The tax credit truth!

The IRS is correct. This is a non-refundable tax credit. But, that just means that you won't be able to use the credit if you have not paid federal taxes. Most people have , (through their employer), paid federal taxes all year long. The 10,000 tax credit comes right off your tax liability. For example: If your tax liability ( what you should have paid in taxes after figuring in all of your deductions) for the year was 12,000, you will deduct the 10,000 tax credit from that. Your tax liabilty is now 2,000. Now let's say you paid 12,000 in federal taxes throughout the year. Since your tax liability was only 2,000, you will get a refund for 10,000. That's how it works. It's confusing because I believe some people think that what you owe the IRS after doing your taxes and your actual tax liability are the same thing. They are not unless you haven't paid any federal taxes all year. I hope that was helpful.

because our liability is usually about 9K, and we always overpay anyway, so I think we will be getting a nice big check for taxes the year we complete the adoption (and maybe a nice little check the next year). You really have to look at YOUR taxes - unfortunately, some people will NOT be able to use the credit to a great advantage (or much at all), but for many, many people, (like us) it is a great help. The original poster is right, though - it seems like many agencies present this as a given $10,000 reduction in costs - and it's not. Also, even if you can take the deduction and get a big check, it might be two years after you actually fork out most of the money, depending on the type of adoption you are doing and when it is "finalized." D.

We had an independent adoption which was final in December and we filed the adoption credit and got every penny back that we had spent on the adoption,nice big check this year!

The tax credit is a wonderful thing! We have had 2 big tax refunds.

How did you get refunds back? Do you usually get a refund or pay? We always pay@!

I've been on this forum about a year, and have read many long, thorough explanations about how the tax credit works, and I have even read people who adopted 2 children in the same year and got a really big check ($20K). rather than repeat all those scenarios (as an above poster already gave one possible scenario)... maybe you can do some searching and find these? Whether you pay or get a refund when you file your taxes is really not indicative of how much you pay throughout the year in taxes. You have to look at the line item on your forms that list your "tax liability" based on your adjusted gross income. Also, it does "cap out" -- so I guess if you make more than 150,000 (I am not sure on that figure, it may be higher than that), then I think the tax credit is graduated down per child. The people who can't take a lot of advantage from the credit are, I think, generally people who make so little (or have so many business expenses or other deductions) for their family size that they don't pay any or much taxes or people who make so much money that they are excluded from the tax credit. I hope you are pleasantly surprised when you compare these scenarios against your own tax forms (look at the most recent one to get an estimate). D.

