May 23, 2013

Posts Comments

Same-Sex Couples, Taxes, and the Legal Limbo

April 17, 2013 By

Same-sex marriages often illicit mixed reactions from the public. One of the most contentious issues has been whether to treat legally married or registered domestic gay partners just like heterosexual couples in terms of federal taxation. Understanding the tax consequences of your actions is the best way to make sound tax decisions. For gay taxpayers, consider the following:

Joint Filing: Married same-sex couples or Registered Domestic Partners (RDPs) are free to file joint tax returns with their respective states if the status is recognized by the state.

Separate Filing: The acceptance of same sex marriages as legitimate marriages is gradual, and while some states have legalized them, others don’t. If you reside in a state that doesn’t recognize same-sex unions, then the best thing to do is file separate returns with the IRS. In such instances, each person should only report personal incomes and expenses. The filing status should be single and in case there are children, one of the partners can file as the Head of Household (HOH), which is determined based on whoever provides more than 50% of household expenses for every child.

Community Property States: If you reside in community property states, there are some special IRS rules you have to be familiar with, especially those that require couples to divide all income and expenditures based on the set community property laws. Despite the fact that income is split, for the self-employment couples, the SE taxes are paid by whoever actually earned the business income, or profits. This is normally complicated in situations where assets or pensions were already in existence long before the marriage.

Special Bonuses: Some families can qualify for some bonuses, especially with adoption expenses. According to the IRS, the whole amount for the available adoption credit can be claimed by each partner. However, only the credit for eligible expenses one pays can be claimed by each person. Make it a point to check with the IRS to amend your tax return and claim a huge refund if you adopted a child in the last few years.

If you really care about the welfare of your partner, you must prepare, if not a will, a living trust. This will see to it that your spouse or partner properly and legally inherits your property for state and federal tax reasons upon your death. If you have any children, clearly define who will take custody. As the law takes shape on same-sex couples, regularly check the IRS website for new legislations and how taxes will affected on both state and federal government levels.

Filed Under: Our Blogs Tagged With: , , , , , , , ,

Taking Advantage of the Adoption Tax Credit

August 13, 2012 By

The current tax code offers a sizable tax credit to those who adopt a child. Costs for adopting a child can be immense and this welcomed tax credit aims to assist those looking into adopting a child (or children) by helping reimburse part of these high costs. Last year, the Adoption Tax Credit has been adjusted, so it is more favorable for those wanting to adopt. Not surprisingly, there are some rules that apply to the qualification of this credit.

The Credit is Refundable

For the previous year, the Adoption Tax Credit is a refundable credit, which means that you get a refund check for the credit amount, even if you do not owe any taxes to Uncle Sam.

Income Limits and Figures

The amount of credit that you can claim has been increased; the limit currently, is $ 13,360 per child. The amount of tax credit that you can claim will vary, dependent on the costs sustained toward the adoption. In special cases, namely for special needs children, parents can claim the maximum amount, regardless of having incurred costs equal to the credit amount.

The maximum amount of credit is available for taxpayers who had an Adjusted Gross Income (AGI) of below or up to $185,210 for the 2011 tax year. Those who earned above this set limit are allowed claim, but it will have to be a lower amount in credit. Yet, taxpayers who earned an AGI of $225,210 or more are not eligible at all.

Eligibility of Adopted Child

The Adoption Tax Credit is available for children who are adopted before they turn 18. The credit is also available for adopting those who are disabled (either mentally or physically) and cannot properly look after themselves without assistance.

