January 2013 Newsletter

The Fiscal Cliff Solution:

At the 11th hour on January 1, 2013, the House of Representatives voted and approved the Senate Bill, American Taxpayer Relief Act of 2012, and renamed it the Job Protection and Recession Prevention Act of 2012 (Act of 2012). Following is a summary of the Act:

1. Individual marginal tax rates remain the same at 10%, 15%, 25%, 28%, 33%, and 35%, but a new rate of 39.6% is levied on single taxpayers whose taxable income is over $400,000, married filing joint taxpayers whose taxable income is over $450,000 and taxpayers filing married but separate, whose taxable income is in excess of $225,000.

2. Prior to 2010, itemized deductions were phased out based on Adjusted Gross Income (AGI) greater than $166,800 for those married and filing jointly. Itemized deductions were reduced by 3% up to 80% of total itemized deductions. Starting in 2013, the itemized deductions phase-out is reinstated but at the threshold of $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly.

3. Starting in 2013, personal exemptions will be phased out at the rate of 2% for each $2,500 in excess of AGI of $250,000 for single filers and $300,000 for those married taxpayers filing jointly.

4. The Act of 2012 made the 0% and 15% capital gain tax rates permanent for those taxpayers below the AGI threshold mentioned in number 1 above. For those taxpayers above the AGI threshold, the capital gain tax rate increases to 20%.

5. The Alternative Minimum Tax (AMT) in recent history ensnared many “middle class” taxpayers for whom the tax was never intended to affect. Congress and the President have legislatively extended the inflation adjustment for the exemption amount, known as the AMT Patch through 2011. The Act of 2012 permanently indexes the exemption amount for inflation and applied it retroactively to 2012. The exemption amounts for 2012 are $78,750 for married taxpayers filing jointly and $50,600 for single filers. 6. The estate and gift tax exclusion was due to decline from $5,000,000 to $1,000,000 beginning in 2013. The Act of 2012 retained the $5,000,000 threshold (indexed for inflation), but increased the highest tax rate from 35% to 40%. Another important feature made permanent is the “portability” election, which allows the surviving spouse to increase his or her own exemption by the amount of the unused portion of the deceased spouse exemption amount.

7. The American Opportunity Tax Credit that allows for a $2,500 credit for qualified tuition/expenses of higher education per year for the first four years of post-secondary education has been extended through 2017. An alternate deduction of up to $4,000 for qualified tuition/higher education expenses was extended, assuming the American Opportunity Tax Credit is not claimed.

8. The Child Tax Credit, which provides for a $1,000 credit for families with children under the age of 17, but limited to those with AGI of less than $75,000 for single filers, $55,000 for married and filing separately and $110,000 for married and filing jointly, has been extended through 2017.

9. The Act of 2012 extends a number of tax provisions that expired at the end of 2012, but were retroactively reinstated to 2012 and extended through 2013:

a. The deduction for up to $250 for certain expenses of elementary and secondary school teachers;

b. The exclusion from gross income of discharge of qualified principal residence indebtedness ;

c. The deduction for mortgage insurance premiums;

d. The exclusion from gross income for a Qualified Charitable Distribution from an IRA to charity limited to $100,000 per year for those who are over age 70 ½.

Gabriel J. Markiz, MSFP, CPA/PFS, CFP®


Healthy Personal Finance Resolutions for the New Year  

The new year is the time when many individuals start making resolutions to live a healthier lifestyle. And while resolving to eat better and exercise more is a good thing, you should be sure to make resolutions that pertain to the overall health of your personal finances as well.

Develop a budget and stick with it

A good way to start the year on the right track financially is to make sure that you have a budgeting system in place. Start by identifying your income and expenses. Next, add them up and compare the two totals to make sure you are spending less than you earn. If you find that your expenses outweigh your income, you’ll need to make some adjustments to your budget plan (e.g., reduce discretionary spending).

Once you have a budget, it’s important to stick with it. And while straying from your budget from time to time is to be expected, there are some ways to help make working within your budget a bit easier:

• Make budgeting a part of your daily routine

• Be sure to build occasional rewards into your budget

• Evaluate your budget regularly and make changes if necessary

• Use budgeting software/smart phone applications

Set financial goals or reprioritize current ones

The new year is also a good time to set new financial goals and reprioritize your current ones. Take a look back at the financial goals you set for yourself last year–both short- and long-term. Perhaps you wanted to increase your cash reserve or save money for a down payment on a home. Maybe you wanted to invest more money towards your retirement.

