A Dad's Journey Through International Adoption: October 2006

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A little humor for mom

Tuesday, October 31, 2006

So I was reading back on some of the comments left and came across this from my mother-in-law (regarding the tax series of posts):

"...I didn't realize you were such a financial wizard!"

We have a good relationship and I really like her because she's a happy person who (like me) has a great sense of humor and just goes out and enjoys life. She also has a fairly interesting background since she comes from an era where women were not seen as equals in the marketplace and it was very rare for women to have more than a high school diploma and yet she has a college degree (go K-State Wildcats!), traveled the world during her working career (as a single woman no less) and brought up two fantastic people (Stef of course and her brother Jon).

But this line she wrote reminding me of an old saying that is really spot on like 100% of the time and should give her and mothers-in-law everywhere a little chuckle...

Behind every successful man is a very surprised mother-in-law

posted by Steveg @ 8:40 AM 0 comments

Adoption and Taxes Part IV

Monday, October 30, 2006

After two very longwinded discussions on the Adoption Tax Credit I'll finishing this little (did he say 'little'?) series mentioning a few more items adopting parents can use to lower their taxes. Actually all these listed here are available to all parents not just those adopting.

The first, which probably everyone knows about, are Exemptions. In 2006, this deduction (not a credit, see "Part II" for the difference) will reduce your taxable income by $3,300 for each exemption. As always there are limitations so read the instructions for form 1040 (or follow the instructions of your tax software).

Side note: I've used TurboTax for over 15 years, even with some fairly complicated tax returns, and I highly recommend you do your own taxes unless they are very very complicated or you are very very finance/math challenged. These computer programs are VERY easy to use and ask you questions in English, not IRSish.

The second benefit is the Child Tax Credit in which you can get up to a credit of $1,000 per child. As with all the others, there are limitations (mostly based on your AGI, actually it uses Modified AGI). If your MAGI is above $110,000 for 2005 (not sure if this changes in 2006) the credit begins phasing out. Get Publication 972 from the IRS to see all the details.

Important point #???, well number whatever: There's actually a way to get this credit even if you have $0 tax liability. Yep, you get money back EVEN IF you do not owe any tax. See Pub 972 for details

There is also a Credit for Child and Dependent Care Expenses. Basically you get a credit for some of the expenses for child care for your little one (or even big one, since it includes disabled adults as well). Get form 2441 and it's instructions from the IRS here for more details.

There are also some credits associated with education expenses but those really pertain to college and fortunately those of us adopting a toddler don't have to worry about that one for awhile (at least worry about the tax implications, you should, in my opinion, immediately start saving for your child's education the minute you bring them home. Perhaps I'll discuss why and how later.

posted by Steveg @ 10:10 AM 0 comments

Adoption and Taxes Part III

Sunday, October 29, 2006

So in this part of the tax implications of international adoption I'm going to delve deeper into the Adoption Tax Credit I gave an overview of last time. Here in part III we'll look at the in's and out's of getting the credit and what limitations there are. So let's get going.

In order to use this credit you will need to file form 8839 in the tax year that your adoption becomes final. The form and instructions can be downloaded from the IRS here. You will need to figure out how much qualified adoption expenses you had. The actual text of the tax code that explains this is as follows:

The term "qualified adoption expenses" means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses which are directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer, which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement, which are not expenses in connection with the adoption by an individual of a child who is the child of such individual's spouse, and which are not reimbursed under an employer program or otherwise.

Okay, what does that mean. Basically any of your expenses paid to your home-study agency and/or placement agency and your travel costs including meals and lodging. But note that it says, "...not reimbursed under an employer program..." so subtract amounts that your employer adoption program (if you have one) covers. However in most cases, you will have well over the $10,000ish limit even with reimbursed amounts.

Important Point #1: This is just my "plain english" explanation, always follow the instructions for form 8839.

Limitations

If you were thinking, "Damn I knew there was going to be a catch" you're right there is.

First is your total income or actually your Modified Adjusted Gross Income (MAGI). If MAGI, which is basically line 38 but as always follow the instructions for form 8839 since there's a bit of an adjustment to line 38 in some cases, is above $164,410 (I'm using tax year 2006 info) your credit will be reduced from the maximum. If your MAGI is above $204,410 (again this is for tax year 2006) you cannot take the credit at all. I know it's a bummer but there are a few loopholes here. If your company has a deferred compensation program you may want to look into that. Remember rich people (Congressmen/women) wrote the tax code so there are plenty of loopholes and smart people use them (I do all the time).

Sorry but this is the way the game is played. I didn't vote these folks in. In fact, mostly middle class and the poor did so they must be happy with the rich getting richer at their expense. Again, this is the way the game is played and therefore we must play it based on the rules as they are presented to us.