Filing to Make Claim

The Adoption Tax Credit can be claimed only by filing on paper; this credit cannot be claimed electronically or digitally. Free File can still be used to file your returns, but you will still need to print out the return and then, send the hard copy to the IRS offices. You will need to attach the Qualifying Adoption Expenses (Form 8839) that will indicate the expenses claimed that will qualify you for this credit. You will also need to attach documentation that outlines these expenses. These documents may include:

  • The final adoption decree
  • A state declaration that proves that the adopted child is in need
  • Various adoption-related court documents
  • Receipts for the adoption expenses
  • Placement agreement from a qualifying adoption agency

Claimable Expenses

A taxpayer is allowed to claim all expenses that are deemed realistic and required to assist in the adoption. Some of these expenses are:

  • Adoption fees
  • Attorney fees
  • Travel and/or moving expenses
  • Court expenditures
Filed Under: Our Blogs Tagged With: , , , , , , , , ,

Six Things You Need To Know About the Adoption Credit

July 30, 2012 By

Many children who don’t have birth parents in their lives still can enjoy parental love through adoption. Adopting a child comes with some financial and legal obligations that adoptive parents have to meet. Did you know that you can claim up to $13,360 worth of tax credit if you incurred adoption expenses? The IRS expanded the adoption credit, and below are six facts that you need to know about it:

1. Credit Amount Increased and Refundable: The amount of the adoption credit was increased when the Affordable Care Act was passed, which also made it refundable. The significance of this is that it is now possible to get the credit as a tax refund, regardless of whether your tax liability has been reduced to zero or not.

2. Filing of Returns: You are required to file a paper tax return, the Form 8839, Qualified Adoption Expenses, and see to it that all supporting documents on the adoption are attached alongside the returns. Even though taxpayers who claim the credit can still use the IRS Free File and other tax applications by the IRS while preparing their returns, all the relevant documents and returns have to be printed and mailed to the IRS.

3. Required Documents: You are supposed to present several documents while claiming the credit including; placement agreement from a relevant and permitted body, final decree of adoption, documents from the courts and/or a determination by the state for adoptions of special needs children.

4. Qualified Adoption Expenses: The IRS has clearly spelt out what qualified and is considered as an adoption expense and what doesn’t. Qualified adoption expenses are practical and indispensable costs directly linked to the child’s adoption. They include; adoption fees, attorney expenses, court costs, and travel expenses.

5. Eligible Child: There are many kids being adopted everyday by caring people all over the country, but not all adopted children qualify for the credit. For a child to be eligible, s/he has to be below 18 years of age or unable to take care of himself or herself due to mental or physical challenges.

6. Gross Income: Potential parents with a modified AGI of over $225,210 don’t qualify to claim the credit. However, those with a modified gross income of over $185.210 can have their credits reduced.

More information about the Adoption Credit is available on the IRS website under Adoption Credit FAQ page. You can also download IRS Form 8839 from the website or order it via phone by calling 800-TAX-FORM (800-829-3676).

Filed Under: Our Blogs Tagged With: , , , , ,

7 Major Expanded Adoption Credit Facts You Must Know

June 18, 2012 By

It is possible for a taxpayer to claim a tax credit to a maximum of $13,170 for eligible expenses paid in the adoption process of an eligible kid. The credit amount was increased and made refundable with the enactment of the Affordable Care Act. This means that the amount of your refund can be increased as well.

Taxpayers must however, understand the following seven facts about the expanded adoption credit.

  1. The expanded adoption credit came into effect in the 2010 tax year and even people who didn’t owe the IRS any taxes could get it.
  2.  To enjoy the credit, you have to file a paper tax return as well as Form 8839, eligible expenses and attach all relevant adoption supporting documents.
  3.  The main documents required might include: the concluding adoption verdict and the agreement of placement from relevant adoption agency. Those adopting kids with special needs should produce court documents plus a determination by the state.
  4. The adoption expenses that one incurs in the process include; court costs, legal/attorney costs, travel costs and most importantly, the adoption fees paid. Eligible adoption costs are reasonable and required expenses that directly relate to the lawful adoption of the child and must be paid as stipulated by the law.
  5.  A qualified and adoptable child must not exceed 18 years of age. Also, the child can be physically or mentally incapable of caring for himself or herself. The idea behind adoption is helping those kids who might otherwise lack someone to look over them.
  6.  A taxpayer’s credit is cut if his/her modified adjusted gross income exceeds $182,520. However, those with a modified AGI of over $222,520 don’t qualify for the credit.
  7.  Those taxpayers claiming the expanded adoption credit can still prepare their returns using the IRS Free File. However, these returns have to be printed and posted to the IRS, together with any other documents that are required.

