[musidora]

hey.

Could someone please either explain to me or point me to another post (I tried searching) how taxes work when adopting? IR3 vs IR4 considerations. Also if a baby does come out of PGN until Nov/Dec, can you claim them for a dependent tax deduction that year? How do you claim a child without a SSN (if baby came home with an IR4)? What about the tax credit?

If we're reading the IRS site, but we're kinda confused.

Thanks!
Cindy

[reynstev]

The tax credit is a direct reduction of current taxes. Since you are talking about Guatemala adoptions you will easily qualify for the entire amount. The good thing is that you can take any other credits first, such as the child tax credit of $1000 then apply the adoption credit. The credit can be used for up to 5 years. So if you have low income and already have several other tax credits there is a chance that you will not use the entire tax credit.

As far as when you can claim the child as your dependent and when you can claim them for the adoption credit, it is a little unclear to me. Here is a link on the IRS site which I am sure you have found. Internal Revenue Bulletin - June 27, 2005 - Announcement 2005-45 It seems to me to read that if the child comes home on an IR-3 the adoption is considered final when the decree is finalized in Guatemala. But if the child comes home on an IR-4 the adoption is considered final when the home state court issues their adoption decree.



Hope this helps, Steven

[DPline]

Originally Posted by musidora

hey.

Could someone please either explain to me or point me to another post (I tried searching) how taxes work when adopting? IR3 vs IR4 considerations. Also if a baby does come out of PGN until Nov/Dec, can you claim them for a dependent tax deduction that year? How do you claim a child without a SSN (if baby came home with an IR4)? What about the tax credit?

If we're reading the IRS site, but we're kinda confused.

Thanks!
Cindy

I would highly recommend a consulting with a certified tax consultant who has some experience/knowledge of this area. This comes up regularly and there is a HUGE difference of opinions on the subject. And even in what people have done in regards to claiming the child as a dependent, the $10,500 tax credit, child tax credit, etc.

My main point I wanted to make though is that you CAN get a SSN for your child regardless of their visa status. They do not have to come home on an IR3 to get a SSN. You will have to go back and change their citizenship status if you get one before their COC comes, and change their name if you do a name change at some point, but you can get the number immediatly.

[Pudding]

Bumping Up!

Beth

[reynstev]

Oh by the way the tax credit for 2006 is $10,960. It adjusts each year for inflation.

[WVUMom418]

My daughter came home on 12/29/05. We were not able to claim her as a dependent (I know there are others on this site that say they can but the tax software I used and when a questioned a tax accountant I was told NO, she had not lived in my house long enough). I was however able to qualify for the tax credit. I received a large lump sum refund.

If you normally do your own taxes the tax software like TaxCut is completely able to handle this situation.

[spokanemom]

This is one of thoses issues that are gray as far as claiming the tax credit for an IR-4 adoption. It s open to accountant interpretion too. Our daughter came home from Russia on 12/28/04 and our tax software Turbo tax lets us claim her as a dependent.

[reynstev]

It s open to accountant interpretion too.

This is very true. You could take this to 10 accountants and get 10 different answers on when you can take the adoption tax credit with an IR-4 versus when you can take it with an IR-3. Accountants do not deal with this often enough to be experts.

[tooskis]

Remember there there are income limits for the adoption tax credit. After your reach a certain income level, the tax credit is reduced and if your income is over the maximum cap, you aren't eligible for any tax credit. Not everyone qualifies.

[Tamiswaiting]

Originally Posted by reynstev

Oh by the way the tax credit for 2006 is $10,960. It adjusts each year for inflation.

This is great to know...so next year it should be over $11,000, right?

[reynstev]

Yes the credit should be over $11,000 next year. Around $11,300 depending on the inflation rate.

[musidora]

Thanks for all the input.

Anyone know if the income cap for the tax credit is being raised next year too?