NEWSLETTER | MARCH 2014

Welcome to Frontier Wealth Management’s March Newsletter! This month’s edition includes an update of 2014 Federal Tax Rules and Changes and a feature about myRA (under the Quick Links section), which was introduced in the State of the Union Address.

2014 Federal Tax Changes

Frontier Team Spotlight

News & Notes

Tax Reminder

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2014 Federal Tax Changes

By Mark Howe, CFP Director of Financial Planning

RECAP OF 2013

Federal Taxes: 2013 marks the 100th anniversary of the Federal Income Tax. Much has changed throughout the past century. Annual tax changes have since become the norm. As April 15th approaches, many people are gathering their tax documents and preparing to hand them off to their CPA. When you receive your completed tax returns, you might notice some changes from previous tax years. Therefore, before highlighting 2014 tax changes, it is prudent to review and explain tax changes that took effect

in 2013, and potentially just now are being discovered. On January 2, 2013, The American Taxpayer Relief Act of 2012 was signed into law. Highlights of this law include:

Brett Bender Advisor

Brett and his wife Amber welcomed twins into the world last August. Garrett and Addison have brought much joy and little sleep to the Bender household over the last six months. But having a boy and a girl has also allowed them to be “two and done”! Brett brings a unique professional background to Frontier, beginning with his career in sports management. His first job was with the NBA Phoenix Suns before spending a 12- -year career in arena football as a general manager, and later as a consultant. His tenure as a GM was highlighted by the AFL Executive of the Year award in 2001. Brett currently satisfies his sports cravings by working for CBS sports during the NFL football season on game day productions. Growing up in Scottsdale, AZ, Brett honed his golf game in the desert before coming to the University of Kansas on a golf scholarship. Brett still enjoys getting out on the links but seems to find a little less time to be on the golf course.

Frontier Team Spotlight 1. Individual Tax Rates: This law permanently extended individual income tax rates, rather than letting the tax rates revert back to higher marginal income tax brackets. A new top tax bracket of 39.6% for joint filers with taxable income exceeding $450,000 ($400,000 for single filers) was established.

2. Capital Gain and Qualified Dividend Rates: Individual capital gain and dividend tax rates of 15% were permanently extended for those with taxable incomes below $450,000 for joint filers ($400,000 for single filers). Taxpayers in the 10% and 15% marginal tax brackets continue to pay 0% capital gains tax. Those with taxable incomes above $450,000 for joint filers ($400,000 for single filers), however, will now pay a 20% capital gain and qualified dividend rate.

3. Medicare Surtax: In addition, as part of the Health Care and Education Reconciliation Act of 2010, a new 3.8% surtax generally applies for those with an adjusted gross income of more than $250,000 for joint filers ($200,000 for single filers) on investment income, which includes interest, dividends, annuities, rent and capital gains. This does not include tax- -exempt municipal bond income, pension income, or IRA, Roth IRA, and qualified retirement plan distributions. Several complex factors determine the amount subject to this new surtax. As a result, top income earners could pay a total of 23.8% on capital gains and qualified dividends (20% capital gain/dividend rate plus 3.8% Medicare surtax).

4. Medicare Payroll Surtax: Additionally, a new 0.9% Medicare payroll surtax on employees with earned incomes of more than $250,000 for joint filers ($200,000 for single filers) was established. This is in addition to the 1.45% each employee pays for Medicare tax (regardless of income level).

5. Personal Exemption Phase Out: The 2013 personal exemption is $3,900. This exemption amount, however, is phased out if adjusted gross income is more than $300,000 for joint filers ($250,000 single filers). For each $2,500 of adjusted gross income over the limit, the deduction is reduced by 2%.

Itemized Deductions Phase Out: Also referred to as the “Pease limitation,” this phase out applies to those with adjusted gross income of more than $300,000 for joint filers ($250,000 single filers). Itemized deductions are reduced by 3% adjusted gross income over the limit. The total reduction, however, cannot exceed 80% of total itemized deductions. Note: This is not a reduction of 3% of total itemized deductions, but 3% of the adjusted gross income exceeding the limit.

As a result of these changes, the top three marginal income tax brackets (33%, 35% and 39.6%) will primarily be affected and are estimated to increase 1- -2% onto these marginal income tax brackets. These changes will apply to 2014 taxes, as well, with the income limits indexed slightly higher. But this time of year is the first time many will discover these tax changes.

WHAT’S IN STORE FOR 2014?

Some tax provisions that were in effect for 2013 have since expired and are not currently law for 2014. These could be subject to change, if Congress makes any retroactive revisions. Expired provisions not currently in effect for 2014 include the following:

1. Itemized deduction of state and local sales taxes in lieu of income tax;

Owners Announce IPO

Globe Resources, the family holding company that owns Frontier Wealth Management, recently launched its IPO of one of the family- -owned companies, GeoPark. Congratulations to the O'Shaughnessy family!

2. Deductions of up to $250 for certain teacher expenses;

3. Deductions for qualified tuition and related expenses;

4. Exclusion of income for forgiven debt from a principal residence;

5. Qualified charitable distribution (tax- -free distributions from IRAs for charitable purposes for those over age 70.5); and 6. Higher threshold for deducting medical expenses.

Many tax attorneys and CPAs believe items one through five will be enacted retroactively before the end of the year (potentially after the November election). Until that time, however, these changes are current law, and planning should be done accordingly.