But as usual, I digress. The second limitation is that you cannot get back more than you owe. So your tax liability can only be reduced down to $0. It can't go into negatives. However, if your tax liability is reduced to $0 and you still have not used up your credit allowed, you can "carryforward" any unused credit for up to a maximum of five years. So even if you have a low tax liability each year you most likely won't lose out on this great tax benefit.

Important Point #2: Remember tax liability is what your real total income tax was. Don't confuse it with what the amount you have to either pay or get a refund on when you do your tax return. Tax liability is the amount on line 63 of your tax return (I'm talking about form 1040).

Anyway, that's the basics of the Adoption Tax Credit. As I said you should read and follow the instructions for form 8839. If you want to email me with a question (keep in mind I'm not a CPA or CFP--Certified Financial Planner) but I do pride myself on my knowledge of the tax and financial aspects that affect my own situation, please feel free to contact me. My email is listed in my profile (the link is under the picture of Stef and myself).

The final part of this series on taxes will be just a very brief discussion on
the other tax credits and deductions you may be able to use when going through international adoption.

posted by Steveg @ 9:30 AM 0 comments

Adoption and Taxes Part II

Saturday, October 28, 2006

So in this part of our look at taxes and adoption I'm going to introduce the biggest and "bestest" of the tax benefits available for adoptive parents: The Adoption Tax Credit. It's part of Title 26, Subtitle A, Chapter 1, Subchapter A, Part IV, Subpart A, Section 23 of the U.S. Tax Code (oh good, that was easy enough).

The text of this section can be found here which is on the U.S. House of Representatives website. I'll summarize it's contents here and try to explain it simply; however, and as I will often point out, you should follow the instructions for the required form(s) to insure you are in compliance with the applicable tax laws.

Overview
-The Adoption Tax Credit (with some limitations) allows you to a tax credit up to about $10,000ish of the adoption expenses paid (the amount changes each year due to inflation, for example in 2005 it was $10,630 and for 2006 it's $10,960).

-For International Adoptions the credit is allowed in the taxable year in which the adoption becomes final, which is of course the year in which you have that big day in court. But you get to total up the expenses paid from prior years. For example, we started the adoption process in 2006 but (hopefully) we will have the adoption final in 2007 We get to total up all the expenses paid in 2006 and 2007 and then apply the credit (in 2007 of course).

-Any unused portion of the credit (with some limitations) can be carried forward for up to five years (but we'll go into the details of that later).

Tax Definitions
But first let me cover a few tax definitions that sometimes confuse people.

A Deduction is an amount that is subtracted from your taxable income which then lowers the calculation of your tax liability (again, tax liability is the overall amount of tax you are obligated to pay, don't confuse it with the money that's taken out of your paychecks which is called payroll withholding). Deductions reduce the amount of tax but only by reducing the income that is the basis of the tax liability calculation.

An Exemption is nothing more than a deduction (see above) allowed by law to reduce the amount of income.

A Credit is a dollar-for-dollar reduction in the tax liability (this is muy bueno!!!). As stated, deductions and exemptions only reduce the amount of your income that is taxable (a calculation on taxable income gives you the actual tax you owe, aka tax liability) while credits reduce the tax liability directly.

If that's still confusing let's do a quick example. Okay, let's just take a simple example using 2005 tax year information. Let's say a family has Adjusted Gross Income (AGI) of $90,000. It may sound like a lot but depending on where you live it may just be a good, but not great, AGI. In California that amount is just a little above average. Remember that AGI is basically all your income (salary, interest you earned, capital gains, etc.) minus items the IRS does not count as taxable income (things like IRAs, 401Ks, etc.).

This family also has some deductions they take (mortgage interest they paid, gifts to charity, state income tax paid, their personal exemptions, etc.) and we'll say that totals $23,000. To make it a simple example that's the only stuff we're going to consider and thus their taxable income is $67,000 (AGI minus the deductions $90,000-$23,000=$67,000). Based on that amount they would have a tax liability of $10,086 (I get this by looking up the taxable income in the IRS tax tables).

So this is the total money they owed for income tax for the year 2005. It's basically line 63 on form 1040. If you have a copy of it (and damn it you sure should, I have copies for the past 15 years) take out your last year's copy of your tax return and see what amount you had on line 63.

But let's get back to our example. Let's also assume that they had had (as practically everyone does) payroll withholding from their paychecks throughout the year. And those totaled $9,500. Since their tax liability was $10,086 and they had only paid $9,500 thru payroll withholding, they would have to write a check to the IRS on or before April 15th (good ol' tax day) for $586. But keep in mind their actual total tax paid to the government was their tax liability of $10,086.

Now let's see what happens when we get to use the Adoption Tax Credit.

If they had qualified adoption expenses in excess of $10,630 (and since international adoptions typically cost $25,000 to $40,000 odds are they did) they would be able to use the maximum amount of the Adoption Tax Credit. And doing that would lower their tax liability from $10,086 to $0 (as in Zero Dollars).

