It may seem early to think about taxes but it is important to know how your family could benefit from the adoption tax credit early in your adoption journey. Below is some basic information for international and domestic non-foster care or non-special needs adoptions.
What have the changes been to the federal tax credit?
The great news is the federal tax credit which was set to sunset at the end of 2010, has been extended to December 31, 2011. In a nutshell, you can apply up to $13,170 of your adoption expenses toward your federal taxes when you file your 2010 or 2011 taxes if your adoption was finalized after January of 2010. The credit has also been increased from last year to $13,170 and for the first time ever the credit is refundable. This means, if your tax liability is less than the amount of credit you are applying for, the IRS will refund the portion of the unused credit.
What if I have adopted multiple children during the tax year?
The tax credit is $13,170 per adopted child, so if you adopt two children you could have a tax credit up to $26,340.
What if we have suffered a failed adoption during the tax year?
If your family has experienced a failed domestic adoption, the year following the failed adoption you would be eligible for the portion of the tax credit equal to the adoption related expenses you had.
Can a family’s income be too high to receive the tax credit?
The tax credit begins to phase out when a modified adjusted gross income (AGI) reaches $182,182. The credit completely phases out when the AGI reaches $222,180 or more.
What form is used for the federal tax credit?
Form 8839 - Qualified Adoption Expenses accompanied by several adoption-related documents.
Disclaimer: the above is general information on the federal tax credit and is not designed to be specific tax advice. It is import to talk to your tax preparer to see how the federal tax credit could benefit your family.
Article originally featured in the 2010 Fall Adoptions From The Heart Newsletter.
Reprinted with permission from Kristy Galbraith, Marketing Manager of Adoptions From The Heart.
Photo: flickr
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