[deanstayton]

I know there are probably over a million threads or messages about this etc. but I am still finding the navigation of this site somewhat overwhelming! Anyway. I am the proud father of an adopted little boy- My wife and I were able to successfully navigate the "private adoption" minefield and actually adopted a beautiful infant boy (praise God). I have heard a lot about the new 10k tax credit- so to the point- when I entered the "tax planner" section of my tax software- I enter in my data, and I end up with a projected return of 8 to 10k. The only issue is I will have much less than that in my withholding- will I or will I not receive more than my witholding in my tax return??? Does anyone know???? I called the IRS only to get two answers, and no clear direction. Tax experts do not know, and my program's return seems too high. Could someone please help me!!! Thank you!

[organicmommy]

Ok I do not think that the new 10K starts til 2003 but I could be wrong. From what I have heard, this is a tax credit, this is taken from your gross earnings prior to figuring out what your taxes to be paid for the year are. Hope this helps.

[organicmommy]

Ok, I have a little more info..
This is taken from the North American Council on Adoptable Children.

Like the previous adoption credit the new credit can be claimed over 5 yers. In other words, families who do not owe enough tax to take the full credit for the year in which the adoption is finalized can apply the remaining credit over teh following 4 years worth of tax.

And I was wrong, this is teh first year that the tax credit is 10,000.
Was this child a special needs child? If not then you are only eligible for what you spent. Not for the full tax credit. You have to have full documentations of all your expenses to use it. The income limit is 150,000 starting this year also. the Maximum credit allowed is 10,000 adn that is if the adoption was finalized in the year 2002. Before that year, it was 5,000.

Hope that this helps some.

[alpacamom]

what is the tax credit if you are adopting two special needs children that will final in 2003? is it $10,000 per adoption or per child? thanks for any help.

[Nelson]

Originally posted by organicmommy
Ok I do not think that the new 10K starts til 2003 but I could be wrong. From what I have heard, this is a tax credit, this is taken from your gross earnings prior to figuring out what your taxes to be paid for the year are. Hope this helps.

this is incorrect, I'm afraid. A tax credit is deducted from the total tax owed in a given year, as opposed to a tax deduction (descibed above), which is deducted from gross earnings.

[deanstayton]

Hey, thank you all for so quickly coming to my assistance- in the world of adoption, you speed and courtesy and kindness was a great breath of fresh air!!!

But, alas, I am still befuddled. Let me try again-

I understand, like one of you wrote, a tax credit is a tool whereby one's tax bill (directly) is deduced. It is not a deduction of taxable income, but the amount of mony spent (up to 10k) is taken directly off of one's tax bill.

Also I understand that expences in 2002 can be claimed in 2002, even if my adoption is finalized in Jan. of 2003, which is the case.

But my situation- I will have a total tax bill of roughly 3k, with total available credits of 10k.

It would seem I could only retrieve 3k worth of my 10k in expences. But I would have to spread my remaining 7k over the next 5 years.

My "Tax Cut" program stated I could claim all the credit this year and get a whopping return this year. This program updates itself, and recognizes the new laws and the new credit- so it has left me a bit confused.


Do any of you all know definitively if one can retrieve more than one puts into our tax system with this credit? (Like the "earned income tax credit")?

Thanks again!!

[organicmommy]

Ok to the one that asked about whether it was per child or adoption, this I am not sure on, but I will see if I can find your answer for you.
From the way the paper reads that I have, you are only about to take the 3k this year and spread the rest of the 7k out as long as you need to up to 5 years.
I am sorry I was incorrect in one of my answers, I also stated that I was not sure on that one, as far as the way that I had understood it was that it came off your gross earnings.

[Linny]

It is my understanding that the tax credit is only for expenses which a person actually incurred for the adoption process. Also, (and this too came from our adoption attorney), the credit cannot be taken until the child is adopted. In other words, you can't 'get credit' for more money than you actually spent. (Our adoption was under $10,000, so we can only claim the amount spent on the adoption.)

