1.
Year-End Planning:
Bracket Management
Presented by:
Robert S. Keebler, CPA, MST, AEP
Keebler & Associates LLP
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved

2.
Introduction
About the PFP Section & PFS Credential
• The AICPA PFP Section provides information,
resources, advocacy and guidance for CPAs who
specialize in providing estate, tax, retirement, risk
management and investment planning advice to
individuals and their closely held entities (learn more
at aicpa.org/PFP)
• The CPA/Personal Financial Specialist (PFS)
credential distinguishes CPAs as subject-matter
experts who have demonstrated their financial
planning knowledge through experience, education
and testing (learn more at aicpa.org/PFS)
American Institute of CPAs®
Personal Financial Planning Section
2

3.
Introduction
Robert S. Keebler, CPA, MST, AEP
Robert.Keebler@KeeblerandAssociates.com
920-593-1700
American Institute of CPAs®
Personal Financial Planning Section
3

4.
Time Frame Shift
1980-2002: 3-5 year horizon
2002-2010: EGTRRA Decade
2010-2012: Time of irresolution
2013-Forward: 5-10 year horizon
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
4

5.
2013 Ordinary Income Tax Rates
10%, 15%, 25% and 28% rates from Bush Administration tax
cuts made permanent
33% and 35% rates made permanent up to certain threshold
levels—
Single taxpayers
$400,000
Head of households
$425,000
Married filing jointly or surviving spouse
$450,000
Married filing separately
$225,000
Amounts of income above these threshold levels taxed at
39.6%
Threshold amounts adjusted for inflation
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
5

6.
2013—Long-Term Capital Gains & Dividends
Tax rate increases to 20% for taxpayers with income
above the threshold amounts listed on the previous
slide
• As these taxpayers will be above the threshold amounts for the
3.8% surtax, their capital gain rate will actually be 23.8%
Maximum rate stays at 15% for taxpayers with lower
incomes
Qualified dividend treatment is made permanent
0% Rate if you are in the 15% bracket
“Buffet Rule?”
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
6

7.
Phase-out of Personal Exemptions and
Itemized Deductions
Phase-out of personal exemptions (PEP) and
limitations on itemized deductions (Pease) as
income rises above the following threshold
amounts-Single taxpayers
$250,000
Head of households
$275,000
Married filing jointly or surviving spouse
$300,000
Married filing separately
$150,000
Amounts will be indexed for inflation
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
7

8.
Phase-out Of Personal Exemptions and
Itemized Deductions
PEP reduces personal exemption by 2% for• every $2,500 of income above the threshold amount for single
taxpayers
• every $1,250 of income above the threshold amount for married
taxpayers filing separately
Reinstatement of the phase-out could have been
worse
• If the full sunset occurred, the applicable threshold amounts
would have been $178,150 for single taxpayers and $267,200
for married taxpayers filing jointly
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
8

9.
Phase-out Of Personal Exemptions and
Itemized Deductions
Personal Exemption Phaseout
Personal Exemption ($3,800)
$4,000
Phase-Out Begins
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
AGI
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
9

10.
Pease Limitation
Pease cuts itemized deductions by 3% of AGI above
the threshold amounts up to a maximum of 80%
Deductions not included:
• Investment Interest
• Medical Expenses
• Casualty, theft and wagering losses
With the full sunset, the threshold amounts would
have been the same $178,150 for single taxpayers
and $267,200 for married filers
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
10

11.
Pease Limitation
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
11

12.
Recap
“Flying below the radar”
$450,000 – 39.6%
Ordinary Income Tax Rate
$300,000 – PEP/Pease
$250,000 – 3.8% Surtax
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
12

13.
Key Management Issues
Capital Gain Rates
Income Tax Rates
Ordinary Income should at least equal Itemized
Deductions plus exemptions
Tax liability should equal tax credits available
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
13

14.
Taxable Income and RMD
Taxable Income and RMD
$800,000
$600,000
$400,000
$200,000
$-
Taxable Income
IRA Distributions
35% Bracket
39.6% Bracket
33% Bracket
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
14

15.
Amount over 39.6% Tax Bracket
Amount over 39.6% Tax Bracket
150,000
100,000
54,243
61,751 69,642
77,932
86,637
143,148
133,651
124,424
113,820
105,354
95,772
50,000
-
-
-
-
American Institute of CPAs®
-
-
Personal Financial Planning Section
15

16.
Income Tax Rate
Income Tax Rate
40.00%
39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60%
30.00%
28.00% 28.00% 28.00% 28.00% 28.00%
20.00%
10.00%
0.00%
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
16

17.
Capital Gains Tax Rate
Capital Gains Tax Rate
20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%
20.00%
15.00%
15.00% 15.00% 15.00% 15.00% 15.00%
10.00%
5.00%
0.00%
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
17

