Non Refundable Credit?

OK, reading the full document, not just the section on foreign children: If the child is a US Citizen (i.e. born in the United States or born of biological parents who are US Citizens): IF you pay qualifying expenses in any year before the year the adoption becomes final then you can file for expenses the year after the year in which the payment is made (i.e. if you spent it in 2002 but didn't finalize in 2002, then you can file for it in tax year 2003). If you pay qualifying expenses in the year your adoption becomes final, you file in the year that the adoption becomes final. If you pay qualifying epxenses in any year after your adoption becomes final, then you file for them in the year which you make payment. Remember, the IRS allows you to take a credit for qualifying expenses to adopt a child that is a US citizen, (see "Dollar Limit", page 2) regardless of whether that attempt results in a finalized adoption. BUT if the adoption doesn't finalize in this tax year, you have to wait until the end of tax year 2004 to file, which is when you would file if it didn't finalize at all (or finalized in 2005). Either way, if the adoption doesn't finalize this year, you can't file for expenses this year. Got it? Regina

I won't argue about this, just check with your tax advisor. They will help you understand the legal terms and wording. Make sure you check, if you don't check you will lose out. Kel

Thought I'd post since we've used the adoption tax credit twice and received a check both times (back when it was 6k instead of 10k). So, yes, it really does work, and yes your 2nd mortgage should be looking much better :) Our attorney have us the impression that having the adoption finalized before the end of the year was important...but I'd suggest talking to a CPA who really understands it. One thing we did discover, though, is that you must get a social security number first (I guess I shouldn't have been surprised, but I was a busy new Mom and it never occured to me!). You can also get (what I think they called) a tax ID # which is like a temporary ss#, but we went to our local SS office and it only took a couple weeks to get their permanent cards. Congratulations on a match, I hope all goes smoothly for you.

We adopted through the county and we had no expenses, they paid all of the attorney fees, etc. However, we are still eligible for the tax credit and are expecting the entire credit back since we've paid $14,000 in federal taxes this year. It doesn't matter if you paid anything for the adoption, the credit is an incentive to adopt a domestic, special needs child. This was verified with our attorney and CPA.

Mommy Tsunami Please have your attorney and CPA recheck the information they gave you I believe they are wrong. IF you go to the IRS website [url]www.irs.gov[/url] you can read up on the tax credit information. According to the IRS you have to have qualifying expenses in order to take the credit. If you recieved money from the state and/or local programs to pay your expenses, you do not have qualifying expenses and cannot take the credit. Bottom line is they are not going to allow a tax credit if you did not have any expenses that you paid out yourself. DKBW UPDATE.... Wow, the IRS has changed the rules for 2003 tax year, Sorry.. ladies I was looking at my 2002 publications, thanks for giving me correct info.

If you adopt a special needs domestic child, you CAN take the $10K tax credit even if you have NO expenses! Scroll down to the bottom of this page: [url]http://www.irs.gov/publications/p968/ar01.html#d0e507[/url]

If you go to the bottom of the IRS publication on this credit, you will see a section that says Special Needs Adoptions. It clearly says you can take this credit even with NO expenses. Here's a cut/paste from the IRS website: Special Rule for Adopting a Child With Special Needs Beginning in 2003, the maximum credit and exclusion, subject to the income and tax liability limits discussed earlier, will be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. For 2003, the maximum amount for each is $10,160. Child with special needs. An eligible child is a child with special needs if he or she is a citizen or resident of the United States (including U.S. possessions) and a state determines that the child cannot or should not be returned to his or her parents' home and probably will not be adopted unless adoption assistance is provided to the adoptive parents. Factors used by states to determine if a child has special needs could include: The child's ethnic background, The child's age, Whether the child is a member of a minority or sibling group, or Whether the child has a medical condition or physical, mental, or emotional handicap. If your state has determined that the child you are adopting is a child with special needs, you should keep evidence of that fact for your records

The way the credit works, is that it will reduce your taxable income by your total credit amount. That is what is meant by non-refundable. You don't actually get the cash back, like you would the additional child tax credit, or EIC. Since you took out a mortgage, be sure to pay as much as possible on the interest every year, so it also lowers your taxable income. Try claiming zero on your w-4, you will get less back every payday, but your return will be higher at the end of the year. Above anything else - NOONE wants to have to PAY the IRS anything at the end of the year.

