Your Tax Question - 064

Dear John, I have friends who adopted a child this year from Russia. Isn’t there a tax deduction for adoption? Thanks, Kelly
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Hi Kelly,

I would advise your friends to consult the agency that helped her arrange her adoption for specifics to their case. But to answer your question: Yes, there is a tax deduction for adopting.

Congress gives you a refundable $12,150 per adopted child tax credit. This means that should your tax liability be $5000 and you spent $12,150 in qualified expenses then the US Government will give you $7,150 back. But this is only the deal for this year and next year. Beginning in 2012, the credit reverts to just $5,000 and it is not refundable.

Thanks,
John

Your Tax Question - 063

Dear John, Is there really a tax deduction for my child's day care? Thanks, Wilma

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Hi Wilma,

There is not a deduction but a Child and Dependent Care Credit. (Credits are always better than deductions).

Here are the details.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

3. You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.

4. The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.

5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6. The qualifying person must have lived with you for more than half of the year.

7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.For 2009, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

8. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.

9. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.

There's a lot of little details but it is worth wading through them if you had care expenses. Please let me know if I can help.

Thanks,

John

Your Tax Question - 003

Dear John, What is this Making Work Pay Credit that I keep hearing about? Thanks, Jim
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Hi Jim,

You get a $400 (or $800 on a joint return) credit just for having a job (i.e. Earned Income). You likely got this added in your paycheck throughout this year but if not you will have to fill out a Schedule M to claim it.

Best,
John

PS. I would be happy to add you to my limited list of clients for this tax season to make sure that you get all of the credit due to you. Email me -dullc2005@gmail.com