If you have any questions or would like to discuss any of the information in the following pages, please feel free to contact us at (585)

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1 February 2013 Jeff Bush from the Washington Update recently gave a presentation about the complex and everchanging political and tax environment. We would like to share the highlights of Jeff s presentation as it contains an array of useful information. If you have any questions or would like to discuss any of the information in the following pages, please feel free to contact us at (585) Elizabeth Brooks Elizabeth A. Thorley, MS, CFP, CLU J. Brooks Howard, CFP CEO & President Senior Financial Advisor 1478 Marsh Road Pittsford, NY Securities and advisory services offered through Commonwealth Financial Network P: (585) member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products F: (585) and services offered through Thorley Wealth Management, Inc.

2 Disclosure From Jeff Bush Neither Andrew Friedman, Jeff Bush, 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). Financial 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. 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. Value of Advice is Temporal Clarity of Purpose 2012 Elections Political Post Mortem President: Barack Obama House: 2010 Republican majority: 50 seats 2012 Republican majority: 37 seats Senate: 2010 Democrat majority: 6 seats 2012 Democrat majority: 10 seats 2012 Elections Political Post Mortem House of Rep- 234 Republicans Only 15 from Obama won districts 2014 Senate elections 14 Republicans- 1 from state Obama won Romney won by an average 19.5% Four more years of the same divided government. Consensus required for all major legislation. David Wasserman, Cook s Political Report 1

3 Fiscal Cliff Agreement Does. Marginal rates made permanent Families < $450k & Individuals < $400k Estate Tax- Makes permanent the $5.12M Indexed for inflation ($5.25M for 2013) Estate, gift, and generation skipping limits Portability maintained Increases the tax rate to 40% (from 35%) Fiscal Cliff Agreement Does. AMT (Alternative Minimum Tax)- Permanently patched Extends through 2013 tax-free distributions of up to $100k from an IRA to a charity Extends unemployment benefits through 2013 Delays, for two months, the implementation of the sequester government spending cuts Failed Super Committee- $1.2T Fiscal Cliff Agreement Does NOT Fiscal Cliff (Tax) Agreement Delay the 3.8% Health Care Reform tax on investment income Joint over $250k/ Ind. over $200k Family Income Marginal Inc. Rates Ordinary Inc. Rates Cap. Gain/Dividend s Extend the 4.2% payroll tax rate (back to 6.2%) Reduce government spending Increase the % of Americans paying income taxes Reduce short-term uncertainly < $250k 10%, 25%, 28% & 33% 35% Max 15% Max $250k-$450k 38.8% 18.8% > $450k 39.6% 43.4% 23.8% Round Two- Power Shifts to Republicans Government borrowing limit (reached December 31) - If not increased, U.S. defaults on its debt Sequestration spending cuts take effect (March 1) Government 2013 appropriations (March 31) - If not passed, U.S. government shuts down The American Family Budget (Plus 7-0 s) Revenue $290,000 Federal Budget $380,000 Annual Deficit $90,000 Total Debt $1,645, Debt Ceiling Cuts $21,000 Fiscal Cliff Revenue Inc. $6,200 2

4 Deficit Outlook 2008 budget deficit $ 455,000,000, budget deficit $ 1,400,000,000, budget deficit $ 1,300,000,000, budget deficit $ 1,300,000,000, budget deficit $ 1,100,000,000,000 Total debt outstanding is now 100% of GDP for only the second time in history (other was during WWII) Source: Budget of the U.S. Government, Mid-Session Review, Fiscal Year 2012, Office of Management & Budget (Aug. 2011) 2011 Federal Spending ($3.6T) (in billions of dollars) Defense $835 (23%) Interest $216 (6%) Domestic $477 (13%) Mandatory Programs (Entitlements) $2,102 (58%) Source: Budget of the U.S. Government, Mid-Session Review, Fiscal Year 2012, Office of Management & Budget Possible Compromises- Debt & Deficit Republicans Demanding large spending cuts in any agreement Already gave on tax increases with the Fiscal Cliff deal vs. Democrats Demanding a balanced approach Fiscal Cliff deal had nothing to do with Debt Limit Entitlement Restraint- Social Security, Medicare and Additional Tax Changes are possible Deficit Reduction- Social Security Increase retirement age Reduce CPI increases in Social Security benefits Means test benefits Increase wage cap subject to Social Security taxes No changes for individuals currently 55 or older The major sticking point: Who will open discussions on reform? Deficit Reduction- Medicare Possible Tax Changes Increase eligibility age Increase co-payments Require affluent recipients pay for coverage No changes for individuals currently 55 or older The major sticking point: Increasing Age Requirements Cap on exemptions and itemized deductions Employer-provided health insurance Tax-exempt interest on bonds Pension plan contributions Charitable contributions Mortgage interest deduction Given the barriers to eliminating or reducing most tax expenditures, it may prove difficult to gain more than $100 billion to $150 billion in additional tax revenues Congressional Research Report, 1/11/13 3

5 Possible Tax Changes Potential loophole closers: - Master limited partnerships - S-corporation distributions - Carried interests - Wealth transfer techniques Changes unlikely to be retroactive, but could apply from date of enactment OR beginning of Other 2013 Legislative Items Immigration Gun control Corporate Tax Reform Domestic manufacturing Energy Fannie Mae / Freddie Mac (housing) Americans can always be counted on to do the right thing...after they have exhausted all other possibilities. Questions and Discussion -Winston Churchill Investment Planning Markets likely to be volatile for first quarter Prepay charitable contributions Pay down mortgage debt Take advantage of sophisticated gifting techniques Keep an eye on municipal bonds Consider tax-efficient mutual funds and other professionally managed tax-advantaged investment strategies Consider investments that provide retirement income guarantees To stay current: -- from Jeff Bush 4

6 Tax Reform- Corporate Tax Under current law, offshore profits earned by U.S.-based corporations are subject to U.S. tax only when repatriated. From Jeff Bush Republicans Want to adopt territorial system- offshore profits are never taxed in the U.S., even when repatriated. White House vs. Proposing a minimum tax on worldwide income regardless when or if profits are repatriated. 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. Health Care Reform-2013 Deliverables Medicare Part D (Prescription Drug Coverage) Donut hole phase out begins Flexible Spending Accounts (FSA) limit $2,500 (indexed) Exchanges- Open Enrollment begins October 2013 Tax Changes 3.8% Investment Income Tax- families > $250k Medicare Payroll Tax- raised.9% to 2.35% for families >$250k Health Care Reform-2014 Deliverables Mandates- Individual- > of 2.5% of Taxable Income or $695/$2085 Employer- $2000/Employee per Year Guaranteed Issue and Renewable Insurance begins Premium Controls- 3:1 ratio Premium Support- 133% and 400% of Fed. Poverty Levels Medical Expense Deduction raised from 7.5% to 10% of AGI 5