Taxpayers making more than $250,000 (married filing jointly (MFJ)), or $200,000 (single), may experience 2013 marginal tax rate increases ranging from 13% to 189% over current 2012 rates  – Taxable estate of $5,120,000 will see an increase of 22,659,990.00% over 2012 – if your estate is over $5,120,00 have your food tested at all family holiday parties. (SEE CHART BELOW)

It’s anyone guess if congress will take any action prior to the end of the year. So having a plan in place early is critical. If you own a crystal ball I would love at least 10 minutes.

• Wages & Self-Employment Income over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS)) will be subject to an additional .9% Medicare Hospital Insurance Tax – depending on your W-4 on file with your employer once you cross these thresholds your employer is automatically required to withhold the additional .9%
• Qualified Dividends will now be taxed as ordinary income. Tax rates increase from 15% to (39.6 + 3.8) 43.4% for $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS))
• Long Term Capital Gains increase from 15% to 20% or 23.8% for MAGI over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS))
• Plus all passive income from Interest, Rents, Royalties, Annuities for MAGI over $250,000 (MFJ), $200,000 (single), or $125,000 (married filing separately (MFS)) is subject an additional 3.8% Medicare Hospital Insurance Tax
• Federal Estate and Gift Tax Exemption drops to $1,000,000 from $5,120,000 – Taxable estate of $5,120,00 will see an increase of tax of $2,266,000 from zero

Income Type	Maximum Marginal Tax Rate	Maximum Marginal Tax Rate	New Medicare Hospital Insurance tax (HI tax)*	New Net Investment Income Tax (other than earned income)*	Combined Maximum Marginal Tax Rate	Net Percentage Increase
	Current Law (Pre-1/1/13)	(Post-12/31/12)	(Post-12/31/12)	(Post-12/31/12)	(Post-12/31/12)	(2013 vs. 2012)
Wages and S/E income > $250,000 (MFJ)/>$200,000 (Single)	35%	39.6%	0.9%**	N/A	40.5%	15.7%
Long-Term Capital Gain — Maximum Rate***	15%	20%	N/A	3.8%	23.8%	58.67%
Qualified Dividends	15%	39.6%	N/A	3.8%	43.4%	189.33%
Passive Interest, Rents, Royalties, Annuities, Other (IRA’s not Subject)	35%	39.6%	N/A	3.8%	43.4%	24%
Flow through Income — Active Trade/Business	35%	39.6%	N/A	N/A	39.6%	13.14%
Flow through Income — Passive Trade/Business	35%	39.6%	N/A	3.8%	43.4%	24%
Estate & Gift Tax Rates  Federal Exemption from $5,120,000 drops to $1,000,000	35% over 5.12 Mil	55% over 1 Mil	N/A	3.8 % added on to Trust & Estate non-distributed income	55%	22,659,990.00%

Our next blog will discuss strategies and planning – unless of course I get my hands on that crystal ball!

As the new year begins, financial markets continue to be gripped by uncertainty over developments in the Eurozone crisis. While not seeking to downplay the anxiety generated by these events, particularly in relation to their effects on investment portfolios, it’s worth reflecting critically on the 20^th century, and putting current events in perspective:

• Nearly 100 years ago, Europe was engulfed by World War I. The economic effects were significant, with widespread rationing, labor shortages, and massive government borrowing.
• A little over a decade later, the Great Depression cut a swath through the global
  economy. In the meantime, resentment was growing in Germany over its Great War reparations to the Allied powers. Berlin resorted to printing money to pay its
  debts, which in turn led to hyperinflation.
• More than 50 million died in the Second World War. In economic terms, the war’s impact was profound. Most of Europe’s infrastructure was destroyed, millions of people were left homeless, labor shortages were rife, and rationing was prevalent.
• In the mid-1970s, the depreciation of the US dollar, the breakdown of the monetary system, and war in the Middle East encouraged major oil producers to quadruple oil prices. Stock markets collapsed and stagflation—a combination of rising inflation alongside rising unemployment—gripped many countries.
• In the past decade, there have been the tragedies of 9/11; the 2004 Asian tsunami; the 2011 Japanese earthquake, tsunami, and nuclear crisis; and now, the financial crisis sparked by irresponsible lending, complex derivatives, and
  excessive leverage.

Today, while the US and Europe are gripped by tough economic times, much of the developing world is thriving. Rising levels of education, health, and workforce participation also mean that the foundations are being built for a healthier and peaceful global economy.

Anxiety over recent market developments is completely understandable, and it is quite human to feel concerned about events in Europe. But amid all the bad news, it is also clear that the world is changing in positive ways that provide plenty of cause for hope and, at the very least, gratitude for what we already have.

Always remember, we are here for you….so please never hesitate to contact us if you have questions or need our assistance.

Please follow the link below to read an article written by Anya Martin of MarketWatch (column found in the Wall Street Journal), where our “infamous” Robert Walsh is quoted.

http://www.marketwatch.com/story/11-tips-to-empty-your-flex-spending-account-2011-12-20?siteid=nbkh

 

Christmas/Hanukkah  2011 — Birth of a New Tradition
As the holidays approach, the giant foreign factories are kicking into high gear to provide Americans with monstrous piles of cheaply produced goods –merchandise that has been produced at the expense of American labor.

This year can be different. This year Americans will give the gift of genuine concern for other Americans. There is no longer an excuse that, at gift giving time, nothing can be found that is produced by American hands. Yes there is!

It’s time to think outside the box, people. Who says a gift needs to fit in a box?
Everyone — yes EVERYONE gets their hair cut.

How about gift certificates from your local American hair salon or barber?
Gym membership? It’s appropriate for all ages who are thinking about some health improvement.

