Confusion about Child Tax Credit and Adoption Tax Credit order - IRS reduced our refund!

Thank you for the detailed explanation. I think I understand better now, but I'm still confused about one thing. If both the Child Tax Credit (regular portion) and the Adoption Credit are nonrefundable, shouldn't I be able to choose which one to apply first? If I applied the Adoption Credit first, wouldn't that use up some of my tax liability, and then the Child Tax Credit would convert more to the refundable ACTC? Also, do you know if there's a specific form I need to file to ensure I don't lose the carried-forward adoption credit amount for next year?

You don't actually get to choose the order of credits - the tax code specifies the order. The Child Tax Credit is applied before the Adoption Credit according to the Internal Revenue Code. This is why all the tax software calculated it the same way initially, but the IRS made the adjustment based on your actual tax liability. For the carried-forward adoption credit, you don't need to file anything special this year. When you file next year, you'll use Form 8839 (Qualified Adoption Expenses) again and enter the carried-forward amount from this year. The IRS should send you a notice showing how much of the adoption credit was used and how much is being carried forward. Keep this notice with your tax records as documentation.

Did taxr.ai help you actually get more money back from the IRS or just explain why you got less? I'm in a similar situation with adoption credits and wondering if it's worth looking into or if I'm just stuck with the IRS's calculation.

I'm skeptical about these tax services. How is this different from just talking to a CPA? And how much does it cost? Seems like it might just be telling you what you already know from the IRS notice.

They didn't get me more money for that tax year since the IRS was technically correct, but they helped me understand exactly how to maximize my credits in future years. Their strategy helped me claim about $3,400 more in my next return by timing some other deductions differently. The difference from a CPA is that they specifically analyze your documents and all the calculations rather than just giving general advice. They don't replace a CPA but complement what they do. As for cost, I don't remember the exact amount but it was reasonable especially compared to what I saved using their advice.

How does this actually work? Does it just call the IRS for you? Couldn't I just do that myself? The IRS wait times have been terrible but I'm not sure how a service could get through any faster.

This sounds like a scam. There's no way any service can magically get you to the front of the IRS phone queue. I've worked with government agencies before and they don't give priority access to third-party services.

It's not magic - they use an automated system that continually calls the IRS and navigates the phone tree for you. When they finally get through to an agent, they connect you to the call. You still talk directly to the same IRS agents everyone else does, but without sitting on hold for hours. I was skeptical too, but it saved me an entire afternoon of waiting on hold. The service doesn't answer your tax questions itself - it just gets you connected to the IRS quickly so you can ask them directly. After wasting over 5 hours on previous calls that got disconnected, the 15-minute wait was absolutely worth it to me.

Form 8863 is specifically for education credits (American Opportunity and Lifetime Learning credits), not adoption credits which use Form 8839. Education credits have their own place in the credit hierarchy, but they wouldn't affect the order between Child Tax Credit and Adoption Credit. The tax code is very specific about the order of operations for credits, and unfortunately, there's not really a way to "hack" it to apply the adoption credit before the child tax credit. Your best strategy is to plan for using the carryforward effectively over the next 5 years by ensuring you have sufficient tax liability in future years.

Thanks for clearing that up! So there's no way to reorder the credits even with additional forms. That's disappointing but good to know. Do you know if adjusting withholding for next year would help maximize the use of carried-forward adoption credits? I'm trying to ensure we can use as much as possible of the carried forward amount.

Adjusting your withholding won't directly help you use more of the adoption credit, as that doesn't change your actual tax liability - it just changes how much is paid throughout the year versus at filing time. What could help is planning to have more taxable income in future years (if possible) or timing certain deductions differently. For example, you might consider deferring some deductions to a future year when you don't have as many credits, which would leave more tax liability for your adoption credit to offset. A tax professional could help you model different scenarios based on your specific situation to maximize the credit usage over the 5-year carryforward period.

That's really interesting! I hadn't considered filing an amended return. Did you have to provide additional documentation to support the changes? And approximately how long did it take for the amended return to be processed? I'm wondering if this approach might work for us too.