1. Destination: Plan
A Real Cliffhanger: Tax Planning
Strategies for 2013
DON’T TAKE THE FALL IF FEDERAL BUDGET GOES OVER THE FISCAL CLIFF
As 2012 comes to a close, Americans are dealing As a taxpayer and investor, how will this impending crisis
affect your investment goals? Importantly, what can you
with more uncertainty in their tax situation than
do to help:
in any time in recent history. Unless Congress l Minimize your tax obligations
can reach a compromise prior to year-end, the
l Maximize your after-tax return
U.S. economy will tumble over a “fiscal cliff,”
l And increase the likelihood of you reaching your
a term for the simultaneous increase in tax financial destination
rates and drastic cuts in federal spending. Unless Congress acts soon, nearly nine out of every 10
households will be paying higher taxes. Every income
group would see their taxes rise by at least 3.5%, with
high-income households taking an even bigger hit.*
Current and potential future tax rates
Taxable Income — Top Rate with
2012 2013
Married Filing Jointly Surtax 2013 1
$0–$17,400 10% 15% 15%
$17,400–$70,700 15% 15% 15%
$70,700–$142,700 25% 28% 28%
$142,700–$217,450 28% 31% 34.8%
$217,450–$388,350 33% 36% 39.8%
Over $388,350 35% 39.6% 43.4%
1 The top rate with surtax in 2013 is simply the rate shown for 2013 in addition to the surtax of 3.8%. Source: Robert Keebler, CPA
That worst-case scenario may or may not take place, so let’s discuss potential outcomes.

2. Exploring likely outcomes you can do to mitigate its impact. First, for interest
If Bush-era income-tax cuts expire for tens of millions of income, you can convert taxable interest to municipal
Americans, billions of dollars of spending cuts will likely interest, which is tax exempt. That’s also the case with
take effect. It could go many ways, but the first possible dividend income, where we can reposition your holdings
outcome is the “over the cliff scenario,” where Congress to a tax-deferred or tax-free account.
takes no action and let’s current law stand. There are also options for investors planning to pass
Another option is Congress postponing action for six wealth to their heirs or their favorite charity. You may
months or more in what the Wall Street Journal called want to consider a Grantor Retained Annuity Trust,
the “kick the can down the road” scenario. A third – but which may be ideal for gifting wealth to your heirs,
welcome – scenario involves the President and Congress or a Charitable Remainder Trust, which is advantageous
coming up with both a long-term and short-term plan, for giving to charities. Both vehicles may offer significant
leaving many tax cuts in place and giving Congress time tax advantages.
to build bipartisan support for a permanent solution.
Unfortunately, we can’t predict what is going to happen,
Act now to manage against
so we’re advising clients to plan for the worst, which would uncertainty
mean one of the largest tax increases in US history.1 In summary, we don’t know what’s going to happen in
Washington over the next few months, so that’s why we
l Reinstatement of 36% and 39.6% tax brackets need to start now to make smart tax decisions. Don’t
l Long-term capital gain rate increased to 20% postpone tax planning until next April, when you’re up
l Itemized deduction limits re-instated against a deadline, or even year-end. There’s a lot of
uncertainty out there and it’s best if we try to get on top
l Reinstatement of $1 million exemption for estate tax
of it now.
(previously $5 million)
l Medicare tax rate increased for many households2 Finally, we’d like to offer our assistance. Our firm is
very familiar with the impact taxes can have on your
investments and can help you to achieve that goal of
It’s all about “asset location” maximizing your real return. We can sit down with you,
The important question is, what can we do about it? How
and/or your tax advisor and come up with a solid tax plan
can we minimize the damages taxes will have on our
– regardless of what Congress decides to do. Let’s start
investment portfolio? Remember, when investing, it’s not
working together now.
what you earn, but what you keep. Let’s take the steps
now to ensure you keep as much as possible. Dana Calcagno Wilkins
Financial Advisor
First, investors should consider “asset location.” More
Prentice Wealth Managment, LLC
often than not, advisors are talking to clients about asset
110 Linden Oaks Drive Ste. F
allocation, or the mix of stocks and bonds in their
portfolios. Asset location refers to whether your assets
Rochester, NY 14625
are in a taxable, tax exempt or tax deferred investment dwilkins@prenticewealth.com
vehicle. Investors should: www.prenticewealth.com
Office (585) 218-0001
l Consider maximizing contributions to retirement
Fax (585) 218-0097
plans & IRAs
l Consider investing in tax-exempt municipal bonds
l Consider whether Roth IRA is appropriate for you
Note from the chart on the front, there may be a new top Securities offered through Cadaret, Grant & Co. Inc. Member FINRA/SIPC.
Prentice Wealth Management, LLC and Cadaret, Grant & Co. Inc. are
rate for Medicare tax in 2013. However, there are things separate entities.
* Forbes.com, October 1, 2012
1
CBSNews.com, Unresolved fiscal cliff could raise taxes for 90 percent of U.S. families, Oct. 1, 2012
2
A
ll tax rate data from: AICPA, American Institute of Certified Public Accountants
This firm Prentice Wealth Managment, LLC does not provide tax advice. This content does not constitute tax,
legal or investing advice. Please note that (i) any discussion of U.S. tax matters contained in this
communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was
written to support the promotion or marketing of the matters addressed herein: and (iii) you should seek
advice based on your particular circumstances from an independent tax advisor.
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