7 Tax Curve Balls You Might Not See Coming

The taxman cometh and he's packed some surprises for you. Very few people enjoy tax time and even fewer know exactly what to expect. Some times you're thrown a curve ball and it's not pretty. We turned to Barron Barnes, CPA of Capital Accounting & Tax LLC to find out some of the most common tax surprises and how you can deal with them. Capital Gains on Investments

Some  investment decisions kick off capital gain distributions. As defined by Investopedia a capital gain is "an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold." Some times people are caught off guard when this happens after they sell off some investments such as stocks. To avoid any unexpected hits, Barron suggests you consult with your investment broker around year end to see what overall investment income is. You can then send in an estimated tax payment if necessary. 


Many tax credits and benefits begin to phase out at certain income levels. Taxpayers that think they have enough withheld through their paycheck end up owing a lot more tax. Individuals with AGI (adjusted gross income) over $250k single, $310k married start to lose personal exemptions for themselves,  their spouse and their dependents. Also, start to lose itemized deductions by 3% of the amount your AGI. If you believe you will be affected by this you should plan to send in estimated payments or look into other tax planning options.


Many taxpayers who are self-employed don't realize they have to pay both sides of the SE tax (15.3%). The self-employment tax is the Social Security and Medicare tax paid by self-employed individuals. When you work for someone your employer pays half of your FICA and Medicare but self-employed individuals pay the full amount on top of their income tax. If you are self-employed you are, however, able to deduct the taxes you pay on FICA and Medicare.

Retirement Distributions

Some tax payers aren't aware that some of their retirement distributions are taxed at their normal income rate. Withdrawals from tax-deferred accounts such as an IRA or 401(k) are taxed as ordinary income (i.e. your top tax bracket). Additionally, if you collect Social Security plus other income, as much as 85% of those benefits are subject to tax. To figure out just how much in taxes your Social Security might cost you, you can use the worksheet found in your tax Form 1040 or 1040A.

Unemployment Benefits

Believe it or not, money received from unemployment is considered income and thus, taxed as such. The best way to avoid this is to have federal income tax withheld from your unemployment checks, similar to the way you would your regular payroll.


Similar to unemployment, money received from alimony payments are also taxed as regular income. However, alimony is separate from child care, which is not taxed. If your divorce settlement includes an amount for childcare and an amount for alimony, you are only taxed on what you received in alimony payment.

Good news though if you're the spouse that pays alimony. Your spousal support payments are deductible.

Forgiveness of Debt

Did a creditor forgive some or all of one of your outstanding debts? Don't get too excited. While it might be great for your cash flow the IRS still wants its cut. Generally any amount the creditor writes off will be treated as income. You should expect 1099-C or similar statement detailing the debt forgiveness as miscellaneous income from the debt holder.

If you are sent a tax form that you didn't expect, Barron recommends contact the company that sent it to get more detail and then consult with a CPA to see what your options are. If you can't pay an unexpected tax bill all at once set up an installment agreement (Form 9465) to avoid the IRS levying bank accounts or assets.


In the month of February, Wela is teaming up with Barron Barnes, CPA of Capital Accounting & Tax LLC to write about taxes. Barron has extensive experience in business consulting and financing as well as corporate, partnership and individual income tax planning. He has been involved in both the audit and tax planning work for manufacturing and real estate companies and has clients in many different industries including real estate, architecture, interior design, equipment sales and leasing, printing, lumber manufacturing, advertising, film production and wholesale supply. If you have tax related questions, you can reach out to Capital Accounting & Tax at (404) 947-7400.


How The U.S. Government Taxes Your Investments

I’d like to present to you the US Tax Code. At 74,608 pages, it's a long book. To put that in perspective, the longest book in the Harry Potter series has 870 pages. The US Tax Code book tends to cause confusion as opposed to intrigue, and there's certainly nothing magical about it.

When you integrate a confusing, long, boring and (some believe) irrational book with investments, you have a recipe for confusion. So, allow me be your Albus Dumbledore and provide clarity to what you need to know about taxes and your investments. Let’s start with the basics.

