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After months of negotiations, grandstanding, threats, and general dysfunction, our elected officials finally passed new tax legislation, thus avoiding going over the "fiscal cliff"----Here's my quick take on the new legislation with a theme borrowed from a classic Clint Eastwood film.

The Good - At long last, we can plan with confidence, knowing what the immediate future holds with respect to tax rates. The estate and gift tax exemptions were kept at 2012's level and indexed for inflation; $5.25 million per person, $10.5 million per married couple for 2013. This came as a pleasant surprise for tax professionals as the prevailing opinion was that the amounts would be significantly lower. Income tax rates for most Americans will not rise substantially and the dreaded alternative minimum tax (AMT) will now be a non-factor for most taxpayers.

The Bad - While "most Americans" will not see significant income tax increases, my clients and many readers of this newsletter, fall outside the category of "most Americans." Many in my readership will find their top income tax rate rising from 35 to 39.6% and their capital gains rate rising from 15 to 20%. In addition to that increase there is an additional 3.8% tax at the upper brackets for investment income, a phase out of itemized deductions, a completely unexpected new payroll tax of 0.9% and an increase in the estate tax from 35 to 40% on estates larger than $5 million...ouch!

The Ugly - Congress now faces the debt ceiling and spending cuts debate. Another ugly confrontation between the political parties may be looming that could once again temporarily roil our financial markets.

Dealing With The Bad:

• For clients facing higher marginal rates, maximizing tax deferred funding into 401k or other qualified pension plans becomes more important than ever.
• Family Limited Partnerships, LLC's, and certain trusts will continue to be important vehicles for protecting assets and shifting assets generationally in order to lower taxes.
• The best tax shelter of them all, the family owned small business, will continue to provide special opportunities to reduce taxes and build wealth for entrepreneurial Americans.
• "Come one, come all" to the Sunshine State. Florida is one of the lowest taxed states in the union and also has a highly favorable set of statutes to protect small business. That's right - we have no state death taxes, no corporate or personal income taxes, and an evolving set of corporate statutes modeled after those of the State of Delaware to protect business owners.

With the fiscal and political turmoil of 2012 behind us, one of the takeaways regarding personal investment behavior is that reactive, emotional investing is an unwise practice indeed. Many investors let media hype and their own fears get the better of them and missed out on some or all of the 27 trading days during 2012 when the S&P gained more than 1% in a single trading day. A portfolio can rarely, if ever, recover (in terms of long term results) from missing out on the big positive percentage days of a year. (BTN research) 

Another 2012 takeaway is the inadvisability of chasing hunches or tips about individual stocks or winners. The best individual stock performers of 2012 were, in fact, among the worst performers of 2011. The top, second and third best performing stocks of 2012 were ranked #371, #469 and #473 respectively out of 500 stocks in 2011! (BTN Research)

As always, our advice going forward is to stick to a highly disciplined, asset balanced approach and to avoid hunches and fear based investment decisions at all costs.                                                                                  

As of March 1, 2013 The U.S. Treasury will stop mailing paper checks to Social Security beneficiaries. All federal benefit recipients will then receive their payments via direct deposit to a bank or credit union account or loaded onto a Direct Express Debit MasterCard. 

We are pleased to announce that Alex Holguin, an LPL Registered Associate with our firm, received his Accredited Portfolio Management Advisor (APMA) designation.

After completing the official course on client assessment and suitability, risk/return, investment objectives, bond and equity portfolios, modern portfolio theory and investor psychology,  Alex passed  the comprehensive exam. Congrats to Alex! Well done. 

In The Community 

In December, Frye Financial continued its tradition of sponsoring the annual Frye Financial Alumni Games at The Hillel Community School. The men's and women's varsity soccer and basketball matchups against alumni teams drew a big crowd, with proceeds going toward the school's scholarship program.  

 

Congrats to clients and friends Hedy and Danny Whitebook on the marriage of their daughter Jolie to Harold Rivner of Augusta, Georgia.   

The couple delighted their guests with a beautiful, choreographed  first dance at their elegant and memorable wedding reception.