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Does anyone have any information on how the adoption credit works if you are self-employed-- say as a minister. Someone told me that you cannot claim the credit if you are self-employed but it seems to me if you pay taxes and are under the the cut off for what you can make, you should be able to use the credit. Especially those of us who do not make a lot and have gone into debt to adopt. Anyone know anything about this?
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The Federal Adoption Tax Credit has nothing to do with you means of employment. It is a tax credit that will apply directly to the taxes do. So if you owe $2k this year and you qualify for the full $10,160, you will have a tax owed of $0 and a carryover of $8,160 to next year.I have been self-employed during both of our adoptions and captured my fully qualifiable amount both times. It took me 4 years to use up the first credit and it looks like 3 years for the second.Whoever told you that has no clue of what is going on. Basically, you take the amount you shelled out from start until finalization and compare it to the maximum credit amount of $10,160. If it is less, your actual expenses is the tax credit amount. Otherwise, it is the $10,160. Now, if you had an employer that offered an adoption benefit, your expenses would be reduced by the amount of the benefit.
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Thank you for your reply. Here email made me very nervous. This is what my friend said in her email to me-- tell me how this is different from what you experienced:Self employment income you owe the whole 15%, half of that is what the employer would normally pay, and the other half is what the employee would normally pay. We were told that because it was medicare and social security payments, plus federal tax that you could not take a credit on it. We were told that there are no credits against Medicare and Social Security payments, so it cannot be applied to Self Employment tax. The first year, we reduced our quarterly payments to the IRS because we figured that everything we put in we were going to get back because of the adoption credit. But no we had to make up all those payments at once when we filed our taxes. We ended up owing $1500 even though we had the adoption credit. We weren't able to use a penny of it. Next year my husband will be self-employeed so this is a big concern for us. We need to get the full credit back to pay off this debt we have.
Let's not get our taxes and credits mixed up.The tax that your friend was refering to was the FICA/Medicare tax. When you are self employed, you are resonsible for the complete amount. That is what you would have had withheld from your pay check and the employer's matching amount. Typically called Self-employment Tax.The Adoption Credit is a credit that is applied against you Federal Income Tax. The Adoption Credit is not used to offset the Self-Employment Tax. So while you may reduce your Federal Income Tax to zero, you still would end up owing the Self-Employment Tax.If you have never dealt with being Self-Employed, you really need to learn about Schedule C - Profit or Loss from Business. By doing Schedule C you will be allowed to offset expenses against incomes to reduce your Net Income.
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cheri78,
The thing you need to look at is your "tax liability". The amount of money that you earned that the IRS says you owe.
Whether you pay this money at the end of the year, or pay it quarterly, or pay some of it with each paycheck is irrelevant.
Every person who has a taxable income has a "tax liability". If your tax liability is $0, then you will not be able to benefit from the adoption tax credit.
But if your tax liability is any amount over $0, then you probably can benefit from the adoption tax credit.
As to how long the credit remains available to you, it remains there for your use for 5 years. At the end of 5 years any amount you haven't used goes away.
Post back if this doensn't answer your question.
Well, I know that I have tax liability since I am an adult and am working and pay taxes out of my check. But, right now, we are paying in enough and have enough deductions that we usually end up getting money back when we file our taxes. So, if things continue as they are, this credit would not help me at all, right?
Thanks,
Cheri
cheri78
...we are paying in enough and have enough deductions that we usually end up getting money back when we file our taxes. So, if things continue as they are, this credit would not help me at all, right?
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