There are three types of accounts to focus on:

  • Taxable accounts - This would be an account you could hold joint with someone else or by yourself. These have no restrictions regarding how much you can contribute or withdrawal from the account every year.
  • Tax Deferred Accounts- Your 401k, 403b, and rollover IRA would fall into this category. These accounts have restrictions on how much you can contribute, but the money goes into the accounts before taxes. This allows the money to grow tax-free and is only taxed when you take money out.
    • ANALOGY: Imagine you could go into a gardening store and take a tomato plant out of the store without paying for it. You could then plant it wherever you wanted and watch it grow and produce many tomatoes. The moment you pick a tomato, though, you have to pay the gardening store. That’s sort of how these accounts work.
    • Tax-Free Accounts- These would be your Roth IRA, 529 plan, and maybe your Health Savings Account (HSA). These accounts can have restrictions on how much you can contribute like the tax-deferred accounts. Unlike those accounts, though, the money in these goes in after tax, grows tax-free and is not taxed when you take money out.
      • ANALOGY: This is your traditional transaction with a gardening store. You go in, buy your tomato plant, and pay at the cash register. Then you plant the bushes anywhere and enjoy the fruits of their labor without paying another dime.

Related: HSA? IDK!: An Explanation of Health Savings Accounts

Now let’s look at some of the investment events that can cause tax consequences:

  • Dividends - These are cash flows that companies pay their investors. For instance, Apple stock has a dividend. This means if you bought the stock you would not only receive potential growth from the company creating the next best iPhone, but they would also pay you cash every quarter while you held the stock. These types of cash flows are taxed lower than what you are taxed on income you earn from working. The range of taxes on dividends could be from 0% - 20% based on what you are taxed on your income.
  • Interest - These are cash flows that come from owning bonds, CDs or that ridiculously small interest earned on savings accounts at banks. This type of income is treated favorably. You have to pay taxes on these monies at the same rate you pay taxes on your income.
  • Capital Gains - These are cash flows that are earned when you buy an investment and then sell it for a gain. For instance, if we bought Apple stock at $100 per share and sold it at $110 per share, we would be forced to pay taxes on the $10 we earned. If you buy and sell the stock within one year, then you have to pay taxes on your gain at the same rate you pay income taxes. If you buy the stock and then wait one year or more before selling then you will pay taxes at a lower rate, typically between 15-20%.
  • Withdrawal- This would be when you take money from a retirement account. These monies are taxed at your ordinary income tax rate.

Related: Tax Forms You Should Receive Based On Your Earned Income

Let’s now take the types of accounts and the different types of taxes to create clarity on how each investment account works from a tax standpoint.

  • The Taxable Account: You would have to pay dividend taxes, interest taxes and capital gains taxes on monies invested in this account every year.
  • The Tax-Deferred Account: You don’t have to worry about dividends, capital gains or interest taxes in this account. All you have to worry about is paying taxes when money is withdrawn from this account.
  • The Tax-Free Account: You don’t have to worry about dividends, capital gains, interest taxes or having to pay taxes on withdrawals from the account.

Now, we have been talking a lot about making money and how we don’t get to keep all of what we make. What about when you lose money in an investment? Well, on investments where you invested more money than you generated when selling the investment you have two options.

The first option is to use these losses to offset taxes from gains that you earned in that particular year. The second option is to utilize these losses in $3,000 increments in future years to help offset taxes.

Let’s walk through the first option of using losses to offset capital gains taxes for that year. Say you own Apple and Google stock in your investment portfolio, and you sell both stocks on the same day. Apple generated a profit of $100 which you would have to pay capital gains taxes on while Google generated a loss of $75 dollars. Well, you can now use your losses from Google to offset your gains from Apple leaving you to pay taxes on only $25 ($100 in gains minus $75 in losses), rather than on $100.

The catch with both options regarding losses on your investments is that this only matters to investments within taxable accounts, NOT tax-deferred or tax-free accounts.

The tax code is confusing already, and we add more pages every year. Regardless of your feelings towards the tax codes, though, we must all play by the rules, so hopefully the above will provide you some clarity into how the tax code’s magic trick with investments is performed.

  In the month of February, Wela is teaming up with Barron Barnes, CPA of Capital Accounting & Tax LLC to write about taxes. Barron has extensive experience in business consulting and financing as well as corporate, partnership and individual income tax planning. He has been involved in both the audit and tax planning work for manufacturing and real estate companies and has clients in many different industries including real estate, architecture, interior design, equipment sales and leasing, printing, lumber manufacturing, advertising, film production and wholesale supply. If you have tax-related questions, you can reach out to Capital Accounting & Tax at (404) 947-7400.

