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What about tax credits?
The most
important thing to understand about the adoption tax credit is
that it is a credit not a deduction. A credit is a dollar for dollar
reduction in the amount of federal taxes owed for the year. This credit
is allowable for such adoption expenses as:
- Adoption
fees (agency fees)
- Traveling
expenses (including meals & lodging)
- Court costs
- Attorney
fees
These
documented expenses can be used as a credit against taxes owed up
to a total of $10,000 for those making $150,000 or less per year. The
credit must be taken for the year in which the adoption was finalized
if it is an international placement. The credit phases out over the
income range $150,000 to $190,000. At $190,000 the credit is not
allowed.
What
if you have expenses of over $10,000 for the adoption and yet owe less
than $10,000 in federal income taxes?
This
credit operates by allowing you to subtract credit amounts or
adoption expenses from your otherwise owed tax bill, but if these
credits bring your taxes owed down to zero and you still have credit
remaining, the unused amount can be applied to up to 5 future tax years
or until it is all used (which ever comes first)!
If you have taxes
withheld and owe no taxes as a result of the credit, of course, you
will receive a full refund from the IRS up to $10,000. It is important
to remember that this credit begins to phase out for incomes of
$150,000 or more.
The
adoption tax credit is allowed against the alternative minimum tax on a
permanent basis. Be sure to discuss your particular tax and financial
situation with a qualified tax professional as you begin exploring the
adoption process. This will help maximize the tax savings to you.
Some
companies
provide up to $6,000 in adoption assistance. In most cases,
the company adoption assistance is treated as
nontaxable income. If your total adoption expenses are 10,000 or less,
please note that nontaxed adoption assistance program will reduce by
the same amount the available tax credit.
On the other hand, if your expenses were over $10,000, the corporate
adoption benefit
would apply to that amount over $10,000, thereby allowing the credit to
be taken concurrently.
Can
the Tax Credit and my company adoption benefit work together to help me
reduce my actual cost to adopt?
Yes.
Some
companies also offer special paid leave for time away to complete
an overseas adoption.
Is
there any kind of benefit for active military?
Yes!
Active duty personnel are eligible for a one-time subsidy of up to
$2,000 per child and a maximum of $5,000 for sibling groups.
What
is the Federal Title IV adoption assistance program?
This
is a federal/state reimbursement program for both domestic and
qualifying special needs international adoption expenses. Each state
manages this program in its own manner, but in most cases the
department that handles child protective services is the designated
agency. If a family is adopting an identified international special
needs child for whom no family could be found, there can be a
reimbursement of up to $2,000 for one-time expenses. In Texas, the
maximum is $1,500. It is important to file an adoption assistance
agreement in advance of the placement.
What form
is necessary to claim the adoption tax credit?
You
will need to have Form 8839 to add with your
1040 or 1040A. It is also important to have copies of your adoption
expense receipts should your tax preparer need them.
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