Who wouldn’t appreciate getting their car detailed? Small, American owned detail shops and car washes would love to sell you a gift certificate or a book of gift certificates.
Perhaps that grateful gift receiver would like his driveway sealed, or lawn mowed for the summer, or driveway plowed all winter, or games at the local golf course.
There are a bazillion owner-run restaurants — all offering gift certificates.

And, if your intended isn’t the fancy eatery sort, what about a half dozen breakfasts at the local breakfast joint.

Remember, folks this isn’t about big National chains — this is about supporting your home town Americans with their financial lives on the line to keep their doors open.
How many people couldn’t use an oil change for their car, truck or motorcycle, done at a shop run by the American working guy?

Thinking about a heartfelt gift for mom? Mom would LOVE the services of a local cleaning lady for a day.
My computer could use a tune-up, and I KNOW I can find some young guy who is struggling to get his repair business up and running.
OK, you were looking for something more personal. Local crafts people spin their own wool and knit them into scarves. They make jewelry, and pottery and beautiful wooden boxes.

Plan your holiday outings at local, owner operated restaurants and leave your server a nice tip. And, how about going out to see a play or ballet at your hometown theatre. Musicians need love too, so find a venue showcasing local bands.
Honestly, people, do you REALLY need to buy another ten thousand lights for the house? When you buy a five dollar string of light, about fifty cents stays in the community. If you have those kinds of bucks to burn, leave the mailman, trash guy or babysitter a nice BIG tip.

You see, Christmas/Hanukkah  is now about caring about US, encouraging American small businesses to keep plugging away to follow their dreams. And, when we care about other Americans, we care about our communities, and the benefits come back to us in ways we couldn’t imagine.
THIS is the new American holiday tradition.
This is a revolution of caring about each other,
and isn’t that what our holidays are all about?

The current renewed downward volatility in the world stock markets (Volatility is a nice way of my saying my stock portfolio looks like…****!) is reviving unwelcome feelings of anxiety, fear, and a sense of powerlessness. However, acting on our emotions we can end up doing more harm than good.
The increase in market volatility is an expression of uncertainty in the world. The debt strains in the US and Europe, together with renewed worries over financial institutions and fears of another recession, are leading stock market participants to apply a higher discount to risky assets. Example – You own a house in Key West, Florida and there is a category 5 hurricane over Cuba. What price could you demand for your house days before the storm hits? After the hurricane passes and the sun comes out again and the house is still standing, is the house worth more or less than just before the storm? An individual willing to buy during and before the storm deserves a lower price because of the uncertainty (RISK) at that time. If they buy right before the storm when risk is the highest, they are expecting a much greater return then when the weather returns to clear and sunny. So… developed world stock markets, oil and industrial commodities and emerging stock markets are going lower as risk aversion drives investors to the perceived safe havens of…YES, US government bonds, gold, and Swiss francs. As to what happens next, no one knows for sure (Hurricane example). When you hear investors are fleeing the stock market, remember they need a buyer to flee and buyers are demanding a lower price with all the uncertainty (RISK) – That is the nature of the markets. There are a few points we can keep in mind to make living with the downward volatility more bearable & a stock portfolio looking like…****!).• Remember that markets are unpredictable and do not always react the way the experts predict they will. The recent downgrade by S&P of the US government’s credit rating actually led to a strengthening in US Treasury bonds.
• Quitting the equity market at a time like this is like running away from a sale. While prices have been discounted to reflect higher risk, this is just another way of saying future expected returns are higher.
• Market recoveries can come just as quickly and just as violently as the prior correction. For instance, in March 2009—when market sentiment was at least this bad—the S&P 500 turned in seven consecutive months of gains totaling almost 80 percent. This is not a prediction of what will happen this time, but it is a reminder of the dangers for long-term investors of turning paper losses into real ones and paying for the risk without waiting around for the recovery. Remember, nothing lasts forever. Just as loading up on risk when prices are high can leave you exposed to a correction, dumping risk altogether when prices are low means you can miss the correction back to higher valuation.
• Never forget the power of diversification. While equity markets have had a rocky time in 2011, fixed income markets have flourished making the overall losses for balanced investors a little more bearable. Diversification spreads risk and can lessen the bumps in the road. Suddenly US savings bonds, AMEX and ING accounts paying 1% look great!
• The global economy is forever changing and new forces are replacing old ones. We don’t know when and where the next great thing like the internet will come from and change our lives forever. Can you imagine what it would be like to live without the internet today? –Likewise, we can’t imagine the next great thing to improve our lives forever!
• Just as we do during times of stock market volatility upward and a stock portfolio looking good we should remember to do the little things; keep saving, working hard, enjoying a hard earned & well-deserved retirement, working together, striving to be our best, living within our means, avoiding bad mistakes, taking advantage of opportunities, tempering our emotions, taking advantage of low interest rates/“refinances”, reducing taxes paid, reviewing insurance and estate plans, recalibrating risk levels and time frames needed to achieve goals, rebalancing to target asset allocations and continuously updating our financial plans. The secret is to enjoy the long ride. Just as it is hard to grow old, the alternative is much worse.
The market volatility is worrisome and a stock portfolio looking like…****! generates feelings that are completely understandable. By doing the little things; fiscal discipline, diversification, and remembering how markets work, can make the long ride a little more bearable. At some point, value will re-emerge, risk appetites will re-awaken, and for those who acknowledged their emotions without acting on them, relief will replace anxiety and hopefully, a diversified stock portfolio looking healthier! I know you’re getting tired of reading emails from us – SO if you want/need to talk or vent about a stock portfolio looking like…****! please don’t hesitate to call or schedule an appointment. We would love to hear from you.