[mommywannabee]

How exactly does this tax credit work? What do you use as proof - besides receipts to show you adopted? How does the credit work - is it money that is credited to an account or do they just deduct it off of your taxes? I've never done this before and have NO idea what actually happens...I hope this doesn't sound stupid.

[Larue]

Okey dokey...taxes...my specialty. As an auditor, people usually yawn when I discuss my profession. Now I have an interested audience -- me soooo happy

OK..here's how it works. The adoption tax credit is literally cash in your pocket. For an international adoption, you can claim the credit in the year following the year the adoption was finalized. For tax year 2005 the credit was $10,630 bucks. It's expected to go up for tax year 2006 and beyond. Eligible adoption expenses include court costs, adoption fees (home study, placement agency, and Guatemalan program fees), travel expenses, etc. In other words you get the max. Use IRS Form 8839 to claim the credit.

Keep in mind that this is in fact a CREDIT...not a deduction. So basically..as long as you paid at least $10K in federal taxes..Uncle Sam will send you a refund of $10K...plus any other refund you would normally have received. So a $30K adoption will cost you about $20K after the credit.

For those of you who didn't know you were getting $10 grand back after the adoption...Merry Christmas!!!

[mrsmatt051102]

Wow - - I thought it was a deduction - - you mean the IRS will actually send a check for about $10,000? I'm shocked!!!

[mommywannabee]

I was hoping you would respond Laura. I saw that you were viewing it and I was thinking - come onnnnn Laura - and like Chaka Khan would sing - "Tell me somethin' good!"

[Mindybeth6]

We are one of the unfortunate ones that don't benefit much from it at all. We already get everything we pay in back so we won't get much if any of it ever. We already talked to a tax guy about it and he said that this was correct. We always get every dime we pay in back because we are able to deduct my school expenses and a whole bunch of other stuff. SO it DOESN'T benefit everyone. We were totally set that we were going to get all this money back and nope, we don't benefit from it. So make sure it benefits YOUR specific situation before assuming you are going to get 10 grand back.

Hugs

[Larue]

Yeap it's an actual CREDIT...not a deduction. However if you have any adoption expenses that were paid by your employer -- it has to be deducted from this amount. Also if your adjusted gross income is more than $160K -- you can't claim the full credit. It's prorated.

Keep those receipts!

[Larue]

Agreed -- you have to have paid at least $10K in federal taxes to get the FULL credit. HOWEVER -- if you have only paid say $5K in taxes -- you can still get the $5K back up to the $10K limit. DH and I pay more than $10K a year...so we'll be using the $10K credit to set up Baby Girl's 529 college fund!

Originally Posted by Mindybeth6

We are one of the unfortunate ones that don't benefit much from it at all. We already get everything we pay in back so we won't get much if any of it ever. We already talked to a tax guy about it and he said that this was correct. We always get every dime we pay in back because we are able to deduct my school expenses and a whole bunch of other stuff. SO it DOESN'T benefit everyone. We were totally set that we were going to get all this money back and nope, we don't benefit from it. So make sure it benefits YOUR specific situation before assuming you are going to get 10 grand back.

Hugs

[Mindybeth6]

We do pay in about 5 grand. Well Kris does, I don't work. And since we get it all back now anyway thats why it doesn't benefit us now. BUT...it will later when I start teaching and we pay more in. The credit is good for 10 years I believe. So eventually we will get it back, not all at once, but we still get it.

Hugs

[DPline]

And it can also be taken over the course of several years. (How many Larue? I can't remember.) We were able to use the full deduction for Lauren but we have a little carry over from this past year for Daniel. We will use it up in the second year though.

Edited to add: Oops! Mindy - you typed faster than I did. Check how long it can be carried for. I thought it was more like 5, but taxes are SO not my thing!

[DD Amasa]

I think it's up to five years. So that's only $2K a year on taxes to get it all back.

[Larue]

Yeap -- the adoption tax credit can be carried over for 5 years. Also the credit is PER CHILD. So if you're adopting more then one child...well don't even get me started. Also some states offer a tax deduction up to $5K for adoption expenses. Once again -- for any credit or deduction you have to have paid the taxes to get the credit/deduction

My advice -- make sure you MAXIMIZE very single credit/deduction coming your way. Adoption.com has some info about adoption tax credits and links to the IRS forms:

http://tax-credit.adoption.com/

[Larue]

Actually you can claim $10K in one year -- if you paid at least $10K in federal taxes. However if you normally only pay $2K per year in taxes -- you can claim $2K per year over 5 years to claim the max.

Originally Posted by DD Amasa

I think it's up to five years. So that's only $2K a year on taxes to get it all back.

[angieandstever]

Hi Laura,

When you say if you have any expenses paid by the employer you mean that has to be deducted from the total amount you spent on the adoption correct?

For example

Adoption costs $30,000
My employer reimburses $7500.00
That leaves $22,500 expenses we paid and we would then get back $10,630 of that.

Is this correct?

Thanks,
Angie

[Larue]

Sorry for the confusion -- yes the exclusion and credit are separate entitlements. And you can still claim the $10K even if you your employer reimbursed a portion of your adoption expenses. The exclusion is a dedution to reduce your tax liability. Since this $$ will be treated as income. And Uncle Sam doesn't want to penalize you for receiving this benefit.

My best advice -- consult with a tax professional in your state for the "tax year" that your adoption is finalized -- since there are also adoption benefits that vary by state.

Make sure you get back every dime back that your entitled to! Good luck!

Originally Posted by angieandstever

Hi Laura,

When you say if you have any expenses paid by the employer you mean that has to be deducted from the total amount you spent on the adoption correct?

For example

Adoption costs $30,000
My employer reimburses $7500.00
That leaves $22,500 expenses we paid and we would then get back $10,630 of that.

Is this correct?

Thanks,
Angie

[brandydawn]

We normally due our own taxes, we hired a friend who is a CPA do ours this year because of the tax credit.....was a very good decision.

We provided an invoice that our agency gave us outlining all costs of the adoption

Regards,
Brandy