The views and opinions expressed in this presentation are those of the author and presenter and do not necessarily reflect the views and opinions of

Transcription

1 The views and opinions expressed in this presentation are those of the author and presenter and do not necessarily reflect the views and opinions of the sponsoring companies or their affiliates.

2 Disclosure Neither Andrew Friedman, nor any law firm with which he may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended and may not be regarded as legal or tax advice, and financial advisors and other recipients of this information may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Advisors should consult with their firm s legal and tax counsel as to matters discussed herein. Clients should consult their own legal and tax counsel before entering into any investment, annuity, estate planning, or trust arrangement, and financial advisors should advise their clients to do so. Copyright Andrew H. Friedman Printed by permission. All rights reserved.

3 Tax Rates Investment Income Family income Ordinary Investment Cap gain / Dividend Income Tax Rate Tax Rate < $250K 35% max 15% max (no change) $250K $300K 38.8% 18.8% (3.8% surtax) $300K - $450K 39.8% 19.8% (Pease phase-out) > $450K 44.6% 25% (Bush tax cuts expire)

4 Imminent 2013 Legislative Items Sequestration spending cuts took effect (March 1) Government 2013 appropriations (March 27) - Funding extended through September 30 Government borrowing limit (October) - If not increased, U.S. defaults on its debt - Health care reform mandates take effect (January 1)

5 2012 Federal Spending ($3.5T) (in billions of dollars) Domestic $467 (13%) Defense $817 (23%) Mandatory Programs (Entitlements) $2,031 (58%) Interest $223 (6%) Source: The Budget and Economic Outlook: Fiscal Years 2013 to 2023, Congressional Budget Office (Feb 2013)

6 Republican Proposals - Entitlements Reduce CPI increases in Social Security benefits Require affluent recipients pay for Medicare coverage

7 Obama Budget Plan Taxes Tax a portion of municipal bond interest and employerprovided health insurance premiums received by affluent taxpayers. Further limit the tax benefit of itemized deductions claimed by affluent taxpayers. Impose a minimum tax rate of 30% on taxpayers with adjusted gross income > $1 million (Buffett rule). Return estate tax to 2009 rules ($3.5M estate tax exemption, $1M lifetime gift tax exemption, 45% tax rate).

8 Obama Budget Plan Taxes Limit the total amount an individual may accumulate in taxpreferred retirement accounts to $3.4 million (measured in 2013 dollars). Loophole closers: - Stretch IRAs and 401(k) s - Sophisticated wealth transfer techniques

9 Fiscal Deliberations Government funding: Republican House leadership proposed a short term unconditional extension of funding, likely to Dec 15. Conservative House Republicans rejected this plan and demanded a spending bill that defunded Obamacare. - Risk that Republicans will be blamed if government shuts down.

10 Fiscal Deliberations Debt limit: Republicans want a dollar of spending cuts for every dollar of debt limit increase. They also are considering requiring a one year deferral of Obamacare implementation in exchange of a one year debt ceiling extension. - The President says he will not negotiate over Congress responsibility to pay for expenses already incurred (and won t negotiate over implementing Obamacare under any circumstances).

11 Health Care Reform (Affordable Care Act) Over 1/2 of Americans believe health care reform includes a government-run health plan. False Over 1/3 of Americans believe health care reform allows the government to decide whether Medicare recipients get life-saving treatment. False 44% of Americans are unsure if Obamacare is still law. True: The Affordable Care Act seeks to ensure that every American has health insurance. Sources: Washington Post (November 30, 2011); Washington Post (August 29, 2013)

12 Source: Affordable Care Act (2009) Health Care Reform - Elements Employer mandate: Employers must provide health insurance to employees or pay a penalty for failing to do so ( pay or play ). - Mandate does not require employer to provide family coverage. - Employer can require employee to contribute to cost of insurance up to 9.5% of income. - Administration has announced that IRS will not fine employers for failing to provide insurance before January 2015.

13 Health Care Reform - Elements Individual mandate (January 2014): Every individual must have health insurance. Individuals who don t have health insurance are subject to a penalty. Pre-existing conditions: Insurers may not deny coverage or charge higher premiums based on preexisting medical conditions.

14 Health Care Reform - Elements Exchanges (October 2013): Each state is to establish an exchange or market place where individuals and small businesses can purchase insurance at competitive prices. - If a state does not set up an exchange, federal government will do so.

15 Health Care Reform - Elements Subsidies: Families with income between $24K and $94K receive a subsidy to help pay for insurance they purchase on the exchange. - If employer provides insurance, employee cannot receive subsidies to buy insurance on the exchanges, including for family coverage. - Families with income < $24K will get free insurance under Medicaid if their state chooses to expand Medicaid coverage. Families with < 24K income receive no subsidy to buy insurance in states that do not expand Medicaid.

16 Health Care Reform Avoiding the Employer Mandate Exception for businesses with fewer than 50 employees. Exception for employees who work fewer than 30 hours per week. Penalty for failure to provide insurance is only about $2000 per year per employee. Applies beginning January 2015.

17 Health Care Reform Avoiding the Individual Mandate Healthy individuals may decide to pay penalty rather than purchase insurance. - Penalty is $2085 per family or 2.5% of taxable income, whichever is greater. - Penalty can be collected only by a reduction in a tax refund. So no penalty for people who pay no income tax..

18 Health Care Reform Results ACA projected to shrink number of uninsureds from 60M to 30M. If employers don t provide insurance and healthy individuals choose not to purchase insurance, people who have insurance are those more likely to be sick, resulting in higher premiums overall. Employers must decide whether they wish to provide insurance to employees in Individuals who do not receive coverage through employers, Medicare, or Medicaid, must decide whether to purchase coverage on the exchanges by January Sources: Congressional Budget Office Report (July 2012); Consultant Says Employer Mandate Delay Could Mean Sicker Enrollees in Exchanges, Bloomberg BNA (July 3, 2013).

19 Government Funding and Debt Limit The president s been very clear we are not going to be negotiating over the debt limit. Treasury Secretary Jack Lew August 2013 We re going to have a whale of a fight. I wish I could tell you it was going to be pretty and polite, and it would all be finished a month before we d ever get to the debt ceiling. Sorry it just doesn t work that way. House Speaker John Boehner August 2013

20 Investment Planning Markets likely to be volatile, perhaps a buying opportunity. Give increased attention to tax drag on investments. - Harvesting losses - Buy-and-hold strategies - Tax-efficient mutual funds - Other professionally managed tax-advantaged strategies Consider investments that provide tax deferral and retirement income.

21 To stay current: -- from Andy Friedman

22 The views and opinions expressed in this presentation are those of the author and presenter and do not necessarily reflect the views and opinions of the sponsoring companies or their affiliates.