Year-end Financial Planning: Bracket Management

2. Introduction About the PFP Section & PFS Credential • The AICPA PFP Section provides information, resources, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and their closely held entities (learn more at aicpa.org/PFP) • The CPA/Personal Financial Specialist (PFS) credential distinguishes CPAs as subject-matter experts who have demonstrated their financial planning knowledge through experience, education and testing (learn more at aicpa.org/PFS) American Institute of CPAs® Personal Financial Planning Section 2

3. Introduction Robert S. Keebler, CPA, MST, AEP Robert.Keebler@KeeblerandAssociates.com 920-593-1700 American Institute of CPAs® Personal Financial Planning Section 3

4. Time Frame Shift 1980-2002: 3-5 year horizon 2002-2010: EGTRRA Decade 2010-2012: Time of irresolution 2013-Forward: 5-10 year horizon © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 4

5. 2013 Ordinary Income Tax Rates 10%, 15%, 25% and 28% rates from Bush Administration tax cuts made permanent 33% and 35% rates made permanent up to certain threshold levels— Single taxpayers $400,000 Head of households $425,000 Married filing jointly or surviving spouse $450,000 Married filing separately $225,000 Amounts of income above these threshold levels taxed at 39.6% Threshold amounts adjusted for inflation © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 5

6. 2013—Long-Term Capital Gains & Dividends Tax rate increases to 20% for taxpayers with income above the threshold amounts listed on the previous slide • As these taxpayers will be above the threshold amounts for the 3.8% surtax, their capital gain rate will actually be 23.8% Maximum rate stays at 15% for taxpayers with lower incomes Qualified dividend treatment is made permanent 0% Rate if you are in the 15% bracket “Buffet Rule?” © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 6

7. Phase-out of Personal Exemptions and Itemized Deductions Phase-out of personal exemptions (PEP) and limitations on itemized deductions (Pease) as income rises above the following threshold amounts-Single taxpayers $250,000 Head of households $275,000 Married filing jointly or surviving spouse $300,000 Married filing separately $150,000 Amounts will be indexed for inflation © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 7

8. Phase-out Of Personal Exemptions and Itemized Deductions PEP reduces personal exemption by 2% for• every $2,500 of income above the threshold amount for single taxpayers • every $1,250 of income above the threshold amount for married taxpayers filing separately Reinstatement of the phase-out could have been worse • If the full sunset occurred, the applicable threshold amounts would have been $178,150 for single taxpayers and $267,200 for married taxpayers filing jointly © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 8

9. Phase-out Of Personal Exemptions and Itemized Deductions Personal Exemption Phaseout Personal Exemption ($3,800) $4,000 Phase-Out Begins $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 AGI © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 9

10. Pease Limitation Pease cuts itemized deductions by 3% of AGI above the threshold amounts up to a maximum of 80% Deductions not included: • Investment Interest • Medical Expenses • Casualty, theft and wagering losses With the full sunset, the threshold amounts would have been the same $178,150 for single taxpayers and $267,200 for married filers © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 10

12. Recap “Flying below the radar” $450,000 – 39.6% Ordinary Income Tax Rate $300,000 – PEP/Pease $250,000 – 3.8% Surtax © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 12

13. Key Management Issues Capital Gain Rates Income Tax Rates Ordinary Income should at least equal Itemized Deductions plus exemptions Tax liability should equal tax credits available © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 13

14. Taxable Income and RMD Taxable Income and RMD $800,000 $600,000 $400,000 $200,000 $- Taxable Income IRA Distributions 35% Bracket 39.6% Bracket 33% Bracket © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 14

15. Amount over 39.6% Tax Bracket Amount over 39.6% Tax Bracket 150,000 100,000 54,243 61,751 69,642 77,932 86,637 143,148 133,651 124,424 113,820 105,354 95,772 50,000 - - - - American Institute of CPAs® - - Personal Financial Planning Section 15

16. Income Tax Rate Income Tax Rate 40.00% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 30.00% 28.00% 28.00% 28.00% 28.00% 28.00% 20.00% 10.00% 0.00% © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 16

17. Capital Gains Tax Rate Capital Gains Tax Rate 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 10.00% 5.00% 0.00% © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 17