I don't know how to link, so I copied these other posters. See scenario B in second (and warning, there are two B's - I mean the second one of those), as that might fit the scenario you have outlaid. First, from the China board: Tax Credit Interestingly enough, I just got my taxes done the other day. Although we will not be going to China until Nov 2005, I asked my accountant to explain the tax credit to us, and to run our taxes as if we adopted this yr to see how things came out. Of course, this is an over simplified version, assuming you have no other issues (cash out 401K, interest paid on mortgage, lottery winnings, donations, or any other deductions that would impact your bottom line number) this is just salary related: His example (using round numbers) was as follows: $100,000 salary $15,000 taxes paid over the course of the yr $10,000 tax liability ________ $5,000 refund w/o adoption Now, with adoption, assuming everything is the same, $100,000 salary $15,0000 taxes paid over the course of the yr $10,000 liability minus 10,000 credit (carry the $390 over to next yr) _____________ $15,000 refund with adoption Of course, if you don't always get a refund, but still have tax liability, your refund would be smaller. I have read posts in the past on other sites where folks say they don't get anything back, or very little compared to what they expected. Perhaps their situations are different- but according to my accountant, the math pretty much works the way he laid it out. Of course, if someone has done this before and has other information, I'd be glad to hear it so I can either pass it along to my guy, or fire him and find someone else that knows better. Thanks- Anne-Marie **** And an explanation from the Guatemalan board... OK. Here's an explanation. For more detail, download from the IRS website the Adoption Tax Credit Form 8839, the Instructions to Adoption Tax Credit Form 8839, and Tax Topic 607. I'm not an accountant, so you may want to talk with your tax adviser and look at some tax software, as well. The adoption tax credit is available to most adoptive families. It doesn't matter whether you adopted domestically or internationally. The rules are a little different for international adoptions (whether of healthy or special needs children) versus domestic healthy child adoptions, versus domestic adoptions of children with special needs. The tax credit is per child. If you adopt two children at the same time, you can get two credits, as long as you meet the requirements below. Since you are on an international adoption bulletin board, I'll assume that you are adopting internationally. Basically, to be eligible for the tax credit, you must fulfill ALL of the requirements below: a) Have had a full and final adoption. If your child comes home on an IR-3 visa, meaning that both spouses in a married couple, or a single parent, saw the child prior to the overseas finalization, the IRS -- like the USCIS -- considers the adoption to be full and final in the year you bring your child into the U.S., so you can take the credit in that year. If your child comes home on an IR-4 visa, the IRS -- like the USCIS -- does not consider your adoption to be full and final until you have readopted your child in your home state or, where it is allowed, obtained state "recognition" of your child's foreign adoption, and you cannot claim the credit until the year in which the readoption or recognition occurred. You CANNOT claim the credit for expenses occurred in a failed adoption, like you can with a domestic adoption. b) Have incurred some qualifying adoption expenses. If you have incurred at least $10,390 in qualifying adoption expenses, and most internationally adoptive parents do incur at least that much, you can claim the full tax credit if you meet all the other qualifications. (The $10,390 figure adjusts each year due to inflation.) If you have incurred less than $10,390 in expenses, you can claim part of the tax credit, if you meet all the other qualifications. Note that you could have incurred these expenses before 2004; it doesn't matter. c) Have adjusted gross income (AGI) of less than $195,860. If you earn over that amount, you cannot claim the tax credit at all. If your AGI is less than approximately $150,000, you can take the full credit, if you qualify in all other ways. If you earn between that amount and $195,860, you can take partial credit. Here's how the credit works: First, get comfortable with the concept of "total tax liability". On your 1040 tax form, whether or not you are adopting, there will be a place where you figure how much tax you owe in total, based on your income and deductible expenses. It is calculated BEFORE you figure out how much you already paid of that tax via your payroll deductions or estimated tax filings, and whether or not you will have to pay anything or be able to get a refund on April 15. The adoption tax credit simply reduces your total tax liability by $10,390. If you don't have $10,390 in total tax liability in the year you claim the tax credit, you can carry the unused credit forward for, I believe, five years. Let me give you some examples. I will assume here that the person qualifies for the full tax credit, based on income and such, for one child. I will use the male pronoun, simply to avoid the cumbersome "he/she". The tax credit, of course, can be taken by a single person (male or female), or by a married couple filing jointly. Consult your tax advisor if you are married and filing separately. I will also use round figures, such as $10,000, rather than the actual numbers like $10,390. a) A person's total tax liability, without considering the tax credit, is $10,000. He paid the full $10,000 of this through payroll deductions for taxes during the year. If he had not adopted, he would not have owed any money on April 15 and would not have gotten any refund. Since he adopted, his total tax liability is reduced to zero. Therefore, he overpaid his taxes by $10,000, through his payroll deductions, and this amount will be refunded to him. b) A person's total tax liability, without the tax credit, was $10,000. He paid $8,000 of this amount through payroll deductions during the year. If he had not adopted, he would have owed $2,000 on April 15 (the difference between tax liability and amount paid). Since he adopted, his total tax liability is reduced to zero. Therefore, he overpaid by $8,000, which will be refunded to him. c) A person's total tax liability is $10,000. He did not pay any tax through payroll deduction or estimated tax filings during the year. If he had not adopted, he would have owed $10,000 on April 15 (plus, probably, some penalties for underwithholding tax). Since he adopted, his total tax liability is reduced to zero. He does not owe any tax and he does not get any refund. d) A person's total tax liability is $10,000. He paid $12,000 through payroll deductions. Normally, if he had not adopted, he would have received a refund of $2,000, since he overpaid his taxes by that amount. Since he adopted, his total tax liability is reduced to zero. Since he paid $12,000 through his paychecks, he will get, instead, a refund of the full $12,000. e) A person has a total tax liability of $6,000. He paid the full amount through his payroll deductions. Normally, he would not owe anything on April 15, and would not get a refund. Since he adopted, he can use $6,000 of the tax credit to reduce his total tax liability this year to zero. That means he overpaid his taxes by $6,000 and will get that amount as a refund. In addition, he has $4,000 of unused credit to carry over to next year's taxes. A person has a total tax liability of $6,000 and did not pay any taxes through payroll deduction during the year. Normally, he would owe $6,000 on April 15, and, probably, a penalty for underwithholding. Since he adopted, he can use $6,000 of his credit to reduce his tax liability to zero. Therefore, he would owe no tax this year. He also has $4,000 of credit to use next year. The bottom line is that the tax credit is a big help to many taxpayers. It can either increase their refunds or reduce the amount of tax they must pay. I hope this is helpful. Sharon ***** D.

Did not know about his credit adoption was final three years ago too late?

Doing Something as I understand it you have 5 years to take it and another possiblity would be to file an ammended return for an earlier year. that being said I am no where near being a tax accountant but it is certainly worth looking into

With an international adoption, you must take the credit as follows: a) In the year the child comes home, if he/she comes home on an IR-3 visa, meaning that both spouses in a married couple, or a single person, saw the child prior to the issuance of a final decree of adoption overseas. b) In the year you readopt in your state (or do a "recognition" in your state, if your state permits this), if he/she comes home on an IR-4 visa, meaning either that at least one parent did not see the child before a final decree was issued overseas OR that the child came home under a decree of guardianship, for adoption in the U.S. If you failed to take the tax credit in the appropriate year, you can file an amended tax return for that year. See your tax advisor for more information. Sharon