 Taxpayers interested in this credit should bear in mind the above factors. You can access further information about the Adoption Credit from the “Guides to the IRS Form 8839, Qualified Adoption Expenses.” This document is available for download from the IRS website. You can also call 800-TAX-FORM (800-829-3676) and place an order, as well as have your questions answered.

 With taxes eating up many people’s revenues, you have to be smart and enjoy any tax relief that you qualify for.

Filed Under: Our Blogs Tagged With: , , , , , ,

How Your Kids Influence Tax Cuts

May 11, 2012 By

Your kids may not sort your tax receipts or refill your coffee as you try to sort your tax issues, but they could be very beneficial; your children could help you qualify for some valuable tax benefits. The IRS has provided a list of 10 things every parent should consider when filing taxes this year:

  1. Dependents – a child can be claimed as a dependent from the year they are born. This information is available on IRS publication 501, Exemptions, Standard Deduction, and Filing Information.
  2. Child Tax Credit- You can take this credit for your children who are under the age of 17. If you are unqualified for the full amount of Child Tax Credit, you may be eligible for the Additional Child Tax Credit. More IRS information is available on IRS publication 972, Child Tax Credit.
  3. Child and Dependent Care Credit – This is applicable if you pay other people to take care of your child or children under the age of 13 so that you can work or look for work. The details on this are in the IRS publication 503, Child and Dependent Care Expenses.
  4. Earned Income Tax Credit (EITC) – This is a tax benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may give you a refund. More details are available in the IRS Publication 596, Earned Income Credit.
  5. Adoption Credit – A tax credit is available if you qualify for certain expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with the required adoption-related documents. The instructions and more information are on the IRS Form 8839, Qualified Adoption Expenses.
  6. Children with earned income – If you have a child who is working for a an income, you are required to file a tax return as IRS Publication 929,Tax Rules for Children and Dependents details out.
  7. Children with investment income – some circumstances dictate that a child’s investment income be taxed at their parent’s tax rate. This is available in the IRS Publication 929, Tax Rules for Children and Dependents.
  8. Higher education credits – Education tax credits may aid you in offsetting the costs of higher education. The Lifetime Learning Credits and the American Opportunity are education credits that can reduce your federal income tax dollar-for-dollar. IRS Publication 970, Tax Benefits for Education gives better details on this.
  9. Student loan interest – You do not have to itemize your deductions to be able to deduct interest paid on a qualified student loan. More information is available on IRS Publication 970.
  10. Self-employed health insurance deduction – for the self-employed, if you paid for health insurance, you can deduct any premiums you paid for coverage for any of your children who was under 27 at the end of the year, even if the child as not your dependent at that time. More information is on IRS website.

The above forms and publications are accessible via www.irs.gov, or calling 800-TAX-FORM (800-829-3676).

Filed Under: Our Blogs Tagged With: , , , , , , , , ,

Ten Tax Benefits for Parents

May 3, 2012 By

Whenever the tax season nears, almost everybody cringes. However, did you know that your kids can be helpful when dealing with your tax headache? Here are the 10 critical tax benefits the IRS is reminding you of:

