Special thanks to http://adoptiontaxcredit.org/ for the Photo.  Check out their site for additional information on the Adoption Credit!

Adopting a child has many advantages for many families.  You are adding a new family member to love and cherish, all of you will get to experience the unconditional love and support of the new family unit, as well as making each and every day special for one another.  Many children today would be without loving and permanent families if it were not for the Adoption Credit and other forms of Adoption Asistance available today to help with the cost of adoption.  

At this time the Adoption Credit is unrefundable.  In a few earlier years the IRS had a temporary provision allowing for the refundability of the credit.  At that time, all unused adoption credits from prior years could be taken as a refundable credit in those years.  This led to very large refunds for many families across the country.  This was due, in large part, because the families eligible for the credit couldn't use the credit because their income was already low enough that they received NO benefit from the credit and had to keep carrying it forward year after year.  

The Credit and Exclusion Amount

For adotions finalized in 2015 the credit is up to $13,400 per child for eligible expenses.  A taxpayer can also exclude up to the same amount in Employer Provided Adoption benefits from income.  Keep in mind that the same expenses can't be used for both.  Limits do apply to the total spent over all years for each effort to adopt an eligible child.

An Unsuccessful Adoption

Any taxpayer who paid qualified expenses in an attempt to adopt a US child and the attempt was unsuccessful are to treat those expense in the same manner as expenses paid for adoption not final by the end of the year.  This means that if your adoption was unsuccessful in 2015 you treat those expenses as 2014 expenses.  An Amended Tax return may be needed to take the credit. In the case of a foreign child adoption, the credit or exclusion can't be taken unless the adoption becomes final.

Qualified Expenses

These are reasonable and necessary expenses principally for the legal adoption of an eligible child.  These can include: Adoption Fees, Attorney Fees, Court Costs, Travel Expenses while away from home, Re-adoption in State Court.

Nonqualified Expenses

Expenses to adopt a spouse's child, Expenses for surrogate parenting, paid for or reimbursed by an employer, government agency or other agency, Expenses that are allowed as a credit or deduction under another tax provision, and Expenses that violate state or federal law.

Eligible Child

Any child under 18 years of age or any person who is physically or mentally incapable of self care.  A US child is a child who is a US citizen or resident.

When to Claim the Credit and Exclusion

1. Expenses paid in any year before the year the adoption becomes final- Take the credit in the year after the year of payment.
2. Expenses paid in the year the adoption becomes final- Take the credit in the year the adoption become final.
3. Expenses paid in any year after the adoption becomes final- Take the credit in the year of payment.
4. Employer provided benefits under an adoption assistance program in any year- Take the exclusion in the year of payment

Children With Special Needs

If a taxpayer adopts a US child with special needs they may be eligible to exclude up to $13,400 and claim a credit for additional expenses up to the same amount.  The exclusion may be available even if you or your employer paid no expenses, provided your employer has a written adoption assistance program.

A US citizen or resident that is determined by a state to be unlikely to be adopted unless assistance is provided due to the child's age, ethnic background, medical condition, membership in a minority or sibling group, etc  is considered special needs.  If your adoption include this component, you may be able to take the credit even if you didn't pay any adoption expenses.

Credit Carryforward

Any unused credit is carried forward to the next 5 years or until used.  The sad reality is that many adoptive families lose this credit because their income falls below filing guidelines.  

As you can see, there are many provisions to the Adoption Credit and Exclusion.  Some we haven't even touched on.  

On top of the Adoption Credit and Exclusion you may be eligible for the Child Tax Credit, the Additional Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Expenses Credit, and the exemption for the child, if you qualify.

For these reasons we at Excel Tax and Consulting Services suggest contacting a Tax Professional, such as an Enrolled Agent, who has knowledge in adoptions so you receive all the tax advantages due to you.

As always, Call or Stop By 1324 1st. Ave. N. Denison, IA 51442  or Follow us on Facebook/exceliowa 

Guide Dog or Other Service Animal

You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties.

Filing your return with the correct filing status is very important.  Certain filing statuses can cause you to receive credits and deductions you are not entitled to as well as take away some you may be entitled to.  

