A Dad's Journey Through International Adoption: State of Taxes, no not land of cowboys and oil

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State of Taxes, no not land of cowboys and oil

Friday, October 27, 2006

Although I've held a variety of positions throughout my career including computer software product marketing and college professor teaching statistics, I'm basically a finance guy and have always handled all my own personal financial activities (like financial planning, investing, taxes, etc.).

One of my favorite topics is taxes. And what I am going to discuss over the next few posts (it's a big subject) are the tax implications of an international adoption.

There's a guy on the FRUA forums that's a CPA and he often posts some good information about this topic, however he always says you should only get your tax advice from a professional (i.e., a CPA). Well, sorry but that's just B.S. He's a CPA and is just trying to maintain a monopoly on tax information that CPA's have had in the past.

Now some folks understand financial information and some don't. I don't understand science stuff (like medical issues), and you could try to explain them to me for next 10 years and I still wouldn't understand it. As a result, for advice on that kind of stuff I do go to the professionals.

So if you don't understand financial stuff, then yes you should stick to working with a professional tax advisor for your tax planning. However, if finance topics don't scare you then getting the information (which is FREELY available from the IRS) and using computer applications like Excel, Quicken, TurboTax, etc. will both save you money and put you in a position to understand your finances even more.

Oh no, Steve is getting on his soapbox again.

Okay then let me jump off and let's just begin by going over a quick summary of what tax benefits are available for people who adopt. I'll then walk thru them discussing in detail the requirements needed to access those benefits.

For your federal income tax return there are basically three things that can be used to lower your tax liability.

Side note
Tax liability is the amount of tax you are obligated to pay (if any). This is often taken out from your paychecks throughout the year (known as withholding). When you file your tax return if there is a difference between your tax liability and the amount that has been withheld you will either owe the IRS more money or get a refund back.

Anyway, here are the three main items:

1) Adoption Tax Credit which allows, with limitations (it is the IRS after all), a tax credit up to $10,000ish of the adoption expenses paid (the credit is adjusted for inflation so it goes up slightly each year, for 2005 it was $10,630 and for 2006 it's going to be $10,960).

2) Child Tax Credit which allows (again with limitations) a tax credit currently up to $1000

3) Personal Exemptions which are (yet again with limitations) an exemption for each person (you, your spouse, the kid, etc.) that is classified as a dependent of the tax payer(s).

Now don't run off just yet, this is a bit complicated and there are a number of details and terminology which we need to run thru. And over the next few posts I'll cover each of those three in detail. There is also a Credit for Child and Dependent Care Expenses (basically covering money you paid for child care) but I'm not going to tackle that one in too much detail but I will mention a bit about it later.

So check back later and we'll cover #1 the Adoption Tax Credit.

posted by Steveg @ 10:30 AM

1 Comments:

At 6:34 PM, Betsy said…

Awesome! I've always done our taxes but thought that this adoption might be the last straw to make me give it up. I'm really interested to hear what you have to tell us.

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I'm Steve and this is my wife Stefanie. This is our story, mostly seen through my eyes, of the journey to create our family by adopting a child from Russia.

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