![]() You may claim either the adoption credit or the income exclusion.Įligibility is based on modified adjusted gross income. If your employer provided adoption benefits, you can exclude the income from your taxes if your employer had a written qualified adoption assistance program. ![]() The credit is available for the adoption of a special needs child even if the taxpayer did not have any qualifying adoption expenses. While it's technically nonrefundable, any unused credit can be carried forward and applied to tax bills over the next five years. The maximum credit for 2022 is $14,890 per child. The adoption credit is available to taxpayers who incur expenses related to the adoption of a person under age 18 or physically or mentally incapable of self care. Say your total tax bill is $4,000 and you claim a credit worth $2,000, you will only be responsible for paying $2,000 in taxes. Your taxable income is used to calculate your tax liability - it's the amount of money you'll be taxed on at your marginal tax rate.įinally, any applicable tax credits are subtracted from your total tax bill. From there, subtract either your standard deduction or your itemized deductions from your AGI (whichever is larger) and you're left with your taxable income. Your gross income minus your above-the-line deductions equals your adjusted gross income (AGI). These can include things like part of your self-employment tax or your traditional IRA contribution. Tax credits are meant to bring some relief to taxpayers, typically those who earn low to moderate income and take care of children, invest in education, or save for retirement.įrom your total income (wages, interest, dividends, capital sales, rentals, etc), the first way to reduce the amount subject to tax is to claim above-the-line deductions, also known as adjustments to income.
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