  1. Dependents – The IRS allows parents to claim a child as a dependent mostly in the year they were born. To be certain, get more information- see the IRS Publication 501.
  2. Child and Dependent Care Credit – This credit is claimable if you leave your child or children below 13 years under care of someone while working or looking for work. The IRS Publication 503 spells out the conditions.
  3. Child Tax Credit – This credit can be claimed for each under 17 year old child but if you do not get its full benefits, try the Additional Child Tax Credit.
  4. Earned Income Tax Credit – Abbreviated as EITC, this is a tax benefit for specific people working and earning from wages, farming and self-employment. This credit lowers the tax burden and may grant you a refund. For more details check out IRS Publication 596.
  5. Children earning income – If your child is earning from working, they may have to file a tax return. IRS Publication 501 has more information on the same.
  6. Adoption Credit – If you have an adopted child, you could get a tax credit for qualifying expenses of adoption of an eligible child. You can claim this credit but be sure to present accurate adoption-related documents when filling the form. Check out Qualified Adoption Expenses and IRS Form 8839 for the instructions pertaining to the filling of the forms.
  7. Children having investment income – Sometimes a child’s investment income may undergo taxation at the parent’s rate. For more details see IRS Publication 929.
  8. Self-employed health insurance deduction – In case you are self-employed and paying health insurance, you could deduct any premiums initially paid for coverage for any of your child under age 27.
  9. Interest on student loan – You could be able to deduct interest on a qualified student loan even without itemizing your tax deductions.
  10. Credits on higher education – Tax credits on education expenses can significantly lower the costs for higher education. For instance, the American Opportunity and/or the Lifetime Learning Credits can both lower your income tax bit by bit. The IRS Publication 970 has the relevant details, and so does the Tax Benefits for Education.
Filed Under: Our Blogs Tagged With: , , , , , , , ,

What Your Need to Know About the Adoption Tax Credit

March 14, 2012 By

The Adoption Tax Credit is a tax relief that is given to individuals and couples who adopt a child or children. The relief is given against the expenses incurred during the process of adopting a child. The fees and other related expenses for adopting a child can be quite high in America and can inhibit families of lower incomes from adopting a child. For this reason, the federal government, through the IRS, provides a relief to reimburse some of these expenses for those who are adopting. Below is what you need to know about this tax relief:

  • Credit Amounts – The maximum amount of relief that taxpayer can claim for the 2011 tax year is $13,360 and for 2012 is $12,170 per adopted child. In 2011, the credit is refundable meaning that a taxpayer can get a refund against the relief if he or she does not exhaust the funds against due taxes. However, this relief shall not be refundable for 2012. The relief is available for taxpayers whose Adjusted Gross Income is 185,210 for single filers in 2011 and 225,210 for those who file jointly. For 2012, the caps for eligibility of this relief go up to 189,710 for single filers and 229,710 for those who file jointly.
  • Qualifying Expenses – The costs that qualify for the relief are all reasonable expenses that are related to adopting a child. They include any travel expenses, attorney fees, health costs of the birth mother, and related administrative costs.
  • Special Need Child Exception – If the child being adopted is a special need child, the person adopting may claim the maximum amount of the relief even if he or she does not have supporting documentation for the amount.
  • Spouse’s Child and Surrogate Parenting – A taxpayer cannot claim the relief if he or she is adopting the child of a spouse or if it is a situation of surrogate parenting.
  • Employers Contribution – If your employer made any contributions or payments towards the adoption of a child, you will need to net such contribution and only claim the balance. However, you will not be taxed for the benefit of the employer contribution.
  • Foreign Adoption – The relief is also available for taxpayers who adopt a child who is not an American citizen or resident. However, for foreign adoptions, the taxpayer cannot make a claim if the adoption does not go through. However, if a taxpayer is adopting multiple children and the adoption of at least one child goes through, he or she may claim the total expenses of the adoption including the expenses incurred for the adoptions that did not go through.
  • Claiming Local Adoption Costs – Since adoptions span over years, a taxpayer can claim expenses which were incurred in a given year even before the adoption goes through. For expenses being claimed before the adoption goes through, the taxpayer may make the claim on the year that follows. However, for expenses incurred on the final year of adoption, the taxpayer can claim on the same year that the expenses were incurred. For example, expenses incurred in 2011 can only be claimed in the 2012 tax year returns if the adoption did not go through in 2011. However, if the adoption went through in 2011, the taxpayer can claim the expenses in his or her 2011 tax returns. If further adoption costs are incurred after the adoption goes through, the taxpayer can still claim such costs on the same year they are incurred.
  • Claiming Foreign Adoption Costs – For foreign adoptions, the taxpayer will have to wait until the adoption goes through before he or she gets to claim all qualifying expenses. In such cases, the taxpayer needs to keep all the receipts and claim documents until the adoption goes through and consequently make the claim on the same year that the adoption goes through. For expenses that are incurred after adoption goes through, the person adopting can claim relief against the expenses on the same year that they arise.
Filed Under: Our Blogs Tagged With: , , , , , , ,

