california adoption credit


R

removeps-groups

California has an adoption credit (code 197) that is 50% of the
adoption costs, as long as the kid was with a CA agency. You can
claim $2500 in one year, and evidently carry forward the credit to
next year (I read that on one website). But then isn't this double
dipping, because you get $2,500 from the IRS for the federal adoption
credit and another $2,500 from California.

To read about the California adoption credit go to
www.ftb.ca.gov/forms/2010/10_540a_540ins.pdf and search for "adoption".
 
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B

Bill Brown

...  But then isn't this double
dipping, because you get $2,500 from the IRS for the federal adoption
credit and another $2,500 from California.
You ask as though you think double dipping is a bad thing. Yes, it is
getting benefit from two taxing authorities for one expenditure but if
the laws at both levels allow it, so what?
 
R

removeps-groups

You ask as though you think double dipping is a bad thing. Yes, it is
getting benefit from two taxing authorities for one expenditure but if
the laws at both levels allow it, so what?
(1) I just wanted to be sure that I didn't miss any part of the
California credit that says something like -- subtract from your
adoption expenses the amount reimbursed by federal adoption credit and
your employer. There's a saying: if something is too good to be true,
then it probably is.

(2) Second, if there is a loophole or perceived loophole in the law,
then one can make plans to close it. For example, I could write to my
senator to close this loophole, or run for the legislature myself, or
write articles as a journalist to convince people of this overly-
generous tax break when the state is broke. Or maybe as an
investigative journalist I could uncover scams like these -- people
adopt a special needs child, they get IRS and CA tax credits, then
give the kid back for adoption.
 
B

Bill Brown

Be consistent. Eliminate the double dipping for charitable
contributions, mortgage interest and medical expenses, too.
 
P

Pico Rico

Bill Brown said:
Be consistent. Eliminate the double dipping for charitable
contributions, mortgage interest and medical expenses, too.

Those aren't tax credits.
 
M

Mark Bole

There is both a federal credit for child and dependent care ("day care")
and one for California also, many people get both credits (and the
California one is refundable, specifically tied to 50% of the federal
credit, with a phaseout for AGI).
(2) Second, if there is a loophole or perceived loophole in the law,
then one can make plans to close it. For example, I could write to my
senator to close this loophole, or run for the legislature myself, or
write articles as a journalist to convince people of this overly-
generous tax break when the state is broke. Or maybe as an
investigative journalist I could uncover scams like these -- people
adopt a special needs child, they get IRS and CA tax credits, then
give the kid back for adoption.
Adoption credits as far as I know are relatively few and far between.
Why not start a crusade against the much more common day-care credit?
 
R

removeps-groups

Be consistent. Eliminate the double dipping for charitable
contributions, mortgage interest and medical expenses, too.
Maybe so. However, the these deductions can save you 35% federal,
10.55% state, total 45.55%. However, with the tax credit it's like
getting 200% back. Normally a tax break means you pay less but you
still pay tax, whereas the adoption credit you actually get a return
on investment, which is why is struck out in my mind as bizarre. Also
another post said the dependent care credit is double dipping, but the
combined credit is still less than 100% of the total amount dependent
care expenses paid (35% federal, half of that CA, for total of 52.5%).
 
M

Mark Bole

Maybe so. However, the these deductions can save you 35% federal,
10.55% state, total 45.55%. However, with the tax credit it's like
getting 200% back. Normally a tax break means you pay less but you
still pay tax, whereas the adoption credit you actually get a return
on investment, which is why is struck out in my mind as bizarre. Also
another post said the dependent care credit is double dipping, but the
combined credit is still less than 100% of the total amount dependent
care expenses paid (35% federal, half of that CA, for total of 52.5%).
I don't recall all the details, but if you adopt a special-needs child
and your costs are reimbursed, you *still* get the credit (or something
like that). Now that's really double-dipping, even before the state
credit kicks in.

Credits are typically one way Congress implements social policy.
Perhaps instead of looking at it as an undeserved windfall for the
taxpayer, you should look at it as a relatively cheap way to promote
more careful child-rearing, ultimately leading to more productive
members of society down the road (adopted child grows up with loving
parents instead of as a ward of the state).

As a side note, despite the credit being so ripe for exploitation and
scams as you claim, how often is it actually used? I know that when I
teach basic tax class, we tend to gloss over it for the reason that it's
a seldom-used area of tax expertise. But maybe there was a recent
uptick in false claims, resulting in the new rule this year which
requires you to paper file the return with supporting documentation for
the adoption.
 
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R

removeps-groups

I don't recall all the details, but if you adopt a special-needs child
and your costs are reimbursed, you *still* get the credit (or something
like that).  Now that's really double-dipping, even before the state
credit kicks in.

Credits are typically one way Congress implements social policy.
Perhaps instead of looking at it as an undeserved windfall for the
taxpayer, you should look at it as a relatively cheap way to promote
more careful child-rearing, ultimately leading to more productive
members of society down the road (adopted child grows up with loving
parents instead of as a ward of the state).
Yes, I agree.
As a side note, despite the credit being so ripe for exploitation and
scams as you claim, how often is it actually used?  I know that when I
teach basic tax class, we tend to gloss over it for the reason that it's
a seldom-used area of tax expertise.   But maybe there was a recent
uptick in false claims, resulting in the new rule this year which
requires you to paper file the return with supporting documentation for
the adoption.
It is a rarely used credit. I found an article that provides
statistics for the 2010 filing season, on returns received through
March/4/2011. Is is strange that I can't find statistics on the
adoption credit for the 2009 filing season.

BEGIN QUOTE

In addition, the IRS has received returns from
9,859 individuals claiming over $124 million in
Adoption Credits, with 6,974 (71 percent) of the
claims either having invalid, insufficient, or
missing documentation to support the legitimacy
of these claims. The IRS did not act on our
recommendation to seek authority to disallow
claims without proper documentation. As such,
each of these claims will be sent to its
Examination function.

END QUOTE
 

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