The deal that lawmakers agreed to at the beginning of to help avert the dreadful fiscal cliff, helped to restore the adoption tax credit, ultimately making it permanent. Started in and into , the adoption tax credit was nonrefundable. This essentially meant that the amounts could not apply to existing current liabilities, but it was able to carry forward. In and , however, this credit was refundable. There are some catches with this tax credit.
In order for taxpayers to qualify for the credit, they must file as single, head of household, qualifying widow er with a dependent child or married and filing jointly. This credit is not available for those who are married but file separately. The expenses that may be deducted include necessary and ordinary expenses, such as meals, travel, attorney fees, court costs, adoption fees, re-adoption fees, etc. The adoption credit is tricky. The exclusion is available, as is the tax credit. The adoption exclusion permits parents to deduct actual expenses from their gross income, helping to reduce their taxable income.
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However, both options are subject to the dollar and income limitations and restrictions, as imposed by the IRS. Special needs children may allow parents to qualify for the full credit, without the hassle of incurring all required expenses. This is a benefit of adopting a hard-to-place special needs child. The child must also be a U. In order to claim the credit, a copy of the adoption decree should be attached to the tax return.
IRS Form must be completed to obtain the credit. Parents should also note that the IRS has a higher likelihood of auditing receipts and documentation. Heart to Heart is a Utah adoption agency that specializes in private adoption. They recommend that people confer with a tax specialist about the IRS regulations pertaining to tax credits and write-offs related to adoption expenses.
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