Fiscal Cliff


Phew! The ‘fiscal crisis’ was averted … sort of.  And your prize? It will take up to six weeks longer for the IRS to configure their systems to accept tax fillings and process refunds.  If your clients were expecting the cash to use for a down payment on a house, or some other useful purpose, they will have to wait. But they don’t have to wait for good advice … from you! Take advantage of this uncertain time to pass along key information to your clients. The tax implications of the ‘fiscal cliff’ are a great way to inform your clients and add value to the services you provide as a financial advisor. One of AUM in a Box’s strengths is leveraging and aggregating information to provide you with the most useful information on sales, process, operations and financial planning. Typically, we generate our own content and reference top-notch resources around the web. But, we know ourselves too well to venture into the unknown, particularly when it comes to taxes. That said, below are our top content choices from other sources who have a grasp on the repercussions of the recent ‘fiscal cliff’ solutions. The stock market certainly was happy about the ‘fiscal cliff’ deal; however, most employees are losers. Plus, the overall economy, by most accounts, will lose half a percent of growth due to higher Social Security taxes. Read more in “Winners and Losers From the Fiscal Cliff Deal.” Upper income earners (individuals earning more than $400k and joint filers over $450k) face a permanent hike in their marginal tax rate to 39.6%. Additionally, for those same definitions of upper income earners, taxes permanently rise on capital gains and dividends from 15% to 20%. More details can be found in “The Winners and Losers in the Fiscal Cliff Deal.” There are changes on tap for 401(k) taxes. Financial advisors can take advantage of this insight and plot a course for clients to maximize current and retirement cash flow. Read more in, “Fiscal cliff bill would reduce 401(k) taxes, ease fund transfers.” Last, but certainly not least, for a dry but comprehensive read of all the tax changes, read “Congress passes fiscal cliff act.” The ‘fiscal cliff’ is hardly over. The $110 billion in the spending cuts that were slated for January 1, 2013 were just kicked down the road.  That next deadline of March 1, 2013 is on the horizon and who knows what the future will bring. Markets will face similar returns in just two months as the deal that was just signed fails to address the spending and borrowing sides of the picture. While we...

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There’s no avoiding it—the ‘fiscal cliff’ may be on its way. In my recent post Team Up to Prepare Your Clients for the ‘Fiscal Cliff,’ I outlined ways to provide your clients with additional value and advice during this uncertain time. While I highlighted The Wall Street Journal’s infographic about how taxes will be impacted in “Most Households Face ‘Fiscal Cliff,’” let’s dive deeper into the nitty gritty. My accountant Jon Bunyak, founder of Bivins & Bunyak, CPAs, PLLC, recently gave a webinar entitled “2013 Party Over, Oops Out of Time**” How the End of Bush Tax Cuts will Impact You in 2013.” After further discussion with Jon, I thought it would be best to share a scenario about how looming tax increases from the ‘fiscal cliff’ would impact an “average” couple. For this example, let’s consider a working couple, Geoff and Victoria, with one child, Charlie. Geoff and Victoria earn $50,000/year each, lack investments that are taxable now, own a home, and live in Colorado.  Their tax return for 2013 (as of now with NO CHANGES MADE) would look like this: Est. 2013 Est. 2012 Wages $100,000 $100,000 AGI (Adjusted Gross Income) 100,000 100,000 Itemized Deductions  [This includes mortgage interest, property taxes (home and vehicles), donations, etc.] (15,000) (15,000) Exemptions (Three individuals, assuming $3,800 per exemption for 2013 and $3,750 for 2012) (11,400) (11,250) Taxable Income 73,600 73,750 Federal Tax  (*See below for calculation; taking into consideration ‘Marriage Penalty’ for 2013) 12,951 10,498 Credit for child (Set to be cut in half for 2013; $1,000 in 2012) (500) (1,000) Total Federal Tax 12,451 9,498 Total State Tax  (4.63% in CO) 3,457 3,554 Total Taxes $15,998 $13,032 Federal Taxes withheld (*Assuming claimed “Married – 2” for both, amounting to $3,900 each. If they happened to choose “Married – 3” since they have a child, the amount withheld would be even LESS!) (7,800) (7,800) State Taxes withheld (Same assumption, $1,488 each) (2,976) (2,976) Total Taxes Due $5,222 $2,276 Under the current slate of tax changes accompanying the ‘fiscal cliff,’ Geoff and Victoria would pay almost $16,000 in income taxes, $5,222 of which they would likely owe with their tax return. During 2013, they will have also paid 2% more in FICA taxes (Social Security and Medicare taxes) than in 2012, for a total of $7,650 (7.65% of their income).  This means that they will have paid almost $23,650 in taxes on $100,000 in total income. On the other hand, in 2012, they paid $18,702 on the same $100,000 [the $13,032 of “Total Taxes” outlined above plus $5,650 in FICA taxes (5.65% of their $100,000 income)]. With the $4,950 in additional...

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If you haven’t noticed, ‘fiscal cliff’ is all the rage. Coined most recently by Federal Reserve Chairman Ben Bernanke to describe the combination of spending cuts and tax increases slated to take place at the end of 2012, the ‘fiscal cliff’ should be part of every financial advisor’s vocabulary. While seeking professional tax advice should certainly be a priority for your clients, you as a financial advisor can also provide calm guidance, advice and understanding when it comes to the ‘fiscal cliff’ hype. Here are three ideas you can use to increase your value add as an advisor: Team up with an accountant in your area and interview the accountant, asking key questions pertaining to the ‘fiscal cliff’ including tax implications Transcribe the interview and share key points with your clients via a newsletter, blog and/or conference call Explain the implications of the possible tax changes to your clients Provide scenarios and analyze options for your clients The Wall Street Journal provides a good infographic on how taxes will be impacted in “Most Households Face ‘Fiscal Cliff’.” Study the link, send it to clients or meet with them face to face to discuss the potential repercussions. As you will see, a higher income professional making between $100,000 and $200,000 would see taxes increase by $6,662. The higher income professional would also lose the benefits of the alternative minimum tax. In another scenario, a higher-income working couple with an assumed income of $350,000 would see an increase in taxes of more than 20%, amounting to roughly $13,847. Obviously, these are substantial tax hikes. Helping your clients understand the ‘fiscal cliff’ and guiding them in steps to reduce their taxes could help you become a trusted ally, as the money you save them in taxes could easily cover your fee. Everyone wins! Recently, I teamed up with my own accountant, Jon Bunyak, founder of Bivins & Bunyak, CPAs, PLLC. Together, we aired a webinar about the tax changes on Wednesday, November 7.  You can listen to those comments by signing up to listen to  “2013 Party Over, Oops Out of Time**” How the End of Bush Tax Cuts will Impact You in 2013. I encourage you to schedule a similar interview or presentation with an accountant.  Not only will your clients appreciate the insight, but also you can provide your accountant with exposure to your clients. Also, you can give your accountant the interview to share with his own clients. It’s a win-win-win scenario. But wait, that’s not all. You can then transcribe the presentation/interview and then mail or email it out to your clients. Sending it out a second time...

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