While I find this as confusing as anyone else, I would 'bet money' on the finalization situation. I know that we could not obtain a partial reimbursement from the state (a benefit from working for the state), until the adoption was finalized. And from everything else we have encountered (and that's adopting six times), it seems NOTHING is eligible for reimbursement until finalization takes place.

And the question about the 'tax credit money being more than the tax you owe', has me stumped too. If you should already receive the amount to be refunded to you, I don't see how a person can receive more?

For us, we don't 'do our own taxes' and I'm hoping SOMEONE in the professional tax world, will know the ends and outs of this!

Linny

[organicmommy]

On the expenses that are incurred part, if you are adopting a special needs child in 2002 or after you get an automatic 10,000 credit. It does not matter if you spent that or not, you get it. With most special needs you don't spend that in the actual adoption, but you spend it in getting ready for the child due to the special needs, whether it be for handicap accessable or whatever, or if it is a sibling group for adding on to your home in order to accomidate the sibling group.
As far as getting back more than you paid in, from what I am reading you can not claim more in a year than you paid in, but you can deduct it over 5 years.

[Leah@Mandala]

I am a tax professional and see questions about the adoption tax credit all the time.

The $10,000 max became effective on 1/1/02--so this is the first year's tax return that you can claim this amount. HOWEVER, in an international adoption, you can only start taking the credit in the year that your adoption was finalized. Save your receipts and use them for your credit in the year your adoption was finalized. Expenses incurred prior to 2002 are subject to the previous cap which is $5000. You can not take more than your tax obligation minus any other credits you are taking (i.e. education, child tax, child care, etc.) The remainder (up to the cap) can be taken over five years to reduce your tax obligation. Also, if your employer reimburses you for a portion of your adoption expenses you must deduct this amount from your total expenses before you apply the credit.

I hope this helps! If you would like written clarification, please email me at mandalaadmin@earthlink.net and I'll be happy to send you the actual written information. Leah

[ROBINVENNER]

Wow! I am so glad I found this place. Can you help me? I think I got most of it but I would like to know how sure you are because it seems that most tax places do not know how to help me and how can I find one that knows?

We adopted a special needs child (yes, I am sure) during 2002 and only paid $20. Will we be able to "cash in" on the $10,000 tax credit even though we adopted him in2002? and not in 2003?
Not that we were adopting for that but we wouldn't say no.

[Peggy]

The tax credit for Domestic special needs children changes in 2003.

If you finalize in 2003, you do not need to have specific adoption expenses for the tax credit...You just lop it right off your taxes. It is a credit of $10,00.

If you finalized in 2002, you can deduct what you spent specifically on the adoption (Up to $10,00). These are expenses that would be outlined by the IRS.

[DianeS]

alpacamom--the credit is per *child* --a sibling group of 3 that falls under your state's definition of a special needs placement will give the adoptive parents a tax credit of $30,000. If I can find the site I got that from I'll post it for you, but the basis of that is each *child* in a sibling group counts as a special needs child because of the siblings that child must be adopted with, hence, each gets their own tax credit.

Robinvenner-- your tax credit is limited to $20, because you finalized in 2002 and that is all you claim you spent. In 2002 the parents of all adopted children are allowed to only claim what was spent. (Starting in 2003, finalization in that year of a special needs child will give the adoptive parents the right to claim a flat $10,000--so remember that if you adopt again, but it doesn't help you this time.).

Deanstayton--in a nutshell, your Tax Cut software is wrong. You can NOT receive more money from the IRS than the amount they said you owed in the first place. That would be a *reimbursement* of adoption expenses, and they aren't nice enough to do that. You should get your whole $3,000 tax bill returned to you (or not collected, depending on how you handle your paycheck withholding), and you have $7,000 you can claim next year.

Congrats on your adoptions, everybody!