For us here at Roberts CPA … well, things are heating up. Tax documents are trickling out (organizations have until Monday, Feb. 2 to send everything your way), electronic filing of returns became possible last week (we’ve already filed more than a few!) … and our phone has begun to ring with regularity [(502) 426-0000 in case you need it].

So friends, make sure you call us soon to set up a time where we can go through your situation with you. After all, would you rather spend 18 hours going it alone — or have your trusted advisor do it all for you?

But a quick tax item, regardless of how you prepare:

Here’s the list of forms you should be looking for in the mail, and online (from any employer, vendor, client or anyone else with whom you had a taxable transaction last year):

* Wage earners, watch for your W-2 forms, one from each employer.
* “Other income” (like a state tax refund, or government benefits) is shown to you on Form 1099-G
* Prize winningsForm W-2G
* Most canceled debt (but not all) is reported as taxable. In which case, you’ll get Form 1099-C
* 1095 Forms if you purchased your health insurance through a Marketplace or exchange

as I’m writing this, I realize the list is extremely long. Here’s a good place for the whole list: [this is a list of all forms due out from organizations, and it’s worth looking over to see what you should be expecting, if the conditions apply.]

Now, for my primary message, on unintended consequences …

Kevin Roberts Discusses When Our Tax Policy Affects Families
“If a man has any greatness in him, it comes to light, not in one flamboyant hour, but in the ledger of his daily work.”
– Beryl Markham

Every year, I sit down with Louisville families who made a particular financial move, and as a result, some unforeseen — and unintended — consequence kicked in. This could be an unexpected tax event, it may have been a broken relationship, or a business failure. (All of which and more, by the way, is why you should be sure to ask us about tax PLANNING this year, rather than simply tax “reporting” — which is what the tax return preparation process really is.)

But sometimes these consequences are because of the tax code itself.

Take marriage, for example.

The foundations of most civilizations function on the principle that children are best raised in a home by two parents in a committed relationship. As such, couples have always been encouraged to marry.

(My point in this article, by the way, is about what’s in the tax code, and how it encourages social change. So this is NOT at all to speak of anything related to the special heroism which is single parenthood.)

But for many couples, our current tax code actually discourages marriage, and I think it’s a shame.

Here’s how it does so…

An individual who is working but makes a smaller income qualifies for the “Earned Income Tax Credit” (EITC). It’s refundable, which means that whether you owe that amount in tax or not, you may still receive it as a refund.

The amount is calculated based on your salary, filing status and number of children. There is a plateau at which point the amount of the credit goes down.

Without going into all the math, let me show you an example:

If you and your partner are not married but have two children, you have some flexibility. Each of you can earn $17,100 and still collect the maximum $3,305 for a total of $6,610.

A married couple, on the other hand, with two children earning the same $34,200 would only collect $3,156. The formula “penalizes” them $3,454, or 10.1% of their salaries, simply because they are legally married.

And the marriage penalty only increases as income and the number of children rise. The”penalty” can be as high as $8,400 when compared against unmarried couples in certain salary levels.

This should be sobering to us as a society. I have no problem whatsoever with each individual making their own choices in these matters. And the EITC receives support from all parties because it’s an incentive to work (it only is received when there is a job in place). But we shouldn’t disincentivize a civilizational building block through our tax code. (And I also hope that a few thousand dollars doesn’t keep people from embracing the richness available to them in marriage!)

One solution could be to extend it to all individuals equally, regardless of marital status. And, to be fair, there are instances where there is a marriage “bonus” (usually in the case when one spouse has a much higher income than the other).

But the main point I want to get across is this: our choices have consequences, many of which aren’t immediately apparent — both in the tax arena, and otherwise. So be wise, and have a caring and competent guide as you make tax and financial decisions moving forward.

It helps to have someone who’s seen the road ahead.

To your family’s financial and emotional peace…


Kevin Roberts
(502) 426-0000

Roberts CPA