WHAT??? They wouldn't pay any taxes at all???

Yep, that means instead of sending in a check for $586 they would get a refund of what they paid in withholding $9,500.

Not only that, but since they only used $10,086 of the $10,630 credit allowed, they would get to "carryforward" the unused credit for their 2006 taxes (for them another $544 of tax credit). The AGI number (or actually it's a Modified AGI: MAGI) is very important in figuring out the amount of credit up to that $10,000ish maximum.

So next post we'll look into the forms you need to attach to your return as well as some specifics of the limitations including MAGI. Stay tuned.

posted by Steveg @ 11:20 AM 4 comments

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

Just a little tinkering with decorations

Thursday, October 26, 2006

Although there was no new news on the status of Government Decision No. 268. The prognosis is still that it is imminent but that could just as easily mean any day now or any day within the next several weeks. Remember we're talking about a government agency and the words alacrity and celerity do not exactly go hand in hand with their work tempo.

Back to our favorite store Costco, as stated before all the holiday stuff is out on the shelves already and we found some cool little decorations for Lit'l G's room. Side note, we were having issues with the various words we were referring to our future currently unknown inhabitant and most of the phrases (like the one I just used) sounded pretty impersonal, so we've started to just refer to he/she as "Lit'l G".

Anyway, so we picked up a nice big Pooh rug and two squishy pillows as seen below. The rug we had gotten earlier was just too small for the room so we moved it into the bathroom. We have a couple of other minor things to do. First we want to refinish a little nitestand table (in a cool purple color that goes with the Disney Pooh theme colors we picked). Also we had wanted to put a small easel in the room to display a painting our friend and fellow adopting parent Lauren did for us but we're afraid that's just an accident waiting to happen and may just frame it for now and put it up above small (but often curious) arm's reach. -- Here's a link to the painting Lauren did for us --

posted by Steveg @ 11:17 AM 2 comments

This week's hotline

Wednesday, October 18, 2006

Nothing new on the hotline today but there was a very good write up from the delegation of the JCICS (Joint Council on International Children's Services), of which our agency is a member, about their recent trip to Russia.

What I thought was cool was that there were only a handful of representatives from the plethora of member agencies (well over 200) and the head of our agency was one of the people that went on this trip. They met with various officials including a representative for President Putin, Ministry of Education officals, Ministry of Justice folks, as well as the U.S. Consul General.

Here's a link to a pdf file about the trip that goes into great detail about who they talked to and what was said.

In a nutshell, everyone still remains very positive in terms of current and near term outlook for international adoption in Russia. As we've said many times before, although we'd like all the ducks to line up correctly this second, we know these things are done by government employees (and even if they weren't government employees, workers are workers and work is work and it's rare to find anyone getting their work done at light-speed velocity.

So, we're just biding our time and getting stuff done, enjoying life as we always do, and not worrying about things that are just not worth worrying about. And who knows...it could happen tomorrow, or the next day, or the day after that.

posted by Steveg @ 10:30 AM 2 comments

Random Ramblings

Thursday, October 12, 2006

Woo Hoo - my second blog entry, pretty soon I may need a blog of my own. Here are some random ramblings for a Thursday afternoon.

There is some activity in the Russian adoption world. A quick congratulations on the recent events Melissa and Lauren have some news and Rhonda and Brian are not Still Waiting and are in Russia picking up Bonnie & Clyde.

The news on government decree 268 and reaccrediation from our agency remains cautiously optomistic. The delegation of representatives from our agency along with other agencies and a couple of adoption organizations were in Moscow about two weeks ago and met with several ministries and officials. The reports back seem postive and all the officials appear to agree that international adoption needs to continue and are working towards making it happen. But like Steve keeps mentioning, this will happen on their timeline and there really isn't much we can do besides try and be as patient as we can and keep ourselves busy.

One of the things we did last Friday to keep busy was participate in BMW's Ultimate Drive to support the Susan G. Komen Breast Cancer Foundation. This is an annual event that consists of two fleets of cars that cross the country which people can test drive and BMW will donate $1 per mile driven. It's a nice opportunity to test out their cars without that lovely car salesperson along and contribute to a good cause. The route this year at our dealership was about 16 miles long and we took four drives between us so "contributed" about $64 and we got to have fun for a morning. Not much considering the participants in the event drive about 1 million miles a year and the event has been running for 10 years.

Hopefully soon we'll have some more exciting news otherwise I may have to resort to Chianti (aka Operation Pooh Supervisor) stories.

posted by yorkiemom @ 1:30 PM 1 comments

From last week: Nothing new on the hotline

Monday, October 09, 2006

I forgot to answer the comment about what was new on our agency's hotline last week. Just to reiterate our agency has a great 1-800 number hotline that they update each week. They had done this in the past (so I'm told) the last time the agencies had to jump through hoops to get reaccredited in Russia (in other words last year).

