TaxProfessionals.com
Posted by Tiffany Gaskin

Adoption & Your Taxes

Adoption & Your Taxes

Adoption is a good thing. However, most Americans think that the adoption process is a bit difficult and expensive. It is due to the fees and responsibilities associated with the adoption process and the accompanying taxes. The United States made a provision for adopting parents named Adoption Tax Credit (ATC) to make the Adoption process less expensive for parents who want to adopt a child.  This provision helps adopting parents lift the weight of the cost of adoption.

However, there are some fundamental things that parents need to understand if they wish to take full advantage of the adoption tax credit.

Below is an overview of the adoption tax credit, what it entails, and how adoptive parents can take advantage of it. It is best to mention that the Adoption tax credit is different from the tax deduction. Therefore, they are processed via different methods.


What is the Adoption Tax Credit?

The adoption tax credit is a non-refundable credit, which can't be claimed as a refund but can reduce the tax liabilities of adopting parents. The qualified adoptee must be under the age of 18 or must be physically or mentally dependent, unable to take care of themselves.

 Adopting parents should be aware that this Adoption tax credit is only available to cover the expenses involved in the adoption process.  Most adopting parents can't exhaust the credit available to them in one year. Adopting parents can roll over Adoption Tax Credit for up to five years.

The adoption credit has a maximum value cap. If your adoption cost is less than the maximum tax credit provision, what you paid is your maximum credit.  


How Does the Adoption Tax Credit Work?

When you have finalized an adoption a year before, you qualify for an adoption tax credit. The adoption tax credit is about 14+ thousand dollars per child. Adoption credit would only be available for adopting parents after a year of adoption because a child must be with you for at least six months before you can claim such a child on your taxes.


When you are processing the adoption, it is critical to have a detailed document of all the costs associated with your adoption process. The purpose of this is to ensure that you get the most of your adoption tax credit. You would be required to provide detailed information about the cost you incurred during the adoption process before you can get the full benefit of ATC. It would help you reduce what you owe in your federal income tax.

To claim the ATC, adopting parents need to file IRS Form 8839, which requires detailed information about the adoptee. However, when an adoptee does not have a social security number, adopting parents are allowed to use the taxpayer identification number (ATIN).


Final Words

To qualify for the adoption tax credit, your income cannot be above 210 thousand dollars as a single or married couple. The adoption tax credit can be claimed anytime between 1-6 years of the adoption. Using the adoption tax credit requires adopting parents to familiarize themselves with all its provisions. There are several variations to ATC based on state provisions and laws. It is vital to research what's obtainable in your state and see how you can take advantage of all the benefits.

Adopting parents should try to factor in the birthday of the child they are trying to adopt. If the age of the child is likely to be above 18 in the coming year it is vital to take precautions because if the child is above 18 during the process of adoption, the Adoption Tax Credit would not be granted to the adopting parents. 


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Tiffany Gaskin
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