Jim Hallisey – Financial Strategist $IMPLY $MART $OLUTIONS, LLC Patrick W. Deakins, CPA 2013 FISCAL CLIFF Preparing 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 ; with potential reduction of our GDP by 1.3% in first half of 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 Revenue 1 $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:

Federal Government Budget Fiscal Year 2012 Total U.S. Public Debt outstanding 2012 $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 usdebtclock.org/ Problems of our national debt (as of December 10, 2012) 1

“Sequestration” FISCAL CLIFF Automatic spending cuts starting in : Defense – potential $55 billion Nondefense – potential $55 billion Total spending cuts of $2 trillion spread over 10 years 1 Expiration of the Bush tax cuts 1) What is the Fiscal Cliff?

What all is in the Bush tax cuts? EXPIRATION OF BUSH TAX CUTS Income tax cuts Capital gains cuts Earned income tax credit Child tax credit Qualified dividend rates Marriage penalty relief American opportunity tax credit Estate tax exemption Gift tax exemption decrease and rates increase

Tax Changes Taking Effect January 1, 2013 Tax ChangeTax Increase (2013 over 2012) Expiration of the 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 Proposed 2013 & beyond 10%15% 25%28% 31% 33%36% 35%39.6% For taxpayers in: 2011 and 2012 rates Proposed 2013 & beyond 1 A bracket < 15%0%10% / 8% A bracket >15%15%20% / 18% Tax brackets ordinary income Long-term capital gains tax rates 1 NOTE: 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, Source: Internal Revenue Code Sec 1(i) Taxation rates

Payroll Tax Holiday Impact on Payroll Taxes Payroll Tax Component and (unless changed)* Employee Share Social Security6.20%4.20%6.20% Medicare1.45% Subtotal, Employee 7.65%5.65%7.65% Employer Share Social Security6.20% Medicare1.45% Subtotal, Employer 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, 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 Rates Gift Tax Exemption$5 million$1 million Gift Tax Rate35%55% Estate Tax Exemption$5 million$1 million Estate Tax Rate35%55% Generation Skipping Transfer Tax Exemption $5 million$1 million GST Tax Rate35%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” 1 Congress acts today and negotiates on spending cuts and tax changes so that such dramatic year-end changes do not occur. 2 Congress 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:  Information  Coordination  Action 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 POLICIES Use 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 Hallisey Financial Strategist $imply $mart $olutions, LLC 609 SW 8 th Street Suite 600 Bentonville, AR Phone: (479) Patrick W. Deakins, CPA 814-A West Emma Ave. Springdale, AR Phone: (479)