Did you accomplish any of your goals? If so, do you have any new goals that you would now like to achieve?

Finally, have your personal or financial circumstances changed during the past year (e.g., marriage, a child, job promotion)? If so, would any of these changes warrant a reprioritization of some of your goals?

Make sure your investment portfolio is still on target

You’ll also want to be sure to review your investment portfolio to ensure that it is still on target to help you achieve your financial goals for the upcoming year. To determine whether your investments are suitable for reaching your financial goals, you’ll want to ask yourself the following questions:

• Do I still have the same time horizon for investing as I did last year?

• Has my tolerance for risk changed?

• Do I have an increased need for liquidity?

• Does any investment now represent too large

(or too small) a part of my portfolio?

Make it a priority to reduce debt

Any healthy financial plan is one that makes reducing debt a priority. Whether it is debt from student loans, a mortgage, or credit cards, it is important to have a plan in place to pay down your debt load as quickly as possible. The following are some tips to help you manage your debt:

• Keep track of all of your credit card balances and be aware of interest rates and hidden fees

• Develop a plan to manage your payments so that you avoid late fees

• Optimize your repayments by paying off high-interest debt first or consider taking advantage of debt consolidation/refinancing programs

• Avoid charging more than you can pay off at the end of each billing cycle Review/take steps to improve your credit history

Having good credit is an important part of any sound financial plan, and the new year is as good a time as any to check on your credit history. Your credit report contains information about your past and present credit transactions and is used by potential lenders to evaluate your creditworthiness. A positive credit history is important since it allows you to obtain credit when you need it and at a lower interest rate. Good credit is even sometimes viewed by employers as a prerequisite for employment.

Review your credit report and check it for any inaccuracies. You’ll also want to find out whether or not you need to take steps to improve your credit history. To establish a good track record with creditors, make sure that you always make your monthly bill payments on time. In addition, you should try to avoid having too many credit inquiries on your report (these are made every time you apply for a new credit card). You’re entitled to a free copy of your credit report once a year from each of the three major credit reporting agencies. You can go to www.annualcreditreport.comfor more information.


Real-life Financial Tips for Different Generations 

Do you remember The Game of Life®? In Milton Bradley’s popular board game, players progress through life stages making decisions that affect their prosperity. Like those players, today’s generations face financial decisions with lasting effects. Here are some tips for staying focused despite life’s ups and downs.

Generation Z (teens to early 20s):

Accustomed to instant gratification, the “Digital Generation” may need to recognize that financial success takes diligence and patience. Consider sharing the following advice with the Gen Zers in your life:

Live within your means.

Your first paycheck provides the chance to learn valuable lessons, such as creating a budget and spending less than you earn.

Build a saving habit.

You have one powerful advantage over other generations–time. Why not make saving automatic and direct a part of your paycheck into a savings or investment account?

Understand credit and credit reports.

A good credit history helps you get a car loan and a mortgage, but a bad one can ruin your borrowing chances for years. Reviewing your credit report regularly can help you manage your finances and protect your identity.

Generation Y (20s and early 30s):

In this group, you could be juggling your first “real” job, college loans, marriage, a first home, and young children. Three points for you:

Risk management isn’t just for companies.

Save 6 to 12 months’ worth of living expenses in a savings account for unexpected emergencies. Review your insurance, and at a minimum, have health and property coverage. Also consider disability insurance, which helps pay the bills during a health crisis.

Start saving for retirement …

Like Generation Z, time is your strongest ally. Participate in a retirement savings plan at work, if offered, and if your employer offers a match (free money!), contribute enough to get all of it. If you don’t have a plan at work, open an individual retirement account (IRA) and invest what you can (up to annual limits).

… And your children’s college.

In 18 years, a four-year degree could cost as much as several hundred thousand dollars. Give your children a head start by saving now.

Generation X (30s and 40s):

Home ownership, older children, a career in full swing–if you’re in this group, your finances may take a back seat to life’s daily demands. To help stay focused, consider the following:

Retirement savings trump college savings.

Don’t risk your future to pay for your children’s entire education. There’s no financial aid office in retirement.

Don’t neglect your health.

Are you experiencing new aches and pains? At this age, medical issues can begin to surface, demanding time, energy, and financial resources. Take care of yourself, and before an emergency arises, review your health and disability coverage.

Create a will, if you don’t already have one.

This important document can help ensure your children are cared for and your assets are distributed according to your wishes. Medical directives should also be established now.

Baby boomers (50s and 60s):

If you’re in this age group, you may have both adult children and elderly parents who need assistance, as well as an impending or current retirement. Pointers for you include:

Shift your retirement savings into high gear.