18. Taxable Income per Bracket Taxable Income per Bracket $800,000.00 $700,000.00 143,148 133,651 124,424 113,820 105,354 86,63795,772 69,500 69,64277,932 66,80068,100 64,20065,500 54,24361,751 61,60062,900 59,30060,400 57,10058,200 $600,000.00 $500,000.00 231,500236,100 222,600227,000 209,700213,900218,200 205,600 193,600197,500201,500 $400,000.00 $300,000.00 $200,000.00 $100,000.00 $- 10.00% - - 54,236 55,416 50,050 51,300 52,633 - - 97,000 99,000 101,000103,000 89,700 91,500 93,300 95,100 83,000 84,600 86,300 88,000 76,650 78,200 79,800 81,400 95,500 97,400 99,400 84,800 86,500 88,200 90,000 91,800 93,600 73,900 75,300 76,800 78,300 79,900 81,500 83,100 73,500 54,650 55,800 56,900 58,000 59,100 60,300 61,500 62,700 64,000 65,300 66,600 68,000 69,400 70,700 72,100 $17,850$18,200$18,600$19,000$19,400$19,800$20,200$20,600$21,000$21,400$21,800$22,200$22,600$23,100$23,600$24,100 15.00% 25.00% 28.00% 33.00% 35.00% 39.60% © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 18

19. Itemized Deductions Itemized Deductions $14,000 $13,000 $13,000 $12,949 $12,769 $12,586 $12,000 $10,000 $8,000 $6,000 $5,061 $4,529 $3,981 $4,000 $3,414 $2,829 $2,600 $2,600 $2,600 $2,600 $2,600 $2,600 $2,000 $- Total Itemized Deductions Net Itemized Deductions © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 19

20. Example: 5 Year Projection In 2013: • $150,000 Wages • $50,000 Long-Term Capital Gains • $20,000 Itemized Deductions In 2015: • RMDs on a $5,000,000 IRA start 2% Inflation Rate © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 20

21. Example: INCOME 2013 Wages $ Long-Term Capital Gains 2014 150,000 $ 50,000 IRA Distributions 2015 153,000 $ 51,000 - 2016 156,100 $ 2017 159,200 $ 162,400 52,000 54,100 211,245 - 53,000 220,971 231,113 Subtotal $ 200,000 $ 204,000 $ 419,345 $ 433,171 $ 447,613 Adjusted Gross Income (AGI) $ 200,000 $ 204,000 $ 419,345 $ 433,171 $ 447,613 Total Deduction Taken $ 20,000 $ 20,000 $ 16,420 $ 16,005 $ 15,572 Net Personal Exemptions 7,800 8,000 328 - - Taxable Income $ 172,200 $ 176,000 $ 402,598 $ 417,166 $ 432,041 Regular Income Tax $ 29,908 $ 30,590 $ 98,843 $ 102,981 $ 107,194 Alternative Minimum Tax (AMT) - - 3,648 3,743 3,966 3.8% Net Investment Income Tax - - 1,976 2,014 2,056 TOTAL INCOME TAX $ 29,908 $ 30,590 $ 104,467 $ 108,738 $ 113,215 © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 21

22. Example: 2013 25.00% 15.00% No 25.00% 15.00% AVERAGE RATE DISTANCE TO NEXT TAX BRACKET DISTANCE TO FOLLOWING BRACKET AMOUNT ABOVE 39.6% BRACKET $ 2015 33.00% 15.00% Yes 36.80% 18.80% 2016 33.00% 15.00% Yes 36.80% 18.80% 2017 33.00% 15.00% Yes 36.80% 18.80% 14.95% MARGINAL INCOME TAX RATE MARGINAL CAPITAL GAINS RATE CURRENTLY SUBJECT TO NIIT MARGINAL INCOME TAX RATE if NIIT APPLIES MARGINAL CAPITAL GAIN TAX RATE WITH NIIT 2014 25.00% 15.00% No 25.00% 15.00% 15.00% 24.91% 25.10% 25.29% 50,850 $ 226,150 - 47,050 $ 222,350 - 47,402 $ Max - 32,834 $ Max - 17,959 Max - 2015 2016 2017 2013 DISTANCE TO PEP/PEASE TAX COST OF PEP/PEASE $ $ 2014 100,000 $ - $ 96,000 $ 119,345 Over $ 133,171 Over $ 147,613 Over - $ 3,779 $ 4,090 $ 4,299 RATE IMPACT OF PEP/PEASE 0.00% 0.00% 0.94% 0.98% 1.00% % OF ITEMIZED DEDUCTIONS LOST (MAX 80%) 0.00% 0.00% 17.90% 19.98% 22.14% © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 22

