adoption tax credit

Everyone keeps talking about how great the adoption tax credit is, and I'm sure for some it will be a big help. However, it still makes adoption difficult because you don't receive it until after the adoption is final. And for some they have to wait a whole year from the time they bring their baby home until they can receive any portion of the tax credit. We're really struggling to come up with the last little bit that we need to bring our child home, and I wish there were a way to use part of the tax credit or claim it before the adoption were final. Don't get me wrong we'll take what we can get when we can get it, it's just not that helpful until after the adoption is final.

Sharon, are you an accountant or do you work with H&R Block or someone similar? I would like to hear from someone who actually has had their taxes done or who speaks with the expereince of a professional. Not intending to dispute what you are saying, but I keep hearing some people say that you get the monetary difference back as a refund, and then others, (and the IRS website), say that it is a credit only and that NO refund is associated with it. Has anyone actually had their taxes done this year, with their adoption finalized last year, and can speak from experience as to how the tax CREDIT works? Renee

All I can tell you is our situation. (The CAPS are not to yell, but only used as emphasis to show where we were 'at'., okay?) We make a modest income. We went to H and R Block (as we have for several years). We itemize our deductions. With our deductions (we have a small farm, three kids, max. amount taken from hubby's check, had extra medical expenses this year).......with these, our TAX AMOUNT THAT WE OWED WAS ZERO. This information was determined BEFORE the worksheet for the adoption credit was done.....so we knew how much we were going to receive back from the Gov't before anyone even worked on the 'adoption part' of it. We were getting money back, because, after our deductions and the amount my husband had deducted from his paychecks, showed then, that we OVERPAID. MY MISTAKE.....and MY misunderstanding of the adoption tax credit, THOUGHT.........that IN ADDITION to this overpayment.....we would receive ADDITIONAL MONEY BACK due to the adoption tax credit. This was wrong thinking on my part. As it was explained to me.......the adoption tax credit is ONLY used as an effort to REDUCE the tax amount that you owe. So, with this, once our tax amount owed was reduced to zero......it could not be reduced further. So.....this meant that the adoption tax credit would not bring any further money to our refund. However, we can USE THAT ADOPTION COST AMOUNT in an attempt to REDUCE our tax amount owed, next year and for four years after that. In other words, if next year, we didn't have so many deductions, then that 'adoption cost amount' would be used to REDUCE our tax owed amount. However, if, like this year, we continued to have a ZERO balance in what we owe (because of our itemized deductions), then, once again, the 'adoption tax credit' cannot be applied to us. And so it goes. I find this confusing.......MAINLY because it is advertised by many agencies, facilitators, and attorneys as being a way that a couple can re-coup their expenses. This may be. However, if you have a lot of deductions, like we often do, then it seems to me, that there is a good chance that we may never see a 're-coup' of this money at all. Hence, we had to look into other means to come up with that money for our next adoption. I hope....boy do I hope......that I have not confused you further. My best advice is to do as you have stated and talk with your accountant or H and R Block, or someone else who is a professional before counting on that money. Truly, everyone's case is different. Most sincerely, Linny

Linny - thanks for responding. Your scenario is exactly what I was understanding to be true. A credit is a credit, NOT a refund. I feel sorry for all those people who are being mislead into thinking that they are going to get a monetary refund. That would be great if it worked that way, but come on... is anything with the IRS that easy? Do they ever just give you money for nothing? In a perfect world we'd get a tax refund bonus for adopting a child or children, but I'll be long gone before that ever happens. :) Renee

I really resent all this talk about taxes and money. Sometimes I wonder if people adopt to love a child or for the tax break. Let us not forget the child. Let's get our priorities straight shall we.

Oh come on, Mix and Match......those were cruel words to say! After all, the forum is called, 'Adoption tax credit'....and this is supposed to be one safe place for people to try to figure this stuff out! I'm sorry, but if you were to read posts from some adoptive couples who finance everything they have, who borrow up to their 'eyebrows' in order to afford the adoption of a child to love, you wouldn't have said such mean-spirited things.......... People are just trying to understand a confusing issue about adoption costs. I don't like 'talking' about money either......you are right....there IS a child involved....but there is also the issue of costs, ....and costs, like it or not, are a very real part of adoption. Linny

Renee, Actually, in Linny's case, she is correct in that she will not get a refund due to the tax credit. But the only reason that she doesn't, is because her tax liability was already lowered to zero. If it were not zero, then she would use the credit to lower her liability to zero, which would in turn INCREASE HER REFUND by the amount of the credit! You are correct that a credit is a credit, and not a refund. HOWEVER......if you are able to use a credit in order to reduce your tax liability, this COULD increase your refund, OR it could decrease the amount that you still owe the government. Sharon has very eloquently stated what happens and she is absolutely correct. She has given several examples. If you pick the one that matches closest to your situation, you can figure out how the credit will affect you. You ABSOLUTELY CAN get a monetary refund up to the amount of the credit that you can use to reduce your tax liability to zero!! The problem for some people, is that their tax liability is already zero, so they cannot use the credit this year. Linny, Not to create more personal attacks, but I don't think that MixandMatch is the brightest bulb in the box! For someone to come on a message board entitled "Adoption Tax Credit" and make the statements that he/she did, doesn't lend a lot of evidence that he/she may be a brain surgeon. Besides, MixandMatch acted as though the "tax break", as she called it, is and ADDED benefit to the adopters. Actually, all the tax credit does is help adopters pay off those adoption bills, it's not like we get to stick a big wad of money in our pocket to go blow on big screen TV's!! MixandMatch, Your comments were not only out of line, short-sighted, and ignorant, but also totally ignored the whole reason why people come onto this board. Resent this talk all you want, but do it somewhere else.