There are 5 Federal filing statuses and each has their own set of rules to be claimed on an accurate Federal Tax Return.  These statuses are: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow/Widower.  Knowing your correct filing status can help save an IRS review of your return as well as provide credits and deductions that can have a financial benefit.

Single:  You are unmarried, divorced, or widowed.  This is a pretty straight forward filing status and any credits and deductions you are entitled to are allowed.  These can include Earned Income Tax Credit, Education Credits, the Student Loan Interest Deduction, etc.

Married Filing Jointly:  You are legally married.  If your spouse passes away throughout the year you can still file a joint return for the year of death with your spouse.  This is also another filing status that allows you to take any credits and deductions you are entitled to.  This filing status does require BOTH spouses to sign the return which says they are both liable for any information pertaining to the return.  

Married Filing Separately:  You are legally married but do not wish to file a joint return with your spouse. This filing status does limit some credits and deductions you are allowed to take on your return.  When filing a separate return the Earned Income Tax Credit, Education Credits, Tuition and Fees Deduction, Student Loan Interest Deduction, Tax Free Exclusion of US Bond Interest, Tax Free Exclusion of Social Security Benefits, Credit for the Elderly and Disabled, and the Child and Dependent Care Credit are all disallowed.  Also, both spouses must use the Standard Deduction or Both must itemize their deductions.  This is true even if one spouse has nothing to itemize, this means that they will have a $0 deduction.  Another down fall to this status is the lower income phase-out for deductible IRA.    Also be aware that this filing status generally pays the most tax of all the filing statuses.

Head of Household:  You are unmarried or can be considered unmarried for tax purposes and provide more than 50% of the household support for you and a dependent.  This filing status does allow for any and all deductions and credits you are legally allowed.  Note, that to be considered unmarried for tax purposes you must have been separated from your spouse for the last 6 months of the year.  IRS ruling states that even 1 day in the last 6 months can cause this filing status to be disallowed and the Married Filing Jointly or the Married Filing Separately status must be used.  There are very few cases where there can be more than 1 Head of Household in a home.  This is not to say that this can't happen but there are many things to look at before this should be considered.  

Qualifying Widow/Widower:  In order to use this filing status you must have been able to file a joint return with your spouse in the year of death.  You didn't have to file a joint return just have been able to.  Then for 2 years after the year of death if you have qualifying children on your return you can use this status to give you a higher standard deduction.  Allo credits and deductions are allowed with this status as well.

Special Filing Status for Married Iowa Residents:  Married couples in Iowa can use a filing status called Married Filing Separate on a Joint Return.  This status is available if you file a Joint Federal return and in most cases increases your refund or lowers your balance due with the state of Iowa.  This is a common mistake for self filers who are not aware of this status and what it can do for their Iowa return.  If you feel that your Iowa return has been completed incorrectly see a tax professional for a free review at Excel Tax and Consulting Services!  

Correct Filing Status determination is a great start to an accurate tax return but won't get you all the way.  Check back for more details on filing accurate tax returns.  As always, Excel Tax and Consulting Services is at your service for all your tax needs!

Today I would like to discuss the deductions for Casualty and Theft Losses that may help lower your tax bill.  A Casualty Loss is the damage, destruction, or loss of property resulting from a recognizable event.  This inlcudes, but is not limited to, Fire, Tornados, Hurricanes, Flooding etc.  A casualty is sudden, unexpected and unusual.  A Theft Loss is the taking and removing of money or property with the intent to deprive the owner of it.  It must be illegal under the state law, and done with criminal intent.

