Birmingham, AL - Every year, families make financial decisions, and as a result, experience some unforeseen -- and unintended consequences. 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 taxpayers should be sure to ask their tax professional about tax planning this year, rather than just the required tax “reporting” - which is what the tax return preparation process really is.) Local tax expert and CPA, Martha Echols, offers some insight.
“Sometimes these consequences are because of the tax code itself,” Echols said. “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, 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),” Echols explained. “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, here’s an example: If a taxpayer and their partner are not married but have two children, they have some flexibility. Each of them can earn $17,100 and still collect the maximum $3,169 for a total of $6,338.
A married couple, on the other hand, with two children earning the same $34,200 would only collect $2,735. The formula \"penalizes\" them $3,603, or 10.5% 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,” Echols continued. “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.”
One solution could be to extend it to all individuals equally, regardless of marital status. But the point is this: our choices have consequences, many of which aren’t immediately apparent. So be wise, and have a guide in making tax and financial decisions moving forward.
“It helps to have someone who’s seen the road ahead,” Echols said.
Martha S. Echols, CPA, PC offers tax services to individuals and small businesses. She enjoys helping individuals and families save money on taxes. Give her a call (205) 715-0088, email Martha@MarthaEcholsCPA.com or visit her website http://marthaecholscpa.com
Company Name: Martha S. Echols, CPA, PCContact Person: Martha S. Echols
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Phone: (1) (205) 715-0088
City: Birmingham
State: AL
Country: United States
Website: http://martha echolscpa.com/
Source: www.abnewswire.com
