2013 FISCAL CLIFF Preparing for what’s ahead

1. 2013 FISCAL CLIFFPreparing for what’s ahead Jim Hallisey – Financial Strategist $IMPLY $MART $OLUTIONS, LLC Patrick W. Deakins, CPA

2. Before we begin 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.

3. Agenda • What is the “fiscal cliff” • What are the causes? • What are the changes? • Provide information • Strategies/Opportunities

4. What is the ‘Fiscal Cliff’? 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

5. Why is the “fiscal cliff” important? 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. 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

6. Gaining Perspective: This stack of money is $1 million 100 packets of $10,000

7. Gaining Perspective: This is $1 billion Fits on 10 standard pallets

8. Gaining Perspective: This is $1 trillion Notice the pallets are double stacked

9. Problems of our national debt Federal Government Budget Fiscal Year 2011 Total Public Debt in 2011(borrowed) 1 Total Federal Government Revenue1 2011 2011 2011 Total Federal Government Net Cost (spending)1 $3.7 TRILLION $1.3 TRILLION $2.4 TRILLION 1 A Citizen’s Guide to the 2011 Financial Report of the U.S. Government: http://www.gao.gov/financial/fy2011/11guide.pdf

10. Problems of our national debt Federal Government Budget Fiscal Year 2012 Total U.S. Public Debt outstanding How to solve the national debt? 2012 • Possible options: • Decrease spending • Increase taxes • Print money (deflate the value of the outstanding debt) (as of December 10, 2012)1 $16.24 TRILLION 1http://www. usdebtclock.org/

11. 1) What is the Fiscal Cliff? FISCAL CLIFF FISCAL CLIFF “Sequestration” 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

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

14. Taxation rates Tax brackets ordinary 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)

15. Expiration of Payroll Tax Holiday

16. Failure to patch the AMT • 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.

17. Gift and Estate Taxes

18. 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%

19. Possible outcomes if Congress deals (or does not deal) with the “fiscal cliff” 1 2 Congress acts today and negotiates on spending cuts and tax changes so that such dramatic year-end changes do not occur. 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. Regardless of what Congress does or does not do, you need information about the opportunities today and possibilities for tomorrow.

20. 2) PROVIDE INFORMATION Helping you deal with tax law changes: • Information • Coordination • Action Today’s opportunities may not be available tomorrow

21. Steps to take REVIEW • Be proactive • Schedule review appointments today • Make changing tax rates or tax laws part of your planning MONITOR • Include topic of taxes in planning for the future • Remember estate and gift taxes • Prepare for future changes

22. 3) Opportunities and strategies at year end 2012 CHARITABLE CONTRIBUTIONS CAPITAL GAINS/DIVIDENDS Preparation Understand and prepare for potential change in 2013. Capital gains/dividends rates 0-15% No itemized deduction phase-outs Roth Conversions GIFTING NONQUALIFIED ANNUITIES AND INDEXED UNIVERSAL LIFE POLICIES $5.12 million lifetime gift tax exemption. $13,000 annual gift tax exclusion. Use nonqualified annuities and IUL’s for income tax deferral of earnings and retirement savings. Ordinary Income tax rates 10-35% ROTH CONVERSIONS Ordinary income tax rates 10-35% 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.

23. Take aways • 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

24. Planning tips • 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)

25. Questions? Jim Hallisey Financial Strategist $imply $mart $olutions, LLC 609 SW 8th Street Suite 600 Bentonville, AR 72712 Phone: (479) 286-1101 jimhallisey635@gmail.com Patrick W. Deakins, CPA 814-A West Emma Ave. Springdale, AR 72764 Phone: (479) 756-5871 patrick.deakins@keenandcompany.com