Consider Filing a Tax Return Even if Income is Below Threshold

March 9, 2012 By

 

Not all U.S. citizens are required to file a tax return. For you to be required to file a return, you need to be making an income above a stipulated threshold. The threshold ranges depending on whether one is a minor, a full time student below the age of 23, a senior citizen, or depending on the type of income that one makes. Therefore, if you did not make enough income in 2011 to require you to file a tax return, then you are free from this responsibility. However, you can only claim tax credits and other tax relief if you file a tax return. This means that even if you are not required to file a return, it may be beneficial to do so. Some of these tax reliefs that are available to people whose income falls below the amount needed to file a return are discussed below:

Claiming EITC

The Earned Income Tax Credit (EITC) is a tax credit that is available to low income earning citizens and it is dependent on your filing status and the number of children that you have. Taxpayers can get up to slightly over $5,000 from this credit. The IRS has a system on their website that enables you to calculate how much of the EITC you qualify for. If you qualify for the credit, then it would be in your best interest to file a return as this is the only way you can claim such a credit.

Claim Withheld Taxes by Employer

If your employer withheld taxes in 2011 and your income was below the tax threshold, then you should file a tax return so as to claim the withheld taxes. You will need your W-2 forms that show the withheld taxes as your support documentation for the claim.

Claiming Child Tax Credit

The Child Tax Credit is a tax credit that is given to taxpayers who have children and the amount of tax depends on the number of children you have and your filing status. If you did not receive the full amount of credit that was due to you, you should file a tax return so as to claim such shortfall.

Claiming Adoption Credit

The Adoption Credit is a credit that is available to citizens who adopt a child. The credit is provided to help those who adopt cover the adoption fees. You therefore, need to provide the payment receipts for your claim support. However, if the adoption is for a special needs child, you can claim the full amount of credit even without support documentation. This credit is available, even to those whose income is below filing requirement and therefore, if you are one of such taxpayers, filing a return will enable you to claim the Adoption Credit.

Claiming Educational Tax Credits

There are several education related credits that are available to taxpayers. For example, the American Opportunity Credit is available to students who are in the first 4 years of a post secondary school education. The credit is of $2,500 and $1,000 can be paid out in a refund check. The remaining $1,500 can only be used against present and future taxes. Therefore to claim this refundable credit, you may have to file a return even if you are not required to.

Filed Under: Our Blogs Tagged With: , , , , , ,

Had a Baby at the End of 2011? Here’s Some Great Tax News!

February 21, 2012 By

Did you have a baby before December 31st, 2011? Well, the tax code is set such that all benefits that accrue to a taxpayer do so annually, irrespective of the time of the year one gets to qualify. This means that if you had your child on December 31st of a given year, you get the full tax benefits of the child for the whole of that year. This is more of a bonus for those who get their children late in the year. The same tax bonus is available for parents who adopt a child late in the year. Therefore, if you are planning to harvest on this tax bonus, it may be wise to plan your timing for having your child or for adopting one. There are various tax breaks that you can claim for the whole year, irrespective of the time of the year that your child was born or adopted.

