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President’s Message

Bruce Doole
January 2nd, 2013

Fiscal Cliff

Over the past two weeks you have probably seen a lot of information in the news regarding the “Fiscal Cliff.”  This was term coined by the Federal Reserve Chairman, Ben Bernanke, to describe the laws affecting tax rates and government spending going into effect at the beginning of 2013. The resulting laws to avert the “Cliff” were passed as a result of the negotiation between Congress and the Administration on New Year’s Eve a week or so ago.  

The original Fiscal Cliff resulted from negotiations between Congress and the Administration in 2011 regarding raising the debt ceiling when a newly elected Congress with a House Republican majority was looking to cut spending to prevent ballooning deficits. The debt ceiling needs to be re-negotiated again this year. The compromise addressed taxes and the expiring Bush Tax Cuts, but not spending cuts. The compromise bill extended the pending spending cuts by two months to give Congress more time to negotiate and avoid sequestration, the process where Congress holds back money appropriated by the Treasury to Federal Agencies. Below we have detailed some of the key points of this deal.

A Few High-lights

  • The Fiscal Cliff bill indexes the alternative minimum tax to inflation, which is geared to help millions of middle-class taxpayers avoid being hit with a higher tax bill averaging to be roughly $3,000.
  • College tuition has a five-year extension on up to a $2,500 tax credit while earned income and child tax credits will also be carried-out for five years.
  • Families with taxable earnings under $450,000 have an extended tax rate.
  • Tax-free distributions from an IRA account to a charity fund, consisting of $100,000 or less, is being extended. Some featured provisions include that individuals may use their December 2012 IRA distributions for a charity and appropriate it as a charity distribution, and that individuals are allowed to create a tax-free charitable IRA distribution during January of 2013 and treat it as if it was prepared in 2012.

Low-lights

  • Race track owners, including NASCAR, will receive approximately $78 million in tax breaks.
  • Lower payroll tax rates have been extended.
  • Reduce government spending.

Investor Advice

  • Spend more focus on buy-and-hold investment strategies and on your harvesting losses.
  • Consider tax-advantaged investment strategies.
  • Pay down mortgage.
  • Consider investing in annuities and life insurance.

We hope you and your families have enjoyed your holidays and we look forward to seeing you and discussing your goals for the New Year with you.

Sincerely,

Bruce W. Doole, President