18.
Taxable Income per Bracket
Taxable Income per Bracket
$800,000.00
$700,000.00
143,148
133,651
124,424
113,820
105,354
86,63795,772
69,500
69,64277,932
66,80068,100
64,20065,500
54,24361,751
61,60062,900
59,30060,400
57,10058,200
$600,000.00
$500,000.00
231,500236,100
222,600227,000
209,700213,900218,200
205,600
193,600197,500201,500
$400,000.00
$300,000.00
$200,000.00
$100,000.00
$-
10.00%
-
-
54,236 55,416
50,050 51,300 52,633
-
-
97,000 99,000 101,000103,000
89,700 91,500 93,300 95,100
83,000 84,600 86,300 88,000
76,650 78,200 79,800 81,400
95,500 97,400 99,400
84,800 86,500 88,200 90,000 91,800 93,600
73,900 75,300 76,800 78,300 79,900 81,500 83,100
73,500
54,650 55,800 56,900 58,000 59,100 60,300 61,500 62,700 64,000 65,300 66,600 68,000 69,400 70,700 72,100
$17,850$18,200$18,600$19,000$19,400$19,800$20,200$20,600$21,000$21,400$21,800$22,200$22,600$23,100$23,600$24,100
15.00%
25.00%
28.00%
33.00%
35.00%
39.60%
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
18

19.
Itemized Deductions
Itemized Deductions
$14,000
$13,000 $13,000 $12,949 $12,769
$12,586
$12,000
$10,000
$8,000
$6,000
$5,061
$4,529
$3,981
$4,000
$3,414
$2,829
$2,600
$2,600
$2,600
$2,600
$2,600
$2,600
$2,000
$-
Total Itemized Deductions
Net Itemized Deductions
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
19

20.
Example:
5 Year Projection
In 2013:
• $150,000 Wages
• $50,000 Long-Term Capital Gains
• $20,000 Itemized Deductions
In 2015:
• RMDs on a $5,000,000 IRA start
2% Inflation Rate
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
20

21.
Example:
INCOME
2013
Wages
$
Long-Term Capital Gains
2014
150,000
$
50,000
IRA Distributions
2015
153,000
$
51,000
-
2016
156,100
$
2017
159,200
$
162,400
52,000
54,100
211,245
-
53,000
220,971
231,113
Subtotal
$
200,000
$
204,000
$
419,345
$
433,171
$
447,613
Adjusted Gross Income (AGI)
$
200,000
$
204,000
$
419,345
$
433,171
$
447,613
Total Deduction Taken
$
20,000
$
20,000
$
16,420
$
16,005
$
15,572
Net Personal Exemptions
7,800
8,000
328
-
-
Taxable Income
$
172,200
$
176,000
$
402,598
$
417,166
$
432,041
Regular Income Tax
$
29,908
$
30,590
$
98,843
$
102,981
$
107,194
Alternative Minimum Tax (AMT)
-
-
3,648
3,743
3,966
3.8% Net Investment Income Tax
-
-
1,976
2,014
2,056
TOTAL INCOME TAX
$
29,908
$
30,590
$
104,467
$
108,738
$
113,215
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
21

22.
Example:
2013
25.00%
15.00%
No
25.00%
15.00%
AVERAGE RATE
DISTANCE TO NEXT TAX BRACKET
DISTANCE TO FOLLOWING BRACKET
AMOUNT ABOVE 39.6% BRACKET
$
2015
33.00%
15.00%
Yes
36.80%
18.80%
2016
33.00%
15.00%
Yes
36.80%
18.80%
2017
33.00%
15.00%
Yes
36.80%
18.80%
14.95%
MARGINAL INCOME TAX RATE
MARGINAL CAPITAL GAINS RATE
CURRENTLY SUBJECT TO NIIT
MARGINAL INCOME TAX RATE if NIIT APPLIES
MARGINAL CAPITAL GAIN TAX RATE WITH NIIT
2014
25.00%
15.00%
No
25.00%
15.00%
15.00%
24.91%
25.10%
25.29%
50,850 $
226,150
-
47,050 $
222,350
-
47,402 $
Max
-
32,834 $
Max
-
17,959
Max
-
2015
2016
2017
2013
DISTANCE TO PEP/PEASE
TAX COST OF PEP/PEASE
$
$
2014
100,000 $
-
$
96,000 $ 119,345 Over $ 133,171 Over $ 147,613 Over
-
$
3,779 $
4,090 $
4,299
RATE IMPACT OF PEP/PEASE
0.00%
0.00%
0.94%
0.98%
1.00%
% OF ITEMIZED DEDUCTIONS LOST (MAX 80%)
0.00%
0.00%
17.90%
19.98%
22.14%
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
22

