The required
documents are different if the
adoption is foreign, or domestic,
final or not final and if the
adoption is for a special-needs
child.
A tax credit, including the adoption
credit, reduces your tax liability.
For expenses paid prior to the year
the adoption becomes final, the
credit generally is allowed for the
year following the year of payment.
For expenses paid in and after the
year the adoption becomes final, the
credit is allowed in the year of
payment. The adoption credit is not
available for any reimbursed
expense. In addition to the credit,
certain amounts paid by your
employer for qualifying adoption
expenses may be excludable from your
gross income.
A taxpayer who paid qualifying
expenses in the current year for an
adoption which became final in the
current year, may be eligible to
claim the credit for the expenses on
the current year return, in addition
to credit for expenses paid in a
prior year.
For both the credit or the
exclusion, qualifying expenses
include reasonable and necessary
adoption fees, court costs, attorney
fees, traveling expenses (including
amounts spent for meals and lodging
while away from home), and other
expenses directly related to and for
which the principal purpose is the
legal adoption of an eligible child.
An eligible child must be under 18
years old, or be physically or
mentally incapable of caring for
himself or herself.
The adoption
credit or exclusion cannot be taken
for a child who is not a United
States citizen or resident unless
the adoption becomes final. In the
case of an adoption of a
special-needs child, you may be
eligible for a certain amount of
credit or exclusion regardless of
actual expenses paid or incurred. A
child has special-needs if (1) the
child otherwise meets the definition
of eligible child, (2) the child is
a United States citizen or resident,
(3) a state determines that the
child cannot or should not be
returned to his or her parent's
home, and (4) a state determines
that the child probably will not be
adopted unless assistance is
provided. The credit and exclusion
for qualifying adoption expenses are
each subject to a dollar limit and
an income limit.
The amount of your adoption credit
or exclusion is limited to the
dollar limit for that year for each
effort to adopt an eligible child.
If you can take a credit and
exclusion, this dollar amount
applies separately to each. For
example, if we assume the dollar
limit for the year is $13,170 and
you paid $10,000 in qualifying
adoption expenses for a final
adoption, while your employer paid
$4,000 of additional qualifying
adoption expenses, you may be able
to claim a credit of up to $10,000
and also exclude up to $4,000.
The dollar limit for a particular
year must be reduced by the amount
of qualifying expenses taken into
account in previous years for the
same adoption effort.
The income limit on the adoption
credit or exclusion is based on your
modified adjusted gross income
(MAGI). If your MAGI is below the
beginning phase out amount for the
year, the income limit will not
affect your credit or exclusion. If
your MAGI is more than the beginning
phase out amount for the year, your
credit or exclusion will be reduced.
If your MAGI is above the maximum
phase out amount for the year, your
credit or exclusion will be
eliminated.
Generally, if you are married, you
must file a joint return to take the
adoption credit or exclusion. If
your filing status is married filing
separately, you can take the credit
or exclusion only if you meet
special requirements.
Adoption Credit
Beginning in 2007, the credit
allowed for an adoption of a child
with special needs is $11,390 and
the maximum credit allowed for other
adoptions is the amount of qualified
adoption expenses up to $11,390. The
credit begins to phase out if you
have modified adjusted gross income
of $170,820 or more and is
completely phased out if you have
modified adjusted gross income of
$210,820 or more.
Adoption Assistance Program
Beginning in 2007, you may be able
to exclude up to $11,390 from your
gross income for qualified adoption
expenses paid or incurred by your
employer under a qualified adoption
assistance program in connection
with your adoption of an eligible
child. This income exclusion starts
to phase out if your modified
adjusted gross income is $170,820 or
more and is completely phased out if
your modified adjusted gross income
is $210,820 or more.
What is an ATIN?
An ATIN is an Adoption Taxpayer
Identification Number issued by the
Internal Revenue Service as a
temporary taxpayer identification
number for the child in a domestic
adoption where the adopting
taxpayers do not have and/or are
unable to obtain the child's Social
Security Number (SSN). The ATIN is
to be used by the adopting taxpayers
on their Federal Income Tax return
to identify the child while final
domestic adoption is pending.
Can I get an ATIN if I am
adopting a child from another
country?
No, you should apply through the
Social Security Administration (SSA)
for a valid SSN. When you are
adopting a foreign child, upon the
child's entry into the United States
you should receive enough
documentation from the Immigration
and Naturalization Service (INS) to
satisfy the Social Security
Administration's requirements for a
SSN.
Update 02-17-2011
You may be able to take a tax credit
of up to $13,170 for qualified
expenses paid to adopt an eligible
child. The Affordable Care Act
increased the amount of the credit
and made it refundable, which means
it can increase the amount of your
refund.
Here are six things Cook and Company
wants you to know about the expanded
adoption credit.
1. Beginning in tax year 2010 the
credit is refundable, meaning that
you can get it even if you owe no
tax.
2. For tax year 2010 you must file a
paper tax return and Form 8839,
Qualified Adoption Expenses, to get
the credit and you must attach
documents supporting the adoption.
3. Documents may include a final
adoption decree, placement agreement
from an authorized agency, court
documents and the state"s
determination for special needs
children.
4. Qualified adoption expenses are
reasonable and necessary expenses
directly related to the legal
adoption of the child. These
expenses may include adoption fees,
court costs, attorney fees and
travel expenses.
5. An eligible child must be under
18 years old, or physically or
mentally incapable of caring for
himself or herself.
6. If your modified adjusted gross
income is more than $182,520, your
credit is reduced. If your modified
AGI is $222,520 or more, you cannot
take the credit.
"If you plan to adopt ... contact our office when you begin the process. We can assist you with the proper documentation and recordkeeping involved.
"
Gregory J. Cook, EA, CPA+
Accredited Tax Advisor
Past President Alabama Society of Enrolled Agents
Past President Alabama Association of Accountants
contact:
secure email 1-800-551-6253 voice mail 117
Cook and Co., Enrolled Agents are licensed by the U.S. Treasury Department
to represent taxpayers before the Internal Revenue Service (IRS). Greg Cook is a
Certified Public Accountant (CPA) licensed by the states of Alabama and Tennessee.
