Adoption Update

The most up-to-date adoption news

Let’s Talk Taxes 2013

Now that the adoption tax credit has been made permanent by President Obama, let’s take a deeper look into how it actually works.

1. The adoption tax credit can be claimed for eligible adoption related expenses. All adoptions with the exception of stepparent adoptions fall under the tax credit. Also, just so you know surrogacy does not qualify either.The 2013 maximum credit amount is $12,970.

2. The tax credit is non-refundable. This means that only those individuals with tax liability will benefit from the credit. What does tax liability mean? It means only those people who end up owing on their taxes will benefit from this credit. This is bad news for low and middle income families because most of them do not have the larger tax liabilities that higher income families do. So, the tax credit is not that great for low and middle income families. Most of the time, it does not help them out in anyway.

2. If your modified adjusted gross income is equal to or more than $234,580.00 you cannot claim the credit. Bummer.

3. If you do not receive the full amount the first year you claim it, you can continue to claim it for up to 6 years. Hopefully you will receive the full amount by then.

4. If you are married but filing separately, you cannot claim it. You must file jointly.

5. Families who adopt a special needs child may claim the full $12,970 even if their qualified expenses do not reach the maximum amount as stated by law. These families do not need to document adoption expenses for this purpose as long as they pay enough in taxes to claim the credit. A special needs adoption only applies to a child born in the United States. It does not apply to an international adoption. Most cases are that of a foster child in the US. Children who are determined to be special needs are typically older, are part of sibling groups that will be placed together with one family, or have physical, emotional, or mental disabilities. All children adopted from foster care with an adoption assistance agreement (also referred to as adoption subsidy agreement) from their state or county are considered special needs for purposes of the tax credit. Just because a child has a disability does not mean they qualify for the special needs adoption tax credit. Those who do not have an adoption assistance agreement are not considered special needs.

6. Once you are eligible to claim the tax credit, you will have a total of six years to use the credit. Even if you think that you will have not tax liability on your first year, go ahead and include Form 8839 to establish your adoption tax credit. That will save yourself the pain of having to adjust your taxes should you have liability in the future,

7. You cannot claim the tax credit until your adoption has finalized (this applies to special needs and international adoptions).

8. For US domestic adoptions, you can claim the tax credit before the adoption has finalized.

9. If you have a failed US adoption and have qualifying expenses, you can claim the tax credit a year after you incurred the expenses. So, if you had expenses from a failed adoption in 2012, you can claim them in 2014 on your 2013 taxes. A failed international adoption is not included in this.

10. Many states offer an adoption reimbursement program.

11. Many employers offer an adoption assistance reimbursement program.

I hope that this information is helpful. DISCLAIMER: I am not a tax expert, CPA or anything of the sort. I encourage you to do your own research and speak to your tax preparer regarding this topic.

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May 7, 2013 - Posted by | Uncategorized | , , , , ,

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