The Shaw Atlas

Welcome to The Shaw Atlas, the monthly newsletter from Shaw & Associates, CPAs & Financial Advisors. We look forward to keeping you abreast of ever-changing tax codes, providing you with money saving accounting tips and illustrating proactive strategies to help you achieve the financial life you envision.

Newsletter contents:

Kevin’s Korner
Little Known Facts of the Capital Gains Tax
Client Spotlight – Rivendell School of Northern Colorado

Kevin’s Korner

Now that tax season is behind us I want to take a moment to thank all of our clients for allowing us to continue to be their tax and financial advisor. We understand that it is very important that you have an advisor that you can trust and whose primary concern is for your financial well-being. We have an annual survey that we ask you to complete and are pleased to report that your responses have been very favorable. We hope that we are living up to your expectations and that you will let us know if we need to improve in any areas.

There is a radio commercial currently airing that I find a bit corny, but which sums up my feelings as to our relationship with our clients. To paraphrase, if you like our services tell a friend as there is no higher compliment than your trust in referring us to that person. If your not happy, please call me so I can address any issues you may have.

Little Known Facts of the Capital Gains Tax

The capital gains tax is pretty simple, right? Sell stocks, bonds, real property, etc. that was held for over a year and you pay 15% federal capital gains tax on the profit. Simple enough. However, there are many nuances to capital gains that may surprise you. Some can lead to a bigger tax benefit than expected, while others can cost you more. Either way, you can see that proper tax planning is instrumental to optimizing your tax situation. Here are a few items to think about.

Many people do not realize that if your taxable income before capital gains is in the 15% or lower marginal tax bracket ($73,800 for a married couple filing jointly and $36,900 for a single individual), all capital gains until you reach the next marginal tax bracket are taxed at 0% (yes zero). For example if your taxable income is $50,000 and you are married, you would be able to generate $23,800 of capital gains without paying any federal capital gains tax.

This is a great tax planning opportunity that should be reviewed every year. If you fall below the above-mentioned thresholds, you should consider selling non-qualified (not in retirement plans) stocks and bonds or other property to generate the capital gains. Not only do you forgo the tax, but the amount that you reinvest will now have a higher basis creating lower future capital gains.

Don’t think you are in a low marginal tax bracket? I see this all the time. Newly retired people, owners of small businesses that generate losses from capital investments, changes in marital status, etc. are all potential situations that can lead to qualifying for the 0% tax rate. As an example, we recently met with a new client who was retired and had significant investments set aside for retirement. However, their taxable income for the year was low so we were able to help them save over $8,000 in taxes by selling stocks.

Another relatively unknown tax break is the Colorado Source Capital Gain Subtraction. Subject to certain requirements, if you sell Colorado real or personal property that you have held for at least five years, the first $100,000 of capital gains associated with that sale would be excluded from your Colorado taxable income and therefore save you the 4.63% Colorado income tax on that gain. Not all property qualifies but it is certainly worth consulting with your tax advisor to determine if you qualify for this benefit.

If you are generating significant capital gains, you may want to consider generating capital losses by selling under-performing stocks and bonds. Capital losses can be used to offset capital gains, plus an additional $3,000 against ordinary income, in any given year. Any unused capital loss would be carried forward to future years to offset capital gains. Please consult with both your tax and investment advisor when considering this tax strategy.

When the Affordable Care Act and its amendments was enacted in 2010, it included a provision that investment income was subject to a 3.8% Medicare tax for married taxpayers filing jointly with modified adjusted gross income greater than $250,000 ($200,000 for single individuals). Investment income for this tax includes capital gains (in addition to interest, dividends, rents, royalties and annuities). The tax is applied on the lesser of the net investment income or the amount in excess of AGI over the thresholds mentioned above. As you can see, if you have the ability to defer or accelerate income, it would be important to consult with your tax advisor before the end of the year to optimize this taxable situation.

In 2013 Congress passed another increase to the capital gains tax rates for high income individuals. A married couple with $457,600 ($406,750 for a single individual) of modified adjusted gross income will pay capital gains tax at a 20% tax rate. Coupled with the Medicare tax discussed above, these individuals will now pay a top federal rate of 23.8%. When also considering state taxes, some may pay as high as a 37.1% capital gains rate.

The imposition of the higher capital gains rate of 20%, coupled with the Medicare tax has created a disincentive for couples to marry. As you can see, the threshold difference between married and single rates is quite small. Thus, it may be more beneficial from a tax perspective to live together than to marry.

In conclusion, you can see that it is very important to do tax planning when it comes to capital gains. Please consult your tax advisor to see how you can optimize your capital gains taxes. If you are interested, Shaw & Associates offers a free initial consultation outside of tax season (4/16 – 12/31). Please contact Cassy at or (970) 223.0792 to schedule an appointment.

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Client Spotlight – Rivendell School of Northern Colorado

Founded in Fort Collins in 1976, Rivendell School believes that each child should be honored and respected for his/her individual needs and learning style. We offer an individualized education for students preschool-aged through Sixth Grade. Some of the ways we individualize are: small class sizes, multi-age classrooms, and frequent one-on-one conferencing. Math books as well as reading and writing assignments are customized to challenge each student at his/her level. Because of our unique classroom structure, dedicated staff and one-of-a-kind curriculum, Rivendell School is able to truly individualize each student’s educational experience. Rivendell is currently accepting applications for the 2014-15 School Year in all grades.

When we contacted Kevin Shaw nine years ago, we immediately felt that our best interests were his primary concern. He assessed what we were doing in our accounting practices and gave us wonderful guidance. He helped us improve our in-house procedures. Rivendell School has since had the opportunity to work with several of Kevin’s associates. They are knowledgeable, easy to work with, and have always had our best interests in mind. Any company would benefit from having Shaw & Associates as part of their Accounting Team. We’ve been well taken care of!

Rivendell School of Northern Colorado | 970-493-9052

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