The Numbers Behind Legal Super Bowl Gambling

superbowl-50 Placing a wager on whether or not you’re going to watch this week’s Super Bowl might be the easiest money to make all year. More people watched last year’s Super Bowl than any other television show all year. An estimated 110+ million viewers tuned in to watch the Patriots win their fourth ring and they did so in dramatic fashion. You can bet those numbers will be up again this year as the Super Bowl 50 kicks off on Sunday, February 7th between Peyton Manning’s Denver Broncos and Cam Newton’s Carolina Panthers... and rest assured, Bud Light will be present.

It’s estimated that Americans will spend over $4 billion gambling on the Super Bowl this week. Now get this, less than 3% will be legally wagered through casinos’ sports books in states where gambling is legal. That means around $120 million of $4 billion will be legally placed, so let’s focus there.

In 2003, the amount of legally placed wagers was approximately $71 million which climbed steadily until 2009. As you would expect, the amount dropped during the financial crisis but not as much as you might think. In 2006 legal wagers tallied $94 million, and in 2009 it came to $81 million. Last year, $116 million was legally wagered which has more than doubled since the mid-90’s when only about $55 million worth of bets were placed. While plenty of this money was likely lost, it's important to note that gambling winnings are taxable. Technically, they're supposed to be taxed whether the winnings are legal or illegal, but IRS agents probably have a hard time pinning down the winnings that are off the books. 

Related: Tax Forms You Should Receive Based On Your Earned Income

According to CBS Sports, someone has actually bet over $600,000 on Carolina winning. Considering this is a legal bet through William Hill, if they win they're looking at some significant taxes. If they lose, of course, then they'll be out $600,000. Now if they had invested that money in a Roth IRA, based on Wes Moss' $1,000-Bucks-A-Month Rule, after age 62 this gambler could have comfortably drawn over $2,000 a month out of that account for the rest of their retirement. Sure, this gambler might hit it big if things go well for Carolina, but would you be willing to bet part of your retirement on a single game? Don't get us wrong, we certainly appreciate a good wager, but no matter how much of a die-hard fan you might be, we don't suggest you bet your retirement savings on your favorite football team.

Related: 4 Questions To Answer When Planning For A Happy Retirement

Gaming experts say that nailing down the actual amount wagered on the Super Bowl is impossible but the point is, it's a huge amount. Yuuge! And most of the action is placed off the radar. Either in illegal books or in private pools. And this is just for the Super Bowl. Imagine the dollar amount for the whole season or across multiple sports. It’s an area that has potential to drive new revenue streams for organizations like the NFL. They have a goal of doubling revenue by 2027 (Wela covers this on What The Finance this week) this is an area they could stand to benefit from if they encouraged more states to allow for legal betting... and then facilitated some of the action themselves!

Tax Forms You Should Receive Based On Your Earned Income

6757828303_86e79ceee3_b Few things in life are guaranteed, but taxes are one of them. For some people, filing taxes is a quick and easy process while for others it requires professional help. For everyone, though, it requires paperwork.

Let’s take a look at the different tax forms you should expect to receive in the mail this month based on your earned income if you’re:

An Employer

An employer who is an LLC, not a corporation, will receive 1099-MISC showing the income that was paid to them throughout the year. They may also receive a 1099-K which shows credit card sales. We have more details about 1099-Ks below.

A Full-Time or Part-Time Employee

All full-time and part-time employees should receive W-2s by January 31st. If you work full-time for a company that employees over 50 people full-time, then you should also receive a 1095-C, a health care form, by January 31st. These forms are oftentimes mailed together.

For those in companies with less than 50 full-time employees (small businesses), you should receive a 1095-B from your employer or health care insurer. This form is used to verify that you and your dependents have at least minimum qualifying health insurance which is required by the Affordable Care Act.

An Independent Contractor

The rules are a little trickier for independent contractors. An employer will mail you a 1099-MISC if they paid you more than $600 over the course of the year. If you make more than $400 in net income over the year, then you should file a tax return; however, more than likely you’ll receive a refund from the Earned Income Credit.

If you are a freelancer, solopreneur, or simply in charge of your own healthcare, you should receive the 1095-B form through your health care insurer.

