The Adoption Tax Credit

June 25, 2011 by  Filed under: Taxes 

The Adoption Tax Credit is awarded to individuals and married couples who have adopted children. The credit is given against the costs of adopting the children, which can add up really fast and be a very costly process. The costs of adopting a child usually include legal costs, adoption fees, travel costs, and any other myriad of expenses relating to an adoption. On average, the cost of adopting a child in the U.S is about $30,000.00, which is no paltry sum. To assist parents shouldering this high cost, the IRS provides a tax credit to provide relief for the costs incurred pertaining to child adoption. Prior to the 2010 tax year, the cap for adopting a child was $12,150.00 and the credit was not refundable (meaning that refund checks were not distributed to the claimers, but the funds were applied to pay off owed taxes). However, in 2010, the tax code increased the Adoption Tax Credit to a cap of $13,170.00 and also made the tax credit refundable.

Refundable Versus Traditional Tax Credits

Refundable tax credits are credits that can award you with a refund check. If you have funds left over in your credit after deducting any tax liabilities that would be due, the IRS will write you a check for the balance remaining on the credit. This is unlike a traditional tax credit, where the credit is deducted your outstanding tax liability until the liability is reduced to zero. Furthermore, the remaining balance cannot be cashed but can only be used against future tax liabilities. The change of the Adoption Tax Credit from a traditional credit to a refundable credit means that individuals and couples can now receive a huge tax refund check for adopting a child or children.

Who Qualifies for the Credit?

To qualify for the Adoption Tax Credit, you need to have adopted a child and have support documentation for the costs incurred during the adoption. The tax returns for individuals who claim the credit are to be filed manually as opposed to electronically and the taxpayer must attach all the documentation that will support each adopted child’s costs claimed under the credit. You can make claims under the 2010 adopted children tax credit for adoption-related expenses incurred from the previous 5 years. However, individuals who have adopted children with special needs do not need to attach support documentation and can claim the maximum amount of the credit for the special-needs child. To qualify for the Adoption Tax Credit, your Adjusted Gross Income must be below $182,520.00 for the 2010 tax year.

A Refund Check is a Welcome Relief

These credit refunds have come as a relief to many individuals and households who had incurred huge costs of adopting children but could not previously get a tax refund. However, now that the credit is tax refundable, they can now receive substantial funds to offset their heavy expenses. Many families with more than one adopted child are anticipating large refund checks for this credit and they can now use these funds to provide better accommodations for their adopted children. Some households are expecting refund checks as high as $65,000.00!

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. / Tel:888.321.6188

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