It’s difficult to write an “all-inclusive” article on something as complex as the adoption credit. So, as we approach the end of the tax year, you are encouraged to familiarize yourself with the adoption tax credit, its benefits and requirements as pertaining to your individual situation.
- Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of a child who is younger than 18 years old, or physically or mentally incapable of caring for him or herself. Fees such as adoption fees, court fees, attorney fees and travel, including meals and lodging while you are away from home, are considered qualified. You should keep all of your receipts.
- Adopting a child