Anyway, nothing new on the call last week, but they were again pretty upbeat about the prospects for Decree #268 getting updated quickly and reaccreditation to resume. The head of the agency was in Moscow last week (along with representatives of other adoption agencies) so this week's hotline may have some more info.

Regardless, I think (much like the NGO) our agency will get their reaccreditation sooner rather than later. And of course the timing is based on "Russia time", and that's okay. It's their country, their culture, their laws and we're totally fine with that.

It's kind of like vacationing in Mexico, you should allow your host (or host country if you will) to do it their way. Stef and I always get a chuckle when we see Americans who get all upset because the waiter hasn't brought them the check the minute they've finished eating (or during the meal). But in Mexico it is considered extremely rude to give the check until you ask for it. They (the waiters) are trying to allow you to relax and enjoy your meal. But of course as with most American thinking, if it's not done our way then it must be wrong.

A good deal of the posts on the adoption forums are people who are all up in arms about how long it's taking the MOE to fix Government Decision No. 268. I too would like it to happen tomorrow, but I know that isn't going to happen. Not to mention that the Russian government doesn't seem to be any slower in processing stuff than our own.

posted by Steveg @ 8:10 PM 4 comments

Just a clarification on the tech toys and a little rant

Saturday, October 07, 2006

First off I just wanted to say that Stef and I are not the Amish or anything. No offense to you Amish out there but since they don't believe in technology I guess there isn't much chance they're reading this blog anyway, so I guess I could say anything I wanted about you. But I wouldn't, you guys are basically harmless, and I do like your horse drawn carts.

But I digress...

We're also not some anti-any-toy-that-isn't-educational or anything like that either. But some of the video games out there are just ridiculous. There's an entire genre that has to do with crime, but not from a "you're the police and you solve the crime" side but instead actually has the player as the criminal stealing cars, shooting people, etc.

Our desire is to just have our kid have fun and play games that help him/her to learn and grow, using their mind to both discover the really cool things in the world and to (at least try to) be a cool person and not cause harm to others. I'm not saying love everyone in the world, I personally have a dislike for most of my fellow Americans, but I don't try to harm them. I just realize they're pretty stupid and let them meander through life as they see fit.

This leads me to another rant that's somewhat tangent to the crime video games thing.

The second amendment (that's the "right to bear arms" one) was written over two hundred years ago when the power to enforce law and the will of the government was almost exclusively done at the end of a musket. The concept that our forefathers wanted to insure was that IF the government that they themselves were creating every got out of hand and tried to take away our liberties (okay, okay, I know that's actually happening now but not the extent that the forefathers meant), that people, ordinary people, should be able to take arms against the unjustified government and rebel.

I know it's hard to believe, but our country and most other advanced nations have actually grown somewhat past that concept that armed revolt is needed at times (or could even work, since our country is just too large for something like that to happen). The need for that amendment is just not of value any longer and causes far more harm than the potential help (since the likelihood that the help occurring is literally impossible).

People feel that the Constitution is like some ten commandments from God or something and can't be altered. Of course even if it were, it's good to remember that even good ol' Moses broke the tablets. Anyway, there is a very good quote that I'm afraid I forget from whom that goes...

"The people wrote the Constitution and the people and rewrite it."

Unfortunately there's another great quote from Oliver Wendelll Holmes that sums up both an inherent problem of democracy and more importantly the Pandora's box of changing the Constitution (even though my very point above would recommend that action).

"I always say, as you know, that if my fellow citizens want to go to Hell I will help them. It's my job."

posted by Steveg @ 9:14 AM 1 comments

Man I love toys...er...Costco

Wednesday, October 04, 2006

I was at my favorite store today (Costco) and they're blitzing already on their holiday stuff. It's really a bummer we're not going to have a little one by the time the holidays roll around because there are some totally cool toys out there!!!

Okay, okay, I know. The toys are for the kids, but man the breadth of stuff is just so cool. First you got all the awesome stuff from our childhood years, for example lincoln logs (man I loved those!), and then you have all these new high tech things. I'm not talking about the video games, which both Stef and I dislike and will minimize as much as possible.

We have four college degrees and several professional designations between us and we both feel that playtime and toys should be fun first and foremost, you're only a kid once (or in my case forever), and second challenging for the mind or the body (or hopefully both).

As most of you know I teach college courses as a part time gig. And in my personal observation (from school to politics to the media to...) people are getting more and more stupid with the advent of the technology we're creating, not more intelligent.

As a result, if parents can help their children to just make normal efforts toward learning and growing as human beings (I'm not saying push them to be "A+" students, just normal stuff), the kids will surely be outstanding successes in life.

I mean, look at the competition.

posted by Steveg @ 12:10 PM 5 comments

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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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