December 2, 2012

Are You Safe from the Fiscal Cliff?

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

The “Fiscal Cliff” is the description economists have used that describes the potential situation at year-end 2012 when a number of U.S. tax and fiscal changes are scheduled to occur. Folks, these changes are significant and remain as of this writing – unless this lame duck Congress, through their continuous pledge of working together – have in fact implemented change. This “perfect storm” of change includes the expiration of the infamous “Bush income tax cuts” AND addition of new, increased taxes.

If lawmakers, as of this writing, have not agreed on how to address the pending fiscal cliff issues, trillions – yes trillions – of dollars in tax increases and spending cuts will go into effect beginning in January 2013. The concerns are these changes could lead to a double-dip recession (a recession followed by a short recovery, then another recession) in 2013.

What are these changes and spending cuts that make up the fiscal cliff? Let’s look at some of these changes by category:

1. Spending cuts are slated in defense, education, food inspectors, air travel safety and other areas.
2. Bush tax cuts expiring include; tax rate increases, capital gains rate increases, dividend rate increases, child tax credit reduction, American Opportunity tax credit expiration, and many others.
3. Other tax changes include; increase in employee payroll tax withholding, a new 3.8 percent Medicare surtax and other Medicare withholding.
4. Miscellaneous changes; unemployment benefits extension expire, cut in reimbursement rates that physicians receive for treating Medicare patients (which has never been implemented to date to my knowledge).

None of us can predict the future. I don’t know how Congress has acted since this writing. But, I do know there are opportunities that remain for the remainder of 2012 and for 2013. These real tax risks may be minimized, reduced or even avoided by considering the income tax benefits of our annuity portfolios. The annuity has income tax deferral for both qualified and non-qualified annuities AND the most important income tax exclusion applied to income for non-qualified immediate annuities. These tax advantages are a few of the huge benefits of our annuity portfolios.

We encourage all of our readers to obtain additional information. Make 2013 a year that you secured safety from the fiscal cliff. Call us or details. Let us help you minimize and/or avoid the fiscal cliff.

Best wishes for a Merry Christmas, Happy Holidays and New Year.