23. Example: 2013 MAGI LESS THRESHOLD (A) NET INVESTMENT INCOME (B) $ LESSOR OF A OR B NIIT @ 3.8% 2014 50,000 $ $ $ - DISTANCE TO 3.8% NIIT AMOUNT OVER THRESHOLD $ $ 2016 183,171 53,000 $ 2017 197,613 54,100 52,000 1,976 $ $ 53,000 2,014 $ $ 54,100 2,056 Over 169,345 2014 MARGINAL CAPITAL GAINS RATE $ 50,000 $ $ $ 51,000 $ $ 277,800 $ 274,000 $ 15.00% 2013 29,908 28,742 - $ $ AMT EXEMPTION REMAINING Appx. DISTANCE UNTIL AMT APPLIES $ $ 4,163 2014 30,590 29,516 - $ $ $ 3,836 Over 183,171 2015 15.00% DISTANCE TO NEXT CAPITAL GAINS BRACKET REGULAR INCOME TAX TENTATIVE MINIMUM TAX ALTERNATIVE TAX DUE $ 46,000 N/A 2013 $ $ $ 2015 169,345 52,000 $ $ - 50,000 N/A CAPITAL GAINS TAXED AT 0% PERCENT CAPITAL GAINS TAXED AT 15% PERCENT CAPITAL GAINS TAXED AT 20% PERCENT $ 51,000 $ $ Over 197,613 2016 $ 52,000 $ $ 2017 $ 53,000 $ $ 54,100 - 47,402 $ 32,834 $ 17,959 15.00% 15.00% 15.00% 2015 98,843 102,491 3,648 Applies $ $ 2016 102,981 106,724 3,743 Applies $ $ 2017 107,194 111,160 3,966 Applies © 2013 Prepared by Keebler & Associates, LLP All Rights Reserved American Institute of CPAs® Personal Financial Planning Section 23

24. Required Disclosure Under Circular 230 Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors. American Institute of CPAs® Personal Financial Planning Section 24

25. PFP Section Resources (aicpa.org/PFP) The CPA’s Guide to Financial & Estate Planning– 1000-page, 4 volume, in-depth guide for practitioners (updated for ATRA) Forefield Advisor (aicpa.org/pfp/forefield) • Client education and communication tool • Written by CPAs, attorneys and other subject matter experts • More than 3,000 resources covering personal financial planning, including estate, tax, retirement, investment and risk management planning • Keyword searches: American Taxpayer Relief Act, net investment income tax American Institute of CPAs® Personal Financial Planning Section 25

26. Resources for Post-ATRA & NIIT Planning Planning After ATRA and the Net Investment Income Tax Toolkit • • aicpa.org/pfp/proactiveplanning Complimentary PFP Section member/PFS credential holder benefit Other Resources for Purchase from Bob Keebler (www.cpa2biz.com) • • • • Tax Planning After the Healthcare Surtax: Tools, Tips, and Tactics* The Small Business Jobs Act of 2010: Tools, Tips, and Tactics The Tax Relief and Job Creation Act of 2010: Tools, Tips, and Tactics The Rebirth of Roth: A CPA's Ultimate Guide for Client Care* Coming soon! More Resources for Purchase from Bob Keebler* • • Planning Opportunities After ATRA: Tools, Tips, and Tactics Tax Rate Evaluator: A Graphical Calculator for Tax Planning After ATRA Visit aicpa.org/pfp/join to become a member *discounts available for PFP/PFS members American Institute of CPAs® Personal Financial Planning Section 26

27. Proactive Year-End Financial and Tax Planning Where to Find More Education 10/25/2013 1:00-2:00p.m. ET Year-End Financial and Tax Planning Strategies to Address ATRA and the Net Investment Income Tax (Overview)* 11/11/2013 1:00-2:45p.m. ET Top Estate and Income Tax Planning Strategies* 11/12/2013 1:00-2:45p.m. ET Investment Tax Planning – Creating Tax Alpha* 1/20-22/2014 Las Vegas AICPA Advanced Personal Financial Planning Conference (cpa2biz.com/PFP) • Advanced education covering tax, estate, retirement, investments and risk management planning to be ready for 2014 and beyond • 2-day pre-conference workshop on implementing a PFP practice, Jan 18-19 To register and to view the full calendar of upcoming PFP Section events, visit aicpa.org/PFP and click on CPE & Events. *To access the archives, visit aicpa.org/pfp/webseminars. American Institute of CPAs® Personal Financial Planning Section 27

28. Contact AICPA PFP Team Staff with Questions financialplanning@aicpa.org American Institute of CPAs® Personal Financial Planning Section 28

Year-end Financial Planning: Bracket Management

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