Tax

If you adopting a child this year, you may qualify for a tax credit. Here are nine things you should know about the adoption credit.

1. Credit or Exclusion. The credit is nonrefundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.

2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2016 is $13,460 per child.

3. Credit Carryover. If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2016, you can use it to reduce your taxes for 2017. You can do this for up to five years, or until you fully use the credit, whichever comes first.

4. Eligible Child. An eligible child is an individual under age 18 or a person who is physically or mentally unable to care for him or herself.

5. Qualified Expenses. Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees, and travel.

6. Domestic or Foreign Adoptions. In most cases, you can claim the credit whether the adoption is domestic or foreign. However, the timing rules for which expenses to include differ between the two types of adoption.

7. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn’t pay any qualified adoption expenses.

8. No Double Benefit. Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.

9. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.

Don’t hesitate to call if you have any questions about the adoption tax credit.

• By Leon Clinton
• May 28, 2016

You may not know about the Alternative Minimum Tax (AMT) because you’ve never had to pay it before. However, your income may have changed and you may be required to pay it when you file your 2016 tax return next year. The AMT is an income tax imposed at nearly a flat rate on an adjusted amount of taxable income above a certain threshold. If you have a higher income, you may be subject to the AMT.

Here are five facts you should know about the AMT:

1. Know when the AMT applies. You may have to pay the AMT if your taxable income, plus certain adjustments, is more than your AMT exemption amount. Your filing status and income define the amount of your exemption. In most cases, if your income is below this amount, you will not owe the AMT.

2. Know exemption amounts. The 2016 AMT exemption amounts are:

• $53,900 if you are Single or Head of Household.
• $83,800 if you are Married Filing Jointly or Qualifying Widow(er).
• $41,900 if you are Married Filing Separately.

You will reduce your AMT exemption if your income is more than a certain amount.

3. Use a qualified tax professional. Keep in mind that the AMT rules are complex. The best way to prepare and file your tax return is to use a qualified tax professional.

4. AMT Assistant Tool. Use the AMT Assistant tool on the IRS website to quickly find out if you will need to pay the tax.

5. Use the right forms. Usually, if you owe the AMT, you must file Form 6251, Alternative Minimum Tax — Individuals. Some taxpayers who owe the AMT can file Form 1040A and use the AMT Worksheet in the instructions.

Wondering if the AMT affects you this year? Give the office a call today and find out.

• By Leon Clinton
• May 27, 2016

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five important points to keep in mind if your child has investment income this year:

1. Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Parent’s Tax Rate. If your child’s total investment income is more than $2,100 then your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.

3. Parent’s Return. You may be able to include your child’s investment income on your tax return if it was more than $1,050 but less than $10,500 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends, for more information.

4. Child’s Return. If your child’s investment income was $10,500 or more in 2016 then the child must file their own return. File Form 8615 with the child’s federal tax return next April.

5. Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960,Net Investment Income Tax, to figure this tax.

Questions?

Please call if you have any questions about your child’s investment income.

• By Leon Clinton
• May 25, 2016