INDIVIDUAL TAX ISSUES What Will Affect Your Return in 2014

1. INDIVIDUAL TAX ISSUESWhat Will Affect Your Return in 2014 Updated Nov. 15, 2013

2. What Sweeping Tax Changes Mean to You • American Taxpayer Relief Act (ATRA) — extensivechanges that affect planning • High-income taxpayers need to considertax-deferral options due to: • New higher rates • Curtailed deductions • Middle-income taxpayers cantake advantage of extendedtax benefits

3. New Tax Rates on Ordinary Income and Capital Gains • The top tax bracket personal income tax rate increased from 35% to 39.6%. • The top tax bracket for qualified dividend income and long-term capital gains tax rate increased from 15% to 20% (23.8% if the new net investment income applies) with the breakout below: • Taxpayers in lower income tax brackets ($36,250 or less): 0% rate • Taxpayers in middle income tax brackets ($36,251-$400,000): 15% rate • Taxpayers in highest tax bracket ($400,001 and over): 20% rate

4. 20% Capital Gains Rate — Example • Facts: Single taxpayer with $420,000 in taxable income ($100,000 from capital gains) $89,731 Tax on ordinary income (per tax tables) • Calculating the tax on capital gains: $ 4,000 (20% on the income in excess of $400,000) 12,000 (15% on the remaining capital gains income) $16,000 Tax on capital gains • $105,731 Total Tax (before 0.9% HI and 3.8% Net Investment Income Tax)

5. New Tax on Net Investment Income • Affects individuals with incomeabove certain thresholds • Applies to capital gains, interestand dividend income frominvestment assets • May also apply to rentaland royalty income

6. Alternative Minimum Tax (AMT) • Created to prevent the wealthy from using tax loopholes to avoid payingincome tax • How does it work? • Re-computes taxable income by adding back certain non-taxable income and removing some deductions • Re-computed income is then multiplied by a flat rate = AMT • AMT is compared to regular tax and whicheverresults in the higher tax is the amount owed • Can be very complex to calculate

7. AMT – Good and Bad News • Good news: • A higher AMT exemption • AMT now indexed for inflation • Bad news: • The income levels at which the exemptionlevel phases out were not increased • Possible pitfall: • Triggering the AMT when taking certaintax breaks • AMT Exemption Amount for Tax Year 2013: • $51,900 (Single/head of household) • $80,800 (Married filing jointly)

8. Personal Exemptions • Phase-out of personal exemptions reinstated • Total amount of personal exemptions for taxpayers and dependentsis reduced if the taxpayer’s adjusted gross income is greater than: • $300,000 for married couples • $250,000 for single taxpayers • $275,000 head of household • $150,000 married filing separately

9. Itemized Deductions • There is a limitation on itemized deductions forhigh-income taxpayers • Deductions reduced by 3% of amount by whichtaxpayer’s AGI exceeds threshold • Reduction is limited to 80% of otherwise allowablededuction (i.e., taxpayers will receive at least 20%of itemized deductions) • Exception for certain itemized deductions: • Medical expenses • Investment interest expense • Casualty or theft losses

10. Itemized Deduction Limit — Example • Married taxpayers (filing jointly) have the following deductions: • Medical expenses of $6,000 (post 10% AGI floor) • State income taxes of $30,000 • Mortgage interest of $20,000 • Charitable contributions of $7,000 • AGI is $350,000 • Threshold for 2013 is $300,000 • AGI exceeds threshold by $50,000 ($350,000-$300,000) • Result: Itemized deductions are reducedby $1,500 (3% x $50,000)

11. Some Tax Benefits Set to Expire • The ATRA extended many deductions and credits until Dec. 31, 2013: • Deduction for state and local sales taxes • Some credits and benefits for families, such as the $1,000 child tax credit • Exemption for cancellation of debt on a principal residence • Tax credits for making qualified energy-saving improvementsto a personal residence • Unclear if these benefits will be extended again

12. Retirement Planning • Higher contribution limits for 401(k)s: • Up to $17,500 ($23,000 if you are age50 or older). Possible to qualify for anemployer match for some or allcontributions. • All assets in non-Roth retirement accountscan be converted to a Roth IRA or Roth 401(k).

13. Estate and Gift Taxes • Estates up to $5 million now permanently exempt from estate taxand indexed for inflation in future years. For 2013, the exemptionis $5.25 million. • Estate tax rate raised to 40% • The “portability” law enabling a surviving spouse to make use of adeceased spouse’s unused exclusion has been made permanent. • Example: If husband dies with estate worth $3 million, his unusedexemption amount of $2.25 million will not be lost; wife will havenewexemption amount of $7.5 million

14. Charitable Contributions • Taxpayers age 70½ and older can once againmake up to $100,000 of tax-free distributionsfrom an IRA directly to qualified charities. • Contributions are: • Not deductible, but the IRAdistributions are excludedfrom gross income • Counted toward the minimumrequired distributions for theyear and may also reduce theamount of taxable SocialSecurity benefits

15. Higher Education Incentives • American Opportunity Tax Credit • Extended through 2017 • Allows eligible taxpayers toclaim a tax credit for qualifiedpost-secondary education expenses • Lifetime learning credit andabove-the-line deduction forqualified tuition and expenses • Above-the-line deduction for qualified tuition and expenses

16. Higher Education Incentives • Permanent extensions of: • $5,250 exclusion for employer-provided educational assistance • $2,500 deduction forstudent loan interest(without a 5-year limitation) • $2,000 maximum contributionforeducation savings accounts

17. Health Care Timeline • Open enrollment in the newly created HealthInsurance Marketplace began Fall 2013 • Coverage can start as early as Jan. 1, 2014. • Open enrollment closes March 31, 2014, andwill not open again until October 2014 • Other key provisions are scheduled to becomeeffective in the coming year

18. Planning Opportunities • Although new tax laws add complexity to the system,they also often open up new opportunities to minimizeyour tax bill. • We can help you understand your tax situation anddetermine the best steps to address your taxchallenges and any other financial concerns.

19. Questions