Posted by RKL Tax Service LLC

Adoption Tax Credits

Adoption Tax Credits

If you completed an adoption in 2015, RKL Tax Service LLC wants to help you receive your adoption tax credit. Congratulations, we are happy for you and your growing family! Opening your home to a child in need was a large and selfless act. We want to make sure you claim the full amount you are due of your federal income taxes.

Contact our group of expert tax preparers and accountants today to learn more about the money you are owed from the government. Below we have compiled some basic information for you about the 2016 adoption tax credit.

What is the Adoption Tax Credit for 2016?

  • For the upcoming tax year, the adoption tax credit provides financial relief to families who have adopted a domestic child under the age of 18 through private adoption, a domestic child who was in the state foster care system, or a foreign child through an international agency.

What are Qualified Adoption Expenses?

  • Adopting a child is an expensive endeavor, and comes with many small costs that add up quickly. It is because of this that the IRS allows parents to claim “qualified expenses” that are associated with their growing family.
  • All fees paid to an adoption agency qualify as an adoption expense. This also applies to any and all attorney fees or home study costs that were paid by the parents. Court costs are additional qualified adoption expenses.
  • Travel expenses incurred to make the adoption happen are counted as a qualifying expense. This also means that your meals and lodging during your travel time is counted as well.
  • If you have adopted a foreign child who required a VISA, that cost may be included in your total adoption expenses.
  • It is important that you retain all of your receipts from this venture. You may lose track of how much you really spent while adopting your new bundle of joy.

Who Qualifies for the Credit?

  • To qualify for the adoption tax credit, you should have completed an adoption in the previous year. However, some parents who are knee deep in the process during tax time will have the opportunity to claim a partial credit for their expenses thus far.
  • The maximum claimable amount for 2016 is $13,460. This means that even if your qualifying expenses were greater than this amount, that is the most you can receive as an adjustment to your modified gross income.
  • There are strict income restrictions on the tax credit, and your earnings will determine your level of credit return. Parents who earned less than $201,920 in the previous year will qualify for the full adoption tax credit. At the next income bracket level, parents who earned between $201,921 and $241,920 may be eligible for a decrease credit amount.
  • Adopting parents who earned more than $241,921 in their adopting year are not eligible for any part of the 2016 adoption tax credit.

How Do You Claim Your Adoption Tax Credit?

  • The adoption tax credit for 2016 is much easier to file than in previous years. Before, adopting parents had to supply the Internal Revenue Service with specific paperwork that supported the adoption process. In 2016, you may file your tax return with a tax preparer or accountant, or even file your return electronically. You will need to complete and submit a Form 8839 if you file your taxes electronically.
  • Parents who have begun the adoption process, but not finalized an adoption may have the ability to claim a portion of their accrued expenses of their current tax return. Find a tax preparer to walk you through this process. Only a knowledgeable professional will know how to divide your spending for adoption in a manner that is equitable and legal with the IRS.

Special Considerations for Special Needs Adoptions

  • Ninety percent of the children who are adopted through the foster care system are considered to be special needs. This does not mean that they have a medical handicap or disability, only that their situation has garnered additional support from the state in which they reside. If the child you are adopting has been deemed a special needs case, you may claim the full adoption tax credit, regardless of all other factors.
  • Adopting one of these special needs children does not have to involve qualifying expenses, or any out of pocket money on your part. The subsidies that were given to the foster care system from the state are enough to grant them special needs status.
  • As the law stands, children adopted from private agencies, foreign or domestic, are not considered to be special needs adoptions. Therefore, even if you adopt a child from another state or country who does have a legitimate medical issue, they are not considered special needs for these purposes.

Step Parent Adoptions

  • Unfortunately, under the current provisions, the adoption tax credit of 2016 does not apply to step parents who have adopted their spouse's children. The credit was created only for public foster care adoptions and private domestic or international adoptions. However, if you are a part of a same sex union in a state that allows co-parent adoptions, the tax credit will apply to your qualified adoption expenses.

If you have more questions or concerns about your adoption tax credit rights, don't hesitate to call me, Guy La Monica, at RKL Tax Service LLC. Any member of my team is ready to help you determine how your income taxes may benefit from this federal credit program. If you are not in the Texas area, make sure to find a tax professional who understands the adoption tax credit and how it can work for you.

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