Beginning in 2014, a few new tax changes took place that were not in effect in 2013. The first change results from incurring a fine for not having a “qualified health plan.” The second, which was a pleasant surprise to many, is for those with Flexible Spending Accounts (FSA), which are similar to, but different from, Health Savings Accounts (HSA). Beginning in 2014, FSAs no longer have a “use it or lose it” provision. An employer can allow: 1.) up to $500 of unused funds to be rolled over into 2015 (funds in excess of $500 will be forfeited), or 2.) a two- -month and 15- -day grace period after the end of the year for remaining funds to be used. The employer has the discretion to choose one option (but not both).

GIFT & ESTATE TAXES

Gift and estate taxes were minimally changed between 2013 and 2014. In 2014, the gift tax exclusion remains $14,000 per donee ($28,000 if given by joint filers), and the aggregate federal estate and gift tax exclusion is $5.34 million per person, or $10.68 million for a married couple. The federal estate tax rate remains at 40%, with portability (enabling the surviving spouse to use the unused portion of a predeceased spouse’s exclusion) still in effect. Note, however, a recent mandate earlier this year from the IRS requires executors to file a Form 706 (Estate Tax Return) in order to take advantage of portability, as it not automatically included.

2014 RETIREMENT SAVINGS PLANS

Many contribution limits remain the same for 2014. 401(k), 403(b) and 457 plans allow $17,500 of contributions. Those born before 1965 can contribute an extra $5,500. IRA and Roth IRA contributions remain at $5,500, with those born before 1965 eligible to contribute an additional $1,000. The adjusted gross income phase out limit for deductible IRA contributions is $96,000- - $116,000 for joint filers ($60,000- -$70,000 for single filers), assuming both spouses are covered by retirement work plans. The adjusted gross income limit for Roth IRA contributions is $181,000- - $191,000 for joint filers ($114,000- -$129,000 for single filers).

ACTIONABLE STEPS

In order to minimize taxes, some income tax planning can be done. Planning ideas include:

News & Notes

Tax Reminder

A quick reminder that there have been a number of Charles Schwab tax documents delivered to clients recently, via mail or email. Frontier is happy to supply required documents to client CPAs and tax professionals. Please contact your Client Service Specialist with these requests, or any additional questions. If you have elected for electronic delivery, please click here to view recent provided tax documents.

The commentary is limited to the dissemination of general information pertaining to Frontier Wealth Management, LLC's ("Frontier") investment advisory services and general economic conditions as of March 1, 2014. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate, complete or timely. Frontier is not responsible for any errors or omissions in, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this newsletter is intended to provide any legal, accounting or tax advice and Frontier does not provide such advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation.

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1. First and foremost, anything that can reduce adjustedgross income will be advantageous. This is most easily done by contributing to (and maximizing contributions to) a 401(k) account or similar type of retirement account. For top income earners, traditional 401(k)s are now that much more valuable than Roth 401(k)s. Note, however, that 401(k) contributions are still subject to payroll taxes.

2. Municipal bonds are generally now more taxadvantageous when compared to taxable bonds.

3. Unless desired for income purposes, minimizingdividends and interest, and focusing more on growth within taxable accounts could enable more tax- -efficient savings and accumulation. Generally, exchange traded funds (ETF) are more tax- -efficient than mutual funds, as actively managed mutual funds could create capital gains when the portfolio manager sells positions within the fund.

4. Additionally, outright gifting of highly appreciated assetsto children or grandchildren could help to minimize capital gains taxes. The children or grandchildren could sell the asset at a lower effective tax rate.

5. Likewise, donating highly appreciated assets directlyto a charity or a donor- -advised fund could enable a tax deduction, while not realizing capital gains taxes. Note that selling an appreciated asset and then donating the sales proceeds to charity does not avoid the capital gains tax. Donor- -advised funds have grown in popularity over the last couple of years (due, in part, to the increase in investment- -related taxes) as a way for the charitably inclined to avoid incurring capital gains taxes while also receiving a tax deduction. Once appreciated assets (i.e., a stock) are transferred into the donor- -advised fund, the fund can then distribute assets to a qualified charity [generally any 501(c)(3)]. The donor receives a charitable tax deduction for the value of the transferred asset at the time of transfer. The donor- -advised fund can then sell the asset (thereby enabling the donor to avoid realizing a capital gain) and distribute the proceeds to a qualified

charity upon the donor’s recommendation.

6. Last, remember to check your income tax withholdingsand modify your W- -4s accordingly. Taxes such as the 0.9% Medicare payroll tax could indirectly affect taxpayers. If a husband and wife each earns $150,000, neither employer will withhold the 0.9% Medicare payroll tax. The tax will still be due upon filing, however, as the household income exceeds the $250,000 limit for joint filers.

This summary is not meant to be all- -encompassing, but an overview of the more common tax changes that went into effect in 2013 and 2014. For more information, please contact your advisor.

Any examples presented are hypothetical and do not reflect specific strategies we may have developed for actual clients. They are for illustrative purposes only. The availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. This material is current as of the date presented and is for informational purposes only. It is not a solicitation, or an offer to buy or sell any security or investment product, nor does it consider individual investment objectives or financial situations. While the information contained herein is believed to be reliable, we cannot guarantee its accuracy or completeness. Information in this material is not intended to constitute legal, tax or investment advice. You should consult your legal, tax and financial advisors before making any financial decisions. If any information is deemed “written advice” within the meaning of IRS Regulations, please note the following: IRS Circular 230 Disclosure: Pursuant to IRS Regulations, neither the information, nor any advice contained in this communication (including any attachments) is intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. We advise you to consult with an independent tax advisor on your particular tax circumstances.