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.

The 10 Most Overlooked Tax Deductions

Don't overpay taxes by overlooking these tax deductions. See the 10 most common deductions taxpayers miss on their tax returns so you can keep more money in your pocket.

Read More

Brought to you by TurboTax.com

How to Find a Good CPA for Your Taxes

Finding a good CPA for your taxes is simple with these seven tips: 1. Ask about their specialization; 2. Verify their identification number, 3. Look up their license, 4. Consider their experience, 5. Confirm their willingness to sign, 6. Ask for advice, and 7. Determine their fees.

Read More

Brought to you by TurboTax.com

Reporting Self-Employment Business Income and Deductions

Self-employed taxpayers report their business income and expenses on Schedule C. TurboTax can help make the job easier.

Read More

Brought to you by TurboTax.com

2018 Tax Reform Impact: What You Should Know

Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2018 tax year.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.