- Days left

Tax Time Windfall: Family Gets $54,000 Tax Refund

Tax refundThe IRS recently announced that the average federal income tax refund this year is expected to be $3,000. That makes the Wards of Smithfield, N.C., quite above average. After they had their taxes prepared this year, CNNMoney reported that Thelma and Dan Ward found out they're entitled to an astounding $54,000 refund.

The Wards make about $39,000 per year. You would guess that would make a tax refund such as theirs impossible, right? Not at all, thanks to refundable tax credits.Refundable tax credits are the new darling of the tax world. Traditional tax credits reduce the tax that you owe dollar for dollar until you reach zero tax liability -- your tax refund cannot, with a traditional tax credit, exceed the amount of your withholding. However, refundable tax credits mean that you can reduce your tax liability to zero and then have the entire amount of the additional credit refunded to you. That's a significant tax bonus.



Here's how it worked out for the Wards: Over the past few years, the Wards have adopted five children. With each adoption, the Wards were allowed to deduct their qualifying expenses to adopt the children -- the expenses could include reasonable adoption fees, court costs, attorney fees, traveling expenses and other expenses directly related to the adoption. Those expenses can really add up, as the typical private adoption costs about $30,000.

Parents who adopt special needs children may be able to claim the entire credit even if the expenses don't reach the full amount. That worked out nicely for the Wards since all of the children they adopted were special needs -- one has a serious heart condition requiring surgery, and the remainder participate in regular therapy and special classes for learning disabilities.

For nearly 15 years, the adoption tax credit was nonrefundable, so as the Wards have adopted their children, they simply rolled the excess credit to the next year. That all changed in 2010, when the credit became refundable. That meant the Wards could claim their prior year refund credits all at once during this tax season with the exception of one expired credit.

It's a nice windfall for the Wards, though the expenses associated with parenting the children, including repairs to their home, will soon eat away at their refund check.

Other taxpayers may be receiving a similar benefit this year, though admittedly the number of taxpayers who qualify for the credit is limited. However, other refundable credits are still available for 2010. Examples include the Making Work Pay Credit, the earned income tax credit and the first time homebuyer's credit.

While it's not considered a good idea to rely on tax refunds from year to year (it makes much better sense to adjust your withholding so you receive more in your paycheck each month), an unexpected windfall such as the one received by the Wards is certainly a nice surprise.

The Wards had their tax preparer to thank; they weren't even expecting a refund since they didn't know about the change in the law. Clearly, it pays to stay on top of changes in the Tax Code.

Keep reading WalletPop for the latest news. While we can't promise you a $50,000 refund, we can make sure that you know all you need to know to maximize your own tax savings.


Increase your money and finance knowledge from home

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

TurboTax Articles

Top 5 Reasons to Adjust Your W-4 Withholding

Common lifestyle changes, like getting a job or getting married, can change your tax liability. To avoid being caught off guard by an unexpected tax bill or huge tax refund, you'll need to adjust your withholdings on your paycheck.

Does Everyone Need to File an Income Tax Return?

Not everyone is required to file an income tax return each year. Generally, if your total income for the year doesn't exceed the standard deduction plus one exemption and you aren't a dependent to another taxpayer, then you don't need to file a federal tax return. The amount of income that you can earn before you are required to file a tax return also depends on the type of income, your age and your filing status.

How to Write Off Sales Taxes

The Internal Revenue Service (IRS) permits you to write off either your state and local income tax or sales taxes when itemizing your deductions. People who live in a state that does not impose income taxes often benefit most from this deduction. However, you might also be better off deducting sales taxes instead of income taxes if you make large purchases during the year and your total sales tax payments exceed those for state income tax. You can use either the actual sales taxes you paid or the IRS optional sales tax tables.

Add a Comment

*0 / 3000 Character Maximum