30% 13.30% 15.30%

Expiration of Payroll Tax Holiday

• Alternative minimum tax is another layer of the tax code that ensures higher income taxpayers pay a minimum of tax.

• The AMT exemptions are not indexed for inflation, and instead the must be “patched” by Congressional action.

• The last AMT patch expired December 31, 2011. This will have impact on 2012 taxes unless addressed in year-end legislation.

• According to the Congressional Budget Office, taxpayers with $50,000 to $200,000 in income will be the hardest hit in coming years.

Failure to patch the AMT

Gift and Estate Taxes

Gift and Estate Tax Exemptions and Rates2011-2012 2013

Gift Tax Exemption $5 million $1 million

Gift Tax Rate 35% 55%

Estate Tax Exemption $5 million $1 million

Estate Tax Rate 35% 55%

Generation Skipping Transfer Tax Exemption

$5 million $1 million

GST Tax Rate 35% 55%

Patient Protection & Affordable Care (PPACA)

• 3.8% surtax on portfolio income (threshold: $200,000 single; $250,000 married)

• 0.9% surtax on total income (threshold: $200,000 single; $250,000 married)

• Floor for itemized medical expenses moves up from 7.5% to 10%

Regardless of what Congress does or does not do, you need information about the opportunities today and possibilities for tomorrow.

Possible outcomes if Congress deals (or does not deal) with the “fiscal cliff”

1Congress acts today and

negotiates on spending cuts and tax changes so that such dramatic

year-end changes do not occur.

2Congress does not act and lets the

“fiscal cliff” occur. This would include the implementation of

sequestration, seeing automatic tax increases and deep government

spending cuts.

2) PROVIDE INFORMATION

Helping you deal with tax law changes: InformationCoordinationAction

Today’s opportunities may not be available tomorrow

Steps to take

Be proactive

REVIEW

Make changing tax rates or tax laws part of your planning

Schedule review appointments today

MONITOR Include topic

of taxes in planning for the future

Prepare for future changes

Remember estate and gift taxes

Ordinary income tax rates 10-35%

ROTH CONVERSIONS

CAPITAL GAINS/DIVIDENDS

Capital gains/dividends rates

0-15%

CHARITABLE CONTRIBUTIONS

No itemized deduction phase-outs

GIFTING

$5.12 million lifetime gift tax exemption.$13,000 annual gift

tax exclusion.

NONQUALIFIED ANNUITIES AND INDEXED UNIVERSAL

LIFE POLICIESUse nonqualified annuities

and IUL’s for income tax deferral of earnings and

retirement savings.

3) Opportunities and strategies at year end 2012

Purchasing an annuity within a retirement plan that provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefit. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations and costs should be considered prior to purchasing an annuity within a tax-qualified retirement plan.

Roth Conversions

Ordinary Income tax rates 10-35%

Preparation

Understand and prepare for potential

change in 2013.

• The growing national debt has created a need to grow revenues through taxation

• Spending cuts alone will not be deep enough to decrease the national debt

• It is possible that we have seen the lowest tax rates for the foreseeable future

•TAXES ARE ON SALE

Take aways

• Contrary to the long held notion of accelerating deductions, deferring income– Accelerate bonuses into 2012– Exercise non-qualified stock options in 2012– Remove earnings and profits from S-Corps to take

advantage of the lower capital gains rate

• Research any tax deductible plans before year-end• Consider making taxable contributions to

retirement plans and stratgies (Roth IRA’s, IUL’s)

Planning tips

Questions?

Jim HalliseyFinancial Strategist

$imply $mart $olutions, LLC609 SW 8th Street Suite 600

Bentonville, AR 72712Phone: (479) 286-1101

jimhallisey635@gmail.comPatrick W. Deakins, CPA

814-A West Emma Ave.Springdale, AR 72764

Phone: (479) 756-5871patrick.deakins@keenandcompany.com