OK Cheif - I get your point, but what do you think we should do since we always get at least a 2K refund every year? Should we lower the dollar amount getting taken out of our checks each pay period? If we lower our amount deducted to where we actually owe money, then the credit comes into play and we don't have to pay that bill to the IRS..right? So what if we actually owed 2K instead of the IRS owing it to us? And we had 10K worth of adoption related expenses...what happens then? Thanks for your patience... I have a problem with the terminology of all this credit vs refund mumbo jumbo. Renee

Renee, Your 2K refund every year is irrelevant. Bear with me here. You get this refund every year because you paid more to the government last year than you should have. Let's just say that you SHOULD have paid $6,000 last year, but your employer took out $8,000 during the year and sent it to the government. That's why you get $2,000 back. You paid more than you should have. The key number here is NOT the 2K number, it's the 6k number. THAT number is the amount of the credit that you can get back. In this case, you can use your credit to lower the amount that you SHOULD have paid from 6k, down to zero. Hence, now, instead of getting only 2k back (8k minus 6k), you get 8k back (8K minus zero). Your refund check is now bigger because of the credit. Some people don't have enough taken out of their checks each month to cover their taxes. For instance, same situation, somebody that SHOULD have paid 6k might only have 5k taken out of their checks during the year. At tax time, they have to write a check for 1K and send it in with their taxes to make up the difference. However, this person still benefits from the tax credit just as much as you do. They ALSO get to use the credit to reduce the amount they should have paid down to zero. Now, not only do they not have to send that 1k check, but they also get a refund check for 5k. (a total benefit of 6k, just like you). In Linny's case, her "problem" is that the amount she SHOULD have paid last year was zero, not 6k like you. She gets a refund for all of the money that was taken out of their checks last year because she should have paid zero to begin with, not because of anything to do with the adoption credit. Just remember, the number of taxes that you SHOULD have paid last year is the key number (this number is listed on your tax forms as "Total Tax Due"). Figuring out this number is the #1 reason why you have to file your taxes with the IRS every April 15th in the first place. Once you figure out this number, the rest is easy. If you paid more than that number, you get a refund. If you paid less than this number, you have to send a check in with your taxes to make up the difference. When you add in the adoption credit, you either get to decrease this number by $10,000 or down to zero, (whichever is less), thereby increasing that refund that you were already getting!

Thanks for the info... and the patience! I am going to get my taxes done within the next week or so, so I look forward to speaking with the consultant about my outlook for next year when I can benefit from this adoption credit. I hope it works out like you said! Renee

I've always understood it the way sak9645 explains it. Break it into a two-step process and it becomes a bit easier to explain. Step one: Pretend you haven't adopted a child, and do your taxes, all the way to making a check out to the IRS (from yourself, if you owe them) or to yourself (from the IRS, if they owe you). Use monopoly money as an exercise if you have to--a pile for the money you earned that you have posession of after doing your taxes and juggling any amounts that have to change hands, and a pile for the money you earned that the IRS has posession of after you've done your taxes and juggled any amounts that have to change hands. Now, how much money that you earned throughout the year does the IRS still have? Write that total down. Step two: Suddenly remember that you adopted this past year. If the IRS doesn't have any of your money anymore (because you didn't owe any or because you already got it all back), then you won't get any more. If the IRS still has some of your money, you get a maximum of $10,000 of that money back. Hope that helps!

Renee, I am not a CPA. I don't even play one on TV. I am a single Mom of a wonderful daughter from China. I applied for and received the tax credit back in 1997, when it was only a $5,000 credit. The process was exactly the same as it is now, except that there are now some new elements for people adopting special needs children domestically. I do my own taxes, using tax software, and did some research to make sure that the tax program and I were doing things right. Up until recently, I was also the Executive Director of a respected adoption advocacy organization. The organization supported the increase in the tax credit, as long as it gave incentives for families to adopt special needs children, over and above the incentives given to all adoptive families. And this, in fact, was the way the law finally worked. In my professional role, I spoke with Congressional staff and others involved with passage of the bill. I had to understand its particulars for that. I also had to explain the law, orally and in writing, to adoption agencies and parents, once it took effect. Sharon

Sharon, I appreciate the info. I can't remember what I did back in 1998 when I adopted my daughter, so I have nothing to base this credit on. I look forward to having my taxes done so I can ask the people at H&R Block what their experience has been. Thanks for your input. Renee

With all due respect to H&R Block, let me tell you that there are many tax preparers -- both individuals and people associated with large organizations -- who have had little or no contact with adoptive families and, consequently, have not really had to look at the adoption tax credit and how it works. Unfortunately, there are adoptive families who have been given all sorts of misinformation by these preparers. So let me urge you to ask potential tax preparers -- before you have them do your work or pay them any money -- whether they have worked with adoptive families and are familiar with the Hope for Children Act, which increased the tax credit, and its implementation. Let me also urge you to read the text of the law on Thomas, the website of Congress. Make sure that you are reading the final version of the act, which underwent many changes before it was finally passed. You may want to print out a copy to take to your tax preparer. In addition, let me urge you to look at INS form 8839 and its instructions on your own, before the tax preparer does his/her work. You can download copies from the IRS website. You might want to try filling out the form and plugging in the numbers where they go on the 1040, just to form your own estimate of its implications for you. Then, when you get the draft tax forms back from the preparer, please review them carefully. (It's something you should do in any case, as you will be signing the forms!) If there is something that doesn't seem right to you, ask about it. While it is possible that you may not have understood something correctly, it is also possible that the preparer may have made an error. Sharon

Sharon, thanks for the advice!