Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Apr 19

    If you paid qualifying expenses to adopt, or in an attempt to adopt, an eligible child in 2010 or 2011 you may be eligible to claim a tax credit of up to $13,360. If you adopt a special needs child, you may qualify for the full amount of the adoption credit even if you paid little or no adoption-related expenses.

    Generally, a child with special needs is someone the State has determined wouldn’t be adopted without its assistance. “Special needs” includes what many think of immediately as special physical or emotional circumstances. What many don’t know is that it also includes older children and/or siblings, as well as any other condition that makes it difficult to find an adoptive family. The term “special needs” is disliked by many in the profession, but is used in State laws to indicate eligibility for federal financial assistance.

    The credit has been around since 1997, but up until the 2010 tax year, it was always a non-refundable credit – meaning the credit would offset taxes owed but any unused portion had to be carried over to the next tax year.

    In 2010 the Affordable Care Act made the credit refundable so the money would go immediately into the pockets of the adoptive parents rather than being applied to future taxes. But, unless Congress extends the credit by the end of this year, the huge benefit of being a refundable credit will be short lived.

    The Adoption Credit is the largest tax credit available and the IRS isn’t about to give it out to just anyone. Adoptive parents seeking the credit should expect long waits and the possibility of an audit.

     

    Document, document, document

    To claim the credit on your 2010 or 2011 return, you must file a paper return and attach certain required documentation. As of December 31, 2011, approximately 43 percent of the returns seeking the credit have been referred to the IRS’s Examination function because of incomplete or missing documentation. The time it has taken for the IRS to audit these predominately legitimate adoption credit claims (additional taxes were assessed only about 17 percent of the time) has resulted in considerable delays in the payment of the related refunds.

    The IRS has acknowledged the delays, and said it has updated its website with the list of required documentation and its processing to reduce delays. But, if the IRS doesn’t receive the required documentation it will spend extra time ensuring that the claim isn’t fraudulent, according to IRS spokesman Terry L. Lemmons.

    “When you have a credit of this size it’s really important for us to make sure we have the documentation so we get it only to the people who qualify,” he said.

    Given the huge amounts of money involved, even if everything is submitted correctly, taxpayers claiming this credit will likely have to wait a couple of months or more to see their refund checks.

  • Apr 11

    The IRS now has another tool in its bag of tricks they will employ to catch you doing it wrong.

    Many business owners who accept credit card payments are about to receive a new mysterious form in the mail. It’s called the “1099-K.” It’s a new little gift for small business owners from the IRS, and they are due to the IRS on April 2, 2012 (normally March 31), while paper 1099-Ks are due February 28, 2012.

    Essentially, if you received over twenty thousand dollars of revenue via credit cards or had more than 200 transactions, your merchant account has reported it to the IRS. Naturally, the IRS is going to want you to do the same so they can match the numbers…

    And you can guess what happens if the numbers don’t match, right?

    Whether you report your income on Form 1120, Form 1065 or Form 1040 Schedule C, the IRS will be asking you to separately report your credit card receipts on your 2012 tax return. (You can get a little peek at it on the 2011 return. The lines are there, but the instructions tell you not to complete them.)

    You know, just to make sure that you had your numbers right. After all, the IRS is most interested in ensuring your books are nice and up-to-date right?

    WRONG! They think you’re cheating…

    And with the reported tax gap continuing, they’re not always wrong. (At least about the other guys, not you.)

    So, yet another reason for you to make sure that you have someone meticulous, experienced and careful in your corner.