What if your child has citizenship through you visiting him and your international adoption isnt finished before the end of the year. Does this apply there as well? I know he will get a different visa but I'm confused on this tax credit thing. We started our adoption process in February but have just gone in PGN. Thanks

You will have to wait until next year to claim the credit. The child has to have a social security card to be able to claim them on your return.

tarabendle, the adoption tax credit is a reduction of your tax liability, not a reduction in your taxable income.

DianeS - since i have just gone through the irs updates, it does lower your taxable income on page 1 of the 1040 - if it lowered your tax liability, then it would be listed on page 2 of the 1040, after your adjusted gross income.

tarabendle, I'm not sure you understand the tax credit. It does not lower your taxable income, and it is not listed on page 1 of the 1040. In fact, it is listed in line 50 on page 2 of the 1040. The very definition of a tax credit is that it lowers your tax liability, not your taxable income. A tax DEDUCTION (or tax deductible expense) lowers your tax liability. Tax credits are better. You get a dollar-for-dollar return on your money, whereas tax deductions only return a percentage of your money spent. You have somewhat of an odd view regarding mortgage interest and withholdings. You are correct in that mortgage interest is a deductible expense, but the borrower really has no choice as to how much interest to pay. Interest accrues on it's own. If you make your mortgage payment, you pay the interest. If you don't pay the interest, that means you don't make the mortgage payment, which kills your credit. There's really not much of a choice here regarding "paying as much interest as you can every year, so it lowers your taxable income". In addition, your advice to claim zero is somewhat flawed as well. Although this works for some people, your quote of "above anything else, NO ONE wants to have to PAY the IRS anything at the end of the year", is somewhat flawed as well. Personally, I would MUCH rather have to pay the IRS $20 at the end of the year than to have given the IRS a free $7,000 loan for the entire year. Yes, if you claim zero you get more money back, but that's not necessarily the goal here. Why not just take it a step further and let the IRS have ALL of your money throughout the year so that they can just give you a great big check in April after you filed your taxes? You would NEVER EVEN DREAM of doing something like that. That's silly, right? But, in effect, that's the principle you are suggesting, you're just not going all the way with it. The goal is to not have to pay anything at the end of the year, while ALSO making your paychecks as large as they can be each month (or every two weeks or whatever). THAT'S the goal! Some people use their refund as a forced savings plan. They claim zero or one (or whatever) so that more gets taken out of their paycheck than need be so that their paychecks are smaller and they get a refund at the end of the year. Some people are very comfortable with this. That's fine. However, a BETTER way to do it, if you want to have a little 'refund' every April, is to claim 2 or 3, like you really should, make your paychecks bigger, and instead deposit that extra money that you would normally give to the IRS and instead invest it or put it into a savings account. Make the money work for you, not the IRS. After all, it's YOUR money!! Why shouldn't you have access to it anytime you want? You shouldn't have to wait until after you file for your taxes, right? With all that said, I must admit that my wife and I have more taken out of our paychecks than needed. However, we usually do NOT get a lot back, either. We don't want to have to pay the government anything on April 15th, but we also work it to where we don't get a large refund back, either. So, we don't strictly adhere to my advice above, but we hedge our bets a little. We certainly do NOT claim zero so that our employers will withold the maximum. It works well for us. Again, to each his own, but to recommend to everyone to claim zero probably isn't the most sound way to advise people regarding their taxes.

Note: I apologize. In the fifth sentence of the first paragraph of my post, I intended to say that a tax deduction reduces your taxable income, rather than your tax liability.

I agree with all that Chieffan had to say. Being successfully self-employed I will always owe the IRS at the end of the year even with paying my quarterlies and I plan for that. I would much rather slightly underpay and have the use of that money during the year than giving the government an interest free loan - you notice that they will charge you interest in a heartbeat if you don't pay them on time. I advise anybody in this situation this year to contact their tax preparer since this is a lot of money we're dealing with here. Thanks for everybody's information