How exactly does the adoption tax credit work?
ByMy husband and I are considering an international adoption. We normally overpay on our taxes and as a result get money back every year when we do our taxes. I am not sure how this works with the adoption tax credit. Will we get that much more money back? Just trying to figure out if we can financially afford it and this information would really help.
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6 Comments
January 30th, 2010 at 1:48 pm
See people…it’s all about the child!
January 30th, 2010 at 2:26 pm
The adoption tax credit is deducted from your tax liability in the year an international adoption is finalized. You can include amounts paid in previous years for an adoption finalized in the current year.
Let’s say your tax liability before the adoption tax credit is $10,000, your adoption tax credit is $5,000 and you had $12,000 withheld during the year. You’ll be getting $7,000 back.
10,000 – 5,000 = 5,000 -12,000 = 7,000 refund
Of course all of this is dependent on what expenses you had, what your adjusted gross income is and all those other lovely IRS rules. You can read more about in the link below.
January 30th, 2010 at 3:12 pm
pretty much, what you spend on adoption, up to like 11K will reduce your tax liability. If you had a 0 tax liability, then you will not be able to use it. The credit can not be used to pay penalties on early withdraw from a retirement fund, but can cover the income tax paid on the funds.
January 30th, 2010 at 4:08 pm
I have not verified this but, from what I understand the Adoption Tax Credit will be changing if it has not yet. The Current Rules will Expire in 2010
Families who adopted Domestically or Internationally could claim the tax credit and were required to Document their expenses in order to do so. Any Employer Adoption Credit had to be deducted from the Tax Credit.
Families who adopted children from foster care can take it without proving the expenses to adopt (since there really arn’t any)
The Tax credit was originally designed to make it a little more possible for families to Adopt Children our Taxes are already supporting. The sad thing has turned out that many families who do adopt children from Foster Care didn’t think they could claim it because they thought they had to document the expenses.
The vast amount of people who have been Claiming it are doing so for International and Domestic Private Adoption and there has been a number of Senators wanting to change the law when it renews in 2010 and only allow the credit for children adopted from Foster Care as it was originally intended.
so….as far as we know right Now the Adoption Tax Credit will ONLY apply to US Foster Child adoptions after 2010…
January 30th, 2010 at 4:35 pm
In Canada, if you adopt and lets say it costs you $20,000 (just for the sake of discussion), you can claim that $20,000 expense on your taxes. This will result in a percentage savings on your taxes that may increase any return (or decrease any amount you have to pay). In my case for this years return, with a $20000 adoption expense it would have provided me with only an extra $2130 on my return this year.
I assume you are in the US and I know other areas do it differently but I’m pretty confident in stating that it certainly doesn’t come anywhere near the amount spent on the adoption. Some workplaces may have benefits as well although it depends upon your employer.
January 30th, 2010 at 5:01 pm
It was intended as an incentive to reduce the numbers of children in US foster care.
It has been misused by people who do private or international adoption to offset their costs.
It’s an abuse of the system to use it this way.