IRS Adoption Tax Credit Tips – Lower the Cost of Adoption


It costs $ 233,610 to raise a child to age 17, according to the most recent report from the Department of Agriculture. This does not include college fees, nor adoption expenses for parents who choose to adopt.

But there is tax assistance. Parents can claim a tax credit that covers certain adoption costs. For 2016 returns, the credit could reach $ 13,460 per child.

However, to get this tax credit, you need to closely follow the adoption process. The exact year you can claim your expenses depends on several factors, including when the expenses were paid, when the adoption was finalized, and even whether your new son or daughter is a citizen or resident of the United States. United States.

And this year, there is no need to file a paper tax return with your adoption documents, as was the case in previous years. Form 8839, Eligible Adoption Expenses, can now be filed electronically along with Form 1040, according to the Internal Revenue Service. However, keep your documents for your records in case the IRS has questions later.

Acceptable adoption documents

  • The final adoption decree.
  • A placement agreement from an approved agency.
  • Court documents.
  • Determining a State for Children with Special Needs.

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Domestic or foreign adoptions

If the child you are adopting was born or resides in the United States, there are IRS guidelines on when you can take the credit.

Legal costs, adoption costs, attorney fees, and travel expenses are some of the items covered by the credit.

The rules for an overseas adoption are slightly different. In these cases, the costs you incur cannot be covered before the year in which the adoption is final. Once your adoption of a child born abroad is complete, any expenses you pay after that can be claimed in the year they are paid. With domestic adoptions, you can claim your expenses even if the adoption is never completed.

The final adoption date – and the availability of the tax credit – in cases involving children who were not born in the United States depends on when the foreign-born child receives an “immediate parent” visa. Or IR from the State Department. Since there are different types of IR visas, see Internal Revenue Announcement 2005-45 for more details that might affect your particular situation.

Special rule for special cases

An adoption is considered a special needs case when the child is a citizen or resident of the United States when the process begins and the state or District of Columbia has determined that the young person should not or cannot be returned. In his family.

The competent court must also decide that due to special factors, assistance is required in placing the child with adoptive parents.

When to claim the U.S. citizen or resident child tax credit
For adoption fees that you pay in Take credit in
Any year before the year in which the adoption becomes final. The year following the year of payment.
The year in which the adoption becomes final. The year in which the adoption becomes final.
Each year after the year, the adoption becomes final. The year of payment.

In these cases, new parents are allowed to claim the maximum amount of the credit even if their actual expenses have not reached that amount. For example, your special needs adoption process was finalized in 2016. It took two years, during which time you spent $ 10,000.

On your 2016 return, you can claim an adoption credit of $ 13,460 even though your actual expenses were $ 3,460 short.

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Accounting for employer assistance

In addition to the tax credit, adoptive parents who obtain financial assistance from their business may be able to avoid paying tax up to $ 13,460 of this benefit.

The income exclusion, meaning you won’t owe tax on employer-provided adoption benefits, will apply in the tax year your boss provides them. The amount should be indicated in box 12 of your W-2 and noted with the letter code T.

You can claim this income exclusion with the same adoption tax credit, essentially doubling your adoption tax break.

The only limitation: you cannot use the exclusion amount and the credit to reverse the same expense. For example, if your business reimburses your adoption travel expenses of $ 8,000, you cannot use those expenses as part of your credit report. But all other eligible costs up to the total amount of the loan can be taken into account.

Other credit considerations

Although you can adopt a child born in the United States or abroad, in most cases the young person must be under 18 years of age. The age limit is lifted if the child is physically or mentally disabled.

You cannot count the expenses related to the surrogate parents or the adoption of your spouse’s child in the calculation of your eligible credit.

Married couples usually have to file a joint return to qualify for adoption or exclusion credit. If you are filing a marriage declaration separately, the credit is only available if you meet specific requirements.

The credit amount is per child and not per year. So if the adoption of your son or daughter takes four years and costs $ 17,000, you will only be able to deduct $ 13,460 of your expenses during that time.

And if you’ve claimed adoption expenses for the same child in previous tax years, that will affect that year’s claim. For example, if you claimed a credit of $ 3,000 for a domestic adoption in 2015 and paid an additional $ 13,460 in eligible adoption expenses in 2016 when the adoption became final , the maximum credit you can claim on your 2016 return is $ 10,460 – the $ 13,460 dollar limit minus the $ 3,000 of eligible adoption expenses you have already claimed.

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Even if the adoption of an American child is not complete, you can still claim the credit for your expenses in the unsuccessful adoption attempt. Remember, however, that if you adopt a child from another country, credit is only given when the adoption is finalized.

The credit begins to disappear if your modified adjusted gross income exceeds $ 201,920.

You cannot apply for the credit at all if you earn more than $ 241,920. The same limits apply either to single adoptive parents or to the total income of married couples reporting jointly.

Claim your adoption expenses, as well as any adoption-related benefits you received from your employer that you can exclude from your income (also up to the limit of $ 13,460), Form 8839, Eligible adoption expenses.


About Nereida Nystrom

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