A sore throat and a better attitude
Last night I got together with a friend who recently lost her baby at 22 weeks. We talked for about four hours. I went hoping that I could give her comfort but I ended up feeling comforted, too.
Someone sent me a whole list of adoption loan/grant resources (thanks Laura!) and a loan would probably really help. I know that the grants are harder to come by but we’ll apply for everything and see what happens. I’m not completely clear about how the tax credit works, can someone tell me if you never owe money on your taxes, do you still get help? Actually, we will owe money if I continue to freelance ‘cuz we’re not so great about taking money out and putting it aside for taxes. Also, another friend (thanks Heather!) wrote offering a lot of support and some insight into adoption when there’s a birth child already on board.
There is also an adoption support group here in town that meets on the second Wednesdays. I didn’t go last night because I was with my friend but Brett and I are anxious to get to the next one. I’m on their yahoo group and will probably actually step out today to post my intro.
The adoption tax credit is covered in IRS publication 968 (http://www.irs.gov/pub/irs-pdf/p968.pdf). You can deduct up to $5K of costs directly related to the adoption (attorney fees, court costs, travel, etc.) from your taxable income. If your employer offers financial assistance for adoption under an “adoption assistance program”, you can also exclude up to $5K of that assistance from your gross income. There are a lot of other rules, but that’s the basics.
So, check to see whether Brett’s employer will foot any adoption costs. If not, then it works just like any other tax deduction (medical, housing interest, etc.), reducing the amount of income that you have to pay taxes on. It does NOT directly reduce the tax - in other words, that $5K deduction will only save you $5K times your tax percentage.
My understanding is it is 10K now, and it is a Tax *Credit*.
It is NOT a Tax Deduction, like mortgage, etc .
Tax credits are much better than tax deductions, for many reasons.
It is as if the government paid $10,000 toward your taxes, but you must have that much tax liability to which to apply it.
For example, if you had $5,000 in tax withheld from your pay, and, say, your tax
liability for the year was $5,000, you would get $5,000 back, and the other
$5,000 of the tax credit could be used next year or later.
One of the best explanations I’ve seen is reprinted below. Hope it helps!
“When my clients ask about the tax credit I explain it like this - it is
rather simplified but it helps to really understand it.
Think of it like a trip to your favorite store. Your taxes are the
purchases that have been rung up on the register. The $10,000 tax credit is
like one of those gift certificate credit cards the stores are all using
now.
So, you go to Target
and you buy $5,000 worth of stuff (not hard to do,
right! ha-ha!). During the work year you had deductions from your paycheck
made to cover this $5,000 and maybe even a little more so you would have
some leftover. BUT - now you have your gift certificate (your tax credit)
to use. So, you use the credit and they give you back the $5,000 you paid
in, plus you still have $5,000 left on your credit. Understand?
And even if you had coupons (deductions) to bring your total bill down to
$4,000, you would still get a refund of the $5,000 you paid in and your
credit would be $6,000. ($10K minus $4K = $6k)
I know this is a ridiculously simple explanation of the tax credit but this
is the basic principal of how it is applied. I hope this helps anyone who
is confused.
Carrie Plachta”