Examples of Deductible Losses:

1. Blackmail
2. Burglary
3. Car Accident
4. Earthquake
5. Embezzlement
6. Extortion
7. Fire
8. Flood
9. Hurricane
10. Kidnapping for Ransom
11. Larceny
12. Mine Cave-In
13. Robbery
14. Shipwreck
15. Sonic Boom
16. Storm
17. Terrorist Attack
18. Tornado
19. Vandalism
20. Volcanic Eruption

Examples of Nondeductible Losses:

1. Accidental Breakage under normal condition
2. Burst water heater, note that the damage caused by the burst water heater is a casualty
3. Car rental while your vehicle is being repaired
4. Cost for protection against future casualties
5. Cost for personal injury
6. Damage caused by a family pet
7. Defective design or workmanship
8. Losses caused by willful act or negligence
9. Lost money or property
10. Normal wear and tear
11. Personal use losses caused by drought
12. Progessive damage to property
13. Sentimental Value

There are a few cases where a nondeductible loss can become a deductible loss.  One example, the corrosive damage caused by defective drywall installed in homes between 2001 and 2009. See your tax professional if you think you may qualify for a casualty or theft loss of items not listed.

When claiming the loss there are a few deduction limits to be aware of:  

• 2% Rule:  The casualty and theft loss deduction for employee property must be reduced by 2% of adjusted gross income.
• $100 Rule:  Reduce eash loss event by $100
• 10% Rule:  Reduce the total of all casualty or theft losses by 10% of adjusted gross income.  This rule is applied after reducing each loss by $100.

Your casualty or Theft Loss must be reduced by any and all insurance reimbursements received and is the lesser of your cost or basis in the property or the reduction in the fair market value  due to the loss.  Form 4684 is used to claim a loss and then transfered to form 1040 schedule A.

There are special rules for losses in a Federally Declared Disaster Area.  See you tax professional for specific information on Casualty and Theft losses for your situation.

As always, Excel Tax and Consulting Services is here to help lower your taxes accurately.  Call or Stop by today.

One of the biggest question I get every year is "What can I deduct on my return?".  Today's post will be the first in a series of post on the Schedule A Itemized Deductions.  I hope this helps the majority of the taxpayers with questions on their deductions.

Medical expenses are deductible when they are more then 10% of your Adjusted Gross Income (AGI).  If either you or your spouse is 65 years or older you can deduct these if they are more than 7.5% of your AGI.

What medical expenses are deductible?  General medical expenses you pay for yourself, spouse or dependent are deductible.  These expenses must be paid for in the year you deduct them.  Not the year of the service, unless they are one in the same.  

Example 1:  You have a major medical procedure in April.  Your bill is $10,000 after insurance, you pay $100 a month from May till December of the same year.  You can deduct the $800 payments in the current year.  The rest in later years as paid.

Example 2:  The same information as in example 1 but instead of making payments you pay the whole $10,000 with a credit card.  You can deduct the whole $10,000 on the current return.

Most medical and dental expenses can be deductible as long as they are legal, not for cosmetic services (some exceptions apply), and are required via a doctor.

Example 1. Breast augmentation is not deductible, but Breast Reconstruction is deductible for a cancer patient.

Example 2.  Capping, Crowning, Braces and other dental procedures are deductible but Teeth Whitening or bleaching is not deductible.

Did you know that expenses you incur while remodeling your home to make it more accessible for your medical needs may be deductible?

Constructing entrance or exit ramps for your home.

Widening doorways at entrances or exits to your home.

Widening or otherwise modifying hallways and interior doorways.

Installing railings, support bars, or other modifications to bathrooms.

Lowering or modifying kitchen cabinets and equipment.

Moving or modifying electrical outlets and fixtures.

Installing porch lifts and other forms of lifts (but elevators generally add value to the house).

Modifying fire alarms, smoke detectors, and other warning systems.

Modifying stairways.

Adding handrails or grab bars anywhere (whether or not in bathrooms).

Modifying hardware on doors.

Modifying areas in front of entrance and exit doorways.

Grading the ground to provide access to the residence.

Don't forget that all your medical miles can really add up!  Keep a log of your miles for medical purposes each year.  Everytime you use your vehicle for medical reasons write the staring odometer, date, time, reason, place you went,  then the ending odometer reading for the trip.  

Overnight stays for medical purposes can also be deducted as a medical expense.  Meals are not included in the medical expenses for the overnight stay.

For more information on deductible medical expenses Stop in or Call us today!  

A good referrance source is IRS Publication 502 which can be found at: http://www.irs.gov/publications/p502/ar02.html#en_US_2014_publink1000178887