An Etsy or eBay Shop Owner

You may receive a 1099-K if you sell over $22,000 or have 200 payments from Etsy, eBay, PayPal, etc. This form will show your credit card sales by month, and a copy will be sent to you and to the IRS. You will then need to report the total amount of sales on your personal return using a Schedule C (single member business) or on your business return.


This is certainly not an exhaustive list of all the tax forms that you may receive; however, it should hopefully help you better understand what paperwork you need based on your earned income.



In the month of February, Wela is teaming up with Barron Barnes, CPA of Capital Accounting & Tax LLC to write about taxes. Barron has extensive experience in business consulting and financing as well as corporate, partnership and individual income tax planning. He has been involved in both the audit and tax planning work for manufacturing and real estate companies and has clients in many different industries including real estate, architecture, interior design, equipment sales and leasing, printing, lumber manufacturing, advertising, film production and wholesale supply. If you have tax related questions, you can reach out to Capital Accounting & Tax at (404) 947-7400.

70% Of Wealth Transfers Fail - Here's How To Not Let That Happen To You

America is currently undergoing the greatest wealth transfer in history. There is $1 trillion (yes, that’s with a “T”) in assets being transferred each year now through the next 46 years. According to a study released from the Boston College Center on Wealth and Philanthropy in 2014, there is an expected $59 trillion that will be passed down to heirs, charities and taxes between 2007 and 2061.

However, as we often see, more money can cause more problems, especially when it comes to dividing up family money in what can be a large group full of varying or even competing goals. Should we sell the home? For how much? When should we sell it? Imagine five siblings inheriting a piece of property or a family owned business. Some may want to sell today while others want to hold onto it forever.

According to research by the Williams Group, approximately 70 percent of wealth transfers are not successful – meaning that heirs end up with virtually nothing. Oftentimes the beneficiaries will receive the assets successfully, but after the transfer of wealth, the family dynamic shifts to not be harmonious, and ultimately the family does not retain control of the assets.

The three most common reasons for wealth transfer failures are:

  • Lack of trust and communication.
  • Heirs are not prepared for their roles and responsibilities that inheritance can bring.
  • The family did not have an idea, or mission as to where the money should go, and the purpose it should serve.

Here’s a checklist of five ways to help ensure that your financial legacy will continue to help your loved ones long after you’re gone:

  1. Tell your heirs about your financial details. We normally avoid talking about our personal finances even with loved ones, but you need to be sure that your heirs are familiar enough with the details of your estate that they can assume management or oversee the assets once you’re gone.
  2. Involve your heirs in the estate planning process. This will help to start the dialog of how your estate will be passed down. This is also a good time to work on your family’s mission statement.
  3. Prepare your heirs to assume management and oversight of your assets. If you are passing along a business or large investment, you should talk with your heirs about your values and hopes for these assets. Clarify now so they aren’t left guessing later.
  4. Organize your financial documents, and have them in one location. You don’t want your heirs having to scramble to find different parts of your estate. Keep all this information in a safe location, and let your heirs know where it’s located.
  5. Help build the relationship between your heirs and your financial team (financial advisor, estate planning attorney, and CPA). By helping forge this relationship early, your heirs will have resources to turn to if the transfer of wealth gets tricky. It will also help prepare them for their future roles and all that the inheritance brings.

Ultimately, the most important component of any successful wealth transfer is communication. No matter if you’re passing on billions, millions, thousands or less, we all hope that the money that we leave our loved ones will succeed in helping them for years to come. By working through the above checklist, you might actually be able to make your financial legacy last.


This article originally appeared on AJC.com. Read the article here

Nine Ways To Minimize Your Tax Bill

If you’re anything like me, paying taxes is about as low on the list of “things I want to do” as possible. I mean, it feels like you work hard to get an education, work hard to interview and land a job, work hard to be successful at that job and earn a living, and then the government just takes whatever they deem “necessary” from you to pay for all the things they are supposedly working on. Well there is a lot of truth to that, therefore, the goal of this post is help keep things in perspective as well as help plan for that painful burden each year. Have you ever heard anyone say, “I want to pay the biggest tax bill because that means I make a lot of money”? I have, and I somewhat understand that; but, at the end of the day it makes me want to punch those people in the face. Since we live in a progressive tax system, if you make more money, they actually take more money. I would wholeheartedly agree with that comment if we all paid the same (or at least a fairly similar) tax rate. But we don’t, and that’s the world we live in for the future as far as I can see.

