• Adoption Financing

What is the Hope for Children Act?

June 7th 2001, President Bush signed into a law that increased the Adoption Tax Credit from $5,000 to $10,630 (per child, not per year). Income limits are also increased from $75,000 to $150,000. This is to encourage families to adopt and provide financial guidance for the adoption.

What is Adoption Tax Credit?

The Adoption Tax Credit provides financial guidance to adoptive families. By doing so, adoptive families are able to deduct dollar for dollar, qualifying adoption expenses from federal income taxes they owe.

What is Qualifying Adoption Expenses?

Qualifying Adoption Expenses is any expense directly related to the legal adoption of an eligible child. An eligible child in accordance to the Adoption Tax Credit must be under the age of 18 years or physically and/or mentally incompetent of caring for oneself. A spouse’s child cannot be considered eligible. The tax credit expenses can only be claimed after finalization for international adoptions. For domestic adoptions, even if the adoption does not go through, the credit expenses can be applied. According to the IRS, “ Qualifying adoption expenses are reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including meals and lodging) and other expense related to, and whose principal is for, the legal adoption of an eligible child.”

International Adoptions fees

Adoption agency fees in regards with international adoptions may require fees from the agency or organization in the child’s birth country and to a U.S. agency. Training workshops or counseling may have separate charges in certain agencies. Internationally adopting may have court/legal costs and attorney fees in the U.S. and the child’s birth country. By keeping a careful record and receipts for all traveling in relation with the adoption will most likely be accepted by the IRS as qualifying expenses. This may include: traveling to the child’s birth country or adoption agency for interviews, counseling, and training. Meals and hotels can also be accepted along with other expenses directly related to the legal adoption of an eligible child.

How do people claim this credit?

1. Complete Form 8839 (PDF), Qualified Adoption Expenses. (It will include payments or reimbursements you may have received from Employer Adoption Assistance Benefits, expenses covered by adoption tax credit, child’s social security or Tax ID number which is required for filing.)
2. Attach Form 8839 to Form 1040 (PDF) or Form 1040A (PDF)
3. Report the credit on line 52 of Form 1040 or line 34 of Form 1040A.
4. Contact your local IRS office if you need additional assistance and tax advisor to make sure you have not overlooked anything.

Additional Forms…

• Form 8839 - for itemizing qualifying adoption-related expenses.
• Form SS-5 - to apply for a Social Security Number for your child.
• Form W-7 - to apply for an Individual Taxpayer ID Number (ITIN) if your child is a resident or non-resident alien who does not qualify for an SSN.
• Form W-7A - to apply for an ‘Adoption Taxpayer ID Number (ATIN) if you are in the process of adopting a US citizen or resident, and cannot get an SSN until the adoption is final.

Expenses that is ‘nonqualifying’ according to IRS…

1. Surrogate Parenting arrangements which includes paying hospital and medical costs.
2. Using funds received from local, state or federal programs
3. If one is paid or reimbursed by your employer
4. Income Exclusion which is the amount that can be deducted from your own taxable income which reduces the amount of owing federal income tax.

Resources used in preparing this article:
http://tax-credit.adoption.com/
http://www.irs.gov/taxtopics/tc607.html

This entry was posted on Sunday, February 11th, 2007 at 5:02 am and is filed under Adoption Financing. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.