Tax Credit

crene84 · December 2012

My attorney thinks we may be able to finalize in 2012, yay!

Regarding the tax credit, I have heard so many different things from different people. Some people have said the 2012 tax credit is a check back to you for $13,000 or so and some have said that you don't get any money back, but you won't owe anything on your taxes. Anyone know which is true? Also, did you, or do you, plan to get a professional accountant to help in claiming all adoption expenses? How do you know what you can claim? For example, can you claim hospital expenses (parking, meals), hotels, birth mother financial help?

Thanks!

MagickalNarwhal · December 2012

Last year it was a refundable credit, this year it's a non-refundable credit. The difference is that a refundable credit comes back to you even if you don't have a tax liability. So, last year, you could have had zero income, but still file and get the entire amount of the credit refunded to you.

This year, it's a non refundable credit, so all it can do is wipe out your tax liability. If there's more $$ left from the credit, it gets carried forward on to your next years' tax return to wipe out tax liability there, and can be carried forward for a total of 5 years.

Example (totally not actual or accurate numbers, just for simplicity's sake):

Total taxable family income: $50,000

Say they are in a 10% tax bracket. That would mean that the family's tax liability is $5,000.

Also, say they had $6,000 withheld for fed taxes from their checks throughout the year.

If they had filed the ATC in 2011, the $13,000 (not the exact # but again I'm using this for simplicity) credit would FIRST wipe out the tax liability - down to zero. So, since they don't have a tax liability for the year, they would have gotten back the entire $6,000 that had been withheld. Then they would ALSO be able to get the remaining $8,000 that was left in the ATC back, so they would have gotten a total refund of $14,000 - the $6,000 that had been withheld, and the $8,000 for the refundable ATC.

THIS YEAR...same scenario, with two differences. First, the amount is smaller for this year - closer to $12,000, so after wiping out the tax liability there would only be $7,000 "left over". The second difference (which is way more significant) is that the $7,000 left over from the ATC can't get refunded to them. So, this year, they'd get their $6,000 back that had been withheld and that's it. HOWEVER, next year when they file, they can again use the ATC to wipe out any tax liability.

Without the ATC, in both years they would only get back $1,000 (they has $6,000 withheld but only needed $5,000 to cover their tax liability, so that other $1,000 would come back to them).

We finalized this year as well, which I am very glad about. If no other changes are made I believe that it's set to revert to VERY old levels - around $6,000? Any it may be only for special needs adoptions. But no one really knows what will happen to it in the future.

crene84 · December 2012

MagickalNarwhal:
Last year it was a refundable credit, this year it's a non-refundable credit. The difference is that a refundable credit comes back to you even if you don't have a tax liability. So, last year, you could have had zero income, but still file and get the entire amount of the credit refunded to you.

This year, it's a non refundable credit, so all it can do is wipe out your tax liability. If there's more $$ left from the credit, it gets carried forward on to your next years' tax return to wipe out tax liability there, and can be carried forward for a total of 5 years.

Example (totally not actual or accurate numbers, just for simplicity's sake):

Total taxable family income: $50,000

Say they are in a 10% tax bracket. That would mean that the family's tax liability is $5,000.

Also, say they had $6,000 withheld for fed taxes from their checks throughout the year.

If they had filed the ATC in 2011, the $13,000 (not the exact # but again I'm using this for simplicity) credit would FIRST wipe out the tax liability - down to zero. So, since they don't have a tax liability for the year, they would have gotten back the entire $6,000 that had been withheld. Then they would ALSO be able to get the remaining $8,000 that was left in the ATC back, so they would have gotten a total refund of $14,000 - the $6,000 that had been withheld, and the $8,000 for the refundable ATC.

THIS YEAR...same scenario, with two differences. First, the amount is smaller for this year - closer to $12,000, so after wiping out the tax liability there would only be $7,000 "left over". The second difference (which is way more significant) is that the $7,000 left over from the ATC can't get refunded to them. So, this year, they'd get their $6,000 back that had been withheld and that's it. HOWEVER, next year when they file, they can again use the ATC to wipe out any tax liability.

Without the ATC, in both years they would only get back $1,000 (they has $6,000 withheld but only needed $5,000 to cover their tax liability, so that other $1,000 would come back to them).

We finalized this year as well, which I am very glad about. If no other changes are made I believe that it's set to revert to VERY old levels - around $6,000? Any it may be only for special needs adoptions. But no one really knows what will happen to it in the future.

Wow that's really detailed and I really appreciate it. I had heard about the 5 years thing, but wasn't sure...thanks so much!

dholsapp · December 2012

Our social worker is hoping to get ours pushed through so we can get the credit also! Thanks Magic for such a fabulous detailed example!

kimmyb1020 · December 2012

Thanks for the explanation! I was wondering what refundable and non-refundable meant. Here's hoping it gets renewed for next year!

mommytoconnor · December 2012

Last year the credit was a refund that was paid directly to you in one big check, totally separate from your regular tax refund. I worked with a CPA who specializes in adoption taxes so that I would have everything done correctly. It cost me around $125 and well worth it. I got my refund back very quickly, because they included everything that the IRS needed and then some. If you have a CPA in your area I would definately recoommend it. Mine was about 200 miles away so it was a lot of email but well worth it. Good luck.

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