So, what can we do about it? Well, to start, let’s put things in perspective and look at this with optimistic eyes: Taxes pay for the things we all need and should be grateful for. Our National Defense is one of the largest expenditures. Roads and public infrastructure that we all use and enjoy are paid for with tax dollars. Health care, which understandably is a point of contention, is an extremely large expense that taxes help fund. These are all things that we, or people we know, have benefited from and use on a daily basis. The list goes on and on, but the point is to highlight the fact that we all contribute our tax dollars for the greater good.

Now for the practical side. Let’s look at different ways to minimize this burden within the confines of the overly cumbersome tax code.

  1. SAVE MONEY! – I emphasize this one because saving money is one of the best ways to bring down your tax burden. If your employer offers a retirement plan (401(k), 403(b), 457, SIMPLE IRA, etc.) then you should be contributing to it. The money you put into these plans are not taxed today, and instead grow tax-deferred until retirement. They are taxed in retirement, but only to the extent that you pull it out. So, you can take as much or as little as you’d like (with a few exceptions) and only pay taxes on the amount taken. IRAs work in a similar fashion. The money you put into an IRA is tax deductible today, and grows tax-deferred until you withdraw it in retirement.
  2. Open and Fund a Roth IRA ­– There are some limitations to contribution based on income levels but the great part about the Roth is it grows tax-deferred and is withdrawn tax-free! The only drawback is you don’t get a tax deduction today. However, if you look out over a longer time horizon, contributing assets to both Roth and Traditional designated accounts, you’ll be putting yourself in a great position to most effectively manage your tax bill down the road in retirement.
  3. Don't Forget Medical Write-Offs - You can also deduct the portion of medical expenses that exceed 10% percent of your adjusted gross income. This is often overlooked due to the emotional stress that expensive medical emergencies bring, especially for medical treatment that is drawn out over a few months. Included in this category are travel expenses like plane tickets or hotel rooms.
  4. Give Back – Many people derive satisfaction from philanthropic endeavors. The great news is, donating money will bring your tax bill down! So, in the words of Greg Focker, “…it feels good and I get paid”.
  5. Give Back (Part 2) – Most people are aware of the fact that you can write-off cash donations to charities but many are unaware of the ability to write-off out of pocket expenses incurred. Gas is probably the best example. If you volunteer your time on a regular basis, the gas used to travel back and forth can start to add up. But the same goes for any supplies you purchase for the cause you’re volunteering for.
  6. Actively Track Your Budget – This encompasses a few positives…first, you’ll manage your finances better if you know where your money is going; but you’ll also have a better idea of whether or not to itemize your deduction or take the standard deduction. Yes, it’s easiest to just take the standard but, if you itemize it opens up a world of opportunity to reduce your tax bill. Which naturally leads to the next item…
  7. Itemize! – Most people are aware of charitable gifts and mortgage interest but there are plenty of deductible expenses, especially if you consider miscellaneous expenses that add up to more than two percent of your adjusted gross income. Some of these include tax-preparation fees, home office expenses, job-hunting expenses, unreimbursed business expenses (including professional dues) and many more. This list is actually pretty long which is why the next item on my list of “to-considers” is…
  8. Seek the Advice of a Professional – Yes, even though you may have to pay a bit more (see above…you can write that off if you itemize), you may benefit from the advice of a tax professional. With the tax code as copious as it is, doesn’t it make sense to employ the use of a professional, rather than do it yourself? Even if that professional is Turbo Tax, get help. Talking with a person is typically preferred as they will often think through items that may be otherwise overlooked.
  9. File (and Pay) Your Taxes On Time – This may seem obvious but many people who file for an extension often times assume they get an extension to pay their tax bill as well. That’s not true. You end up paying penalties on money you owe the government which in turn causes you to unnecessarily pay even more!

I’m going to stop with number nine for no other reason than everyone does a top ten list. But you never see top nine lists! Which is also worth mentioning that this post is not meant to be an exhaustive “tax-filing-to-do” list but rather an optimistic point of view that if we pay taxes, we’re contributing to the greater good and that with a little bit of planning we can minimize this otherwise burdensome demand.