People over 50 benefit from higher savings limits on 401(k)s and IRAs. Strive for the maximum.

Visit a financial professional.

When should you tap Social Security and your retirement savings? How should you invest your assets to potentially provide a lifetime of income? A financial professional can be a critical coach at this time of your life.

Investigate long-term care insurance.

These policies help protect your family’s assets from the potentially devastating effects of long-term care. The older you get, the more expensive these policies can be.


The Game of Life ends when players reach retirement, but not so in real life–you still have years ahead of you. Consider the following:

Review the basics.

Whether you plan to travel to exotic locales or play board games with your grandchildren, a key to happiness is living within your means. Develop a realistic budget and don’t exceed your spending limits.

Manage your income stream.

A financial professional can help you choose vehicles and determine an investment strategy to help ensure you don’t outlive your assets.

Plan for your family’s well-being.

A properly crafted estate plan can help you ensure that your wishes are carried out–for both your and your family’s peace of mind. 


What health-care provisions are effective in 2013? 

With the Supreme Court’s favorable ruling on the constitutionality of the Patient Protection and Affordable Care Act (ACA), more of the law’s provisions will become effective in 2013. Here are some of the new features that may be important to you.

Medicare Part D participants who reach a gap in their drug coverage (the “donut hole”) are required to pay the entire cost of prescription drugs out-of-pocket. In 2013, the ACA will continue to close this gap by increasing subsidies to reduce the cost of brand-name and generic drugs to participants who reach the donut hole. These subsidies will continue until 2020, when the participant’s maximum contribution toward the cost of prescriptions will be reduced to 25%.

The threshold for the itemized deduction for medical expenses increases from 7.5% to 10% of adjusted gross income, beginning in 2013. However, this increase is waived for taxpayers age 65 and older through 2016.

In 2013, the annual pretax employee contribution to a Section 125 cafeteria plan flexible spending account (FSA) is reduced to $2,500, subject to annual increases for cost-of-living adjustments. The reduction does not apply to certain employer nonelective contributions (e.g., flex credits).

Beginning in 2013, the hospital insurance (HI) portion of the payroll tax, commonly referred to as the Medicare portion, increases by 0.9% for individuals with wages exceeding $200,000 ($250,000 for married couples filing a joint federal income tax return, and $125,000 for married individuals filing separately).

In addition, 2013 marks the imposition of a new 3.8% Medicare contribution tax on the unearned income of high-income individuals. This 3.8% contribution tax generally applies to the net investment income of individuals with modified adjusted gross income that exceeds $200,000 ($250,000 for married couples filing a joint federal income tax return, and $125,000 for married individuals filing separately).

Looking ahead, 2014 brings the implementation of the health insurance exchanges, premium and cost-sharing subsidies, and the requirement that most individuals have health insurance.

How does health-care reform affect women? 

The Patient Protection and Affordable Care Act (ACA) expands women’s access to health insurance and adds several reforms to the existing health-care system that are specifically beneficial to women.

Access to care and affordability are important issues for women. According to the U.S. Department of Health and Human Services, because almost twice as many women than men who receive employer-provided health insurance are covered as dependents, they are susceptible to losing that coverage should they become widowed, divorced, or if their husbands lose their jobs.

In addition, the cost of coverage may significantly impact women. Women earn less than men, on average, and are more likely to be out of the workforce to care for children, parents, or other dependents. Because of this trend, out-of-pocket costs such as co-pays, deductibles, and premiums can pose a particular threat to women’s access to affordable care.

The ACA provides for the creation of state-level health insurance exchanges, available to small businesses and uninsured individuals, that will serve as a marketplace of private and public health plans. Individuals and families purchasing insurance through insurance exchanges may be eligible for subsidies or tax credits (based on income) that can be applied towards the cost of insurance. According to the U.S. Census Bureau, 20% of women between the ages of 18 and 64, or about 19 million women, are uninsured. Of those, it is estimated that 36% will be eligible for tax credits and subsidies.

ACA specifies essential health benefits for women that must be offered by nongrandfathered plans. These benefits include maternity and newborn care, including prenatal visits and pediatric services. Several preventive services must be offered without co-payments or deductibles, including mammography exams; Pap tests; colonoscopies; type 2 diabetes screening; obesity screening; several immunizations including hepatitis, influenza, and HPV; and alcohol and tobacco counseling. Specific coverage benefits will continue to be shaped by U.S. Health and Human Services regulations.


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