23.
Example:
2013
MAGI LESS THRESHOLD (A)
NET INVESTMENT INCOME (B)
$
LESSOR OF A OR B
NIIT @ 3.8%
2014
50,000
$
$
$
-
DISTANCE TO 3.8% NIIT
AMOUNT OVER THRESHOLD
$
$
2016
183,171
53,000
$
2017
197,613
54,100
52,000
1,976
$
$
53,000
2,014
$
$
54,100
2,056
Over
169,345
2014
MARGINAL CAPITAL GAINS RATE
$
50,000 $
$
$
51,000 $
$
277,800 $
274,000 $
15.00%
2013
29,908
28,742
-
$
$
AMT EXEMPTION REMAINING
Appx. DISTANCE UNTIL AMT APPLIES
$
$
4,163
2014
30,590
29,516
-
$
$
$
3,836
Over
183,171
2015
15.00%
DISTANCE TO NEXT CAPITAL GAINS BRACKET
REGULAR INCOME TAX
TENTATIVE MINIMUM TAX
ALTERNATIVE TAX DUE
$
46,000
N/A
2013
$
$
$
2015
169,345
52,000
$
$
-
50,000
N/A
CAPITAL GAINS TAXED AT 0% PERCENT
CAPITAL GAINS TAXED AT 15% PERCENT
CAPITAL GAINS TAXED AT 20% PERCENT
$
51,000
$
$
Over
197,613
2016
$
52,000 $
$
2017
$
53,000 $
$
54,100
-
47,402 $
32,834 $
17,959
15.00%
15.00%
15.00%
2015
98,843
102,491
3,648
Applies
$
$
2016
102,981
106,724
3,743
Applies
$
$
2017
107,194
111,160
3,966
Applies
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
23

24.
Required Disclosure Under Circular 230
Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated
by the United States Department of the Treasury, nothing contained in this
communication was intended or written to be used by any taxpayer for the purpose of
avoiding penalties that may be imposed on the taxpayer by the Internal Revenue
Service, and it cannot be used by any taxpayer for such purpose. No one, without
our express prior written permission, may use or refer to any tax advice in this
communication in promoting, marketing, or recommending a partnership or other
entity, investment plan or arrangement to any other party.
For discussion purposes only. This work is intended to provide general information
about the tax and other laws applicable to retirement benefits. The author, his firm or
anyone forwarding or reproducing this work shall have neither liability nor
responsibility to any person or entity with respect to any loss or damage caused, or
alleged to be caused, directly or indirectly by the information contained in this work.
This work does not represent tax, accounting, or legal advice. The individual
taxpayer is advised to and should rely on their own advisors.
American Institute of CPAs®
Personal Financial Planning Section
24

25.
PFP Section Resources (aicpa.org/PFP)
The CPA’s Guide to Financial & Estate Planning– 1000-page, 4 volume,
in-depth guide for practitioners (updated for ATRA)
Forefield Advisor (aicpa.org/pfp/forefield)
• Client education and communication tool
• Written by CPAs, attorneys and other subject matter experts
• More than 3,000 resources covering personal financial planning,
including estate, tax, retirement, investment and risk management
planning
• Keyword searches: American Taxpayer Relief Act, net investment
income tax
American Institute of CPAs®
Personal Financial Planning Section
25

26.
Resources for Post-ATRA & NIIT
Planning
Planning After ATRA and the Net Investment Income Tax Toolkit
•
•
aicpa.org/pfp/proactiveplanning
Complimentary PFP Section member/PFS credential holder benefit
Other Resources for Purchase from Bob Keebler (www.cpa2biz.com)
•
•
•
•
Tax Planning After the Healthcare Surtax: Tools, Tips, and Tactics*
The Small Business Jobs Act of 2010: Tools, Tips, and Tactics
The Tax Relief and Job Creation Act of 2010: Tools, Tips, and Tactics
The Rebirth of Roth: A CPA's Ultimate Guide for Client Care*
Coming soon! More Resources for Purchase from Bob Keebler*
•
•
Planning Opportunities After ATRA: Tools, Tips, and Tactics
Tax Rate Evaluator: A Graphical Calculator for Tax Planning After ATRA
Visit aicpa.org/pfp/join to become a member
*discounts available for PFP/PFS members
American Institute of CPAs®
Personal Financial Planning Section
26

27.
Proactive Year-End Financial and Tax Planning
Where to Find More Education
10/25/2013
1:00-2:00p.m. ET
Year-End Financial and Tax Planning Strategies to Address ATRA and the
Net Investment Income Tax (Overview)*
11/11/2013
1:00-2:45p.m. ET
Top Estate and Income Tax Planning Strategies*
11/12/2013
1:00-2:45p.m. ET
Investment Tax Planning – Creating Tax Alpha*
1/20-22/2014
Las Vegas
AICPA Advanced Personal Financial Planning Conference
(cpa2biz.com/PFP)
• Advanced education covering tax, estate, retirement, investments
and risk management planning to be ready for 2014 and beyond
• 2-day pre-conference workshop on implementing a PFP practice,
Jan 18-19
To register and to view the full calendar of upcoming PFP
Section events, visit aicpa.org/PFP and click on CPE & Events.
*To access the archives, visit aicpa.org/pfp/webseminars.
American Institute of CPAs®
Personal Financial Planning Section
27

28.
Contact AICPA PFP Team Staff with
Questions
financialplanning@aicpa.org
American Institute of CPAs®
Personal Financial Planning Section
28