Personal Tax Exemption on Dependents

For a start, you can claim personal tax exemptions on all your dependents for a given year. This personal tax exemption is deducted from your Adjusted Gross Income (AGI) and consequently, reduces the amount of tax that you get to pay. For the tax year of 2011, the tax code allows for an exemption of $3,700 for every dependent that you claim on your tax returns. This means that your adopted or natural child gets you this exemption for 2011 even if born or adopted at the end of the year. This exemption is only accorded to those whose income fall in or below the 28% tax bracket. The personal tax exemption is provided to taxpayers as an adjustment for inflation and increases in cost of living.

Child Tax Credit

Besides the personal tax exemption, the taxpayer who gets a child within a given year is also entitled to the child tax credit. The tax credit is given for every child that a taxpayer has. There are income limitations to claiming the tax break and therefore, people who earn from the higher tax brackets may be locked off from this benefit. For 2011, singles who earn above $55,000, head of households who earn above $75,000 and those who file jointly and have an income above $110,000 cannot claim the Child Tax Credit. However, for the rest of taxpayers who earn below these caps, claiming the credit is easy as all you do is list all your children on the tax return form 1040 and you get to claim $1,000 per child in 2011. This is an extra $1,000 bonus for the parents who get a child late in the year.

More Earned Income Tax Credit

Another tax relief that you are entitled to for your child is higher Earned Income Tax Credit (EITC). EITC is a tax credit that is provided to lower income earners. The qualification and amount of EITC that a taxpayer gets is dependent on the number of children that one has. Therefore, having an extra child, irrespective of the time of the year that you get the child, will increase the amount of EITC that you can claim or even get a taxpayer who would otherwise not qualify for the credit get into the qualification bracket.

Filed Under: Our Blogs Tagged With: , , , , , , , ,

Adoption Tax Credit as a Tax Reduction Measure

January 18, 2012 By

In the process of adoption, there is always a bill that keeps popping up; the IRS provides an adoption tax credit which is meant to make adoption much cheaper. One can qualify for a refund on adoption expenses that meet the IRS qualification through a tax credit of up to $13,360 per child in 2011 and $12,170 in 2012. Even if the adoption was not finalized in 2011 or fails to get finalized in 2012, taxpayers can still qualify for the full tax credit. Taxpayers without qualified expenses but with a special need child or children can also qualify for this credit.

The value of one’s tax credit is arrived at by adding up all the genuine and reasonable expenses that one accumulated during the adoption process. These expenses might include legal costs, travel costs, health costs of the birth mother, and foreign adoption fees etc.

Among the exceptions to the adoption tax credit are the expenses incurred through adoption of a spouse’s child or taking part in surrogate parenting. Additionally, one cannot include amounts that were paid by one’s employer, either directly or indirectly on one’s behalf, to assist with the adoption, although one would not have to pay taxes on such amounts. Furthermore, if one makes an attempt to adopt from a foreign country and the adoption fails, then one cannot deduct those expenses. However, should the adoption of an international child fail but that of yet another international child goes through, then one can deduct all those expenses up to the maximum credit.

The rules of adoption vary depending on whether the adoption is domestic or international. Adoption processes can take over a year and it is therefore, important to keep records of all expenses and when the adoption was finalized.

In domestic adoption, if one incurs adoption expenses within the year the adoption is finalized, then one can use the expense towards their adoption tax credit in that year. For expenses incurred in a different year from the one in which the adoption is finalized, the expenses can be used in the year in which they were incurred.

For foreign adoptions, one must wait for finalization of the adoption before they can use their adoption tax credit. After the finalization, one can use all the expenses incurred in the entire process for the adoption tax credit for that year. If one incurs any additional expenses in the years following finalization, one can use them towards the tax credit in the year they are incurred.

In 2011, the tax credit was refundable, which meant that one could get the credit even if they did not pay an equivalent amount in taxes, but in 2012, it is non-refundable and reduced. To claim the adoption tax credit, one needs to fill a form “8839, Qualified Adoption Expenses”. The process might be complex, depending on type of expenses one is filling, and it is therefore, advisable to seek professional help.

Filed Under: Our Blogs Tagged With: , , , , , ,
« Older Posts