Basics of an Adoption Tax Credit

Hollywood is famous when it comes to adopting children. The very idea of giving another person a chance to be a part of a family is truly heart-warming until one is faced with the overwhelming amount of paperworks and finances that must be gathered in order to make a successful adoption. For this, many are discouraged in adopting a child, even if they wanted badly to do so.

If you are considering adoption, you can actually get benefits and exclusions in the form of an adoption tax credit. Although this credit will not cover adopting your step children or the children of your spouse, you can still get valuable savings with an adoption tax credit from the IRS or the Internal Revenue Services. This is one of the most complex tax law that exists and it is important for you to learn how to qualify and get the most out of your adoption tax credit.

Important Things You Need to Know About an Adoption Tax Credit:

1. You must pay your adoption expenses from your own pocket.

2. You can apply a tax credit when making both local and international adoptions.

3. Children who are eligible for adoption are 17 or younger, a local or alien, who are incapable of caring for themselves physically or mentally.

4. If you are making an international adoption, you can only get the tax credit after the adoption has been finalized and you may get it in the same year that the adoption is made. For local adoptions, the tax credit can be applied even if the adoption process is not successful.

5. You must apply for your adopted child’s Adoption Tax ID Number or ATIN if he or she doesn’t have a social security number. This is important before you can claim your adopted child as your dependent.

6. You can claim an adoption tax credit of $12,150 for the year 2009. Some states provide this full tax credit. Check with a professional on how you can maximize on your tax credit amount.

7. The amount of adoption tax credit is computed per child, and not per year.

8. Make sure you and your spouse are both eligible for making an adoption and always keep track of all your documents and expenses. These expenses will include legal fees, adoption costs, court fees, and money used on travels.

9. Your adoption tax credit will depend on the actual expenses you have paid and you can carry forward excess credits for five years.

10. You will need to get familiar with these adoption-related forms which will help you in filing for an adoption tax credit: Form 8839 ( to qualify your adoption expenses ), Form SS-5 ( to apply a social security number for your adopted child ), Form W-7 ( for an adopted child who don’t qualify for a social security number ), and Form W-7A ( to apply for an Adoption Taxpayer ID Number or ATIN ).

The Reward of Adoption

The steps in making an adoption can be truly complicated and yet, the reward is more than just having an adoption tax credit. It is bringing in joy into your adopted child’s life and into your home. One can only hope that the current Adoption Tax Relief Guarantee will be approved by the House Committee, to permanently expand the current adoption tax credit law. Unless this is approved, the current tax credit will revert back to US$5,000 in the year 2010.

RESOURCES:

Adoption.com. “ The Adoption Tax Credit. ” http://tax-credit.adoption.com/

Pomoni, Christina. “ How the Adoption Tax Credit Works. “ May 2009. Articles Base.

http://www.articlesbase.com/parenting-articles/how-the-adoption-tax-credit-works-895938.html

Wright, Dwayne. “ The Federal Adoption Tax Credit’s History. “ May 2009. Docstoc.

http://www.docstoc.com/docs/6320955/The-Federal-Adoption-Tax-Credits-History

Perez, William. “ Adoption Tax Credit. “ About.com

http://taxes.about.com/od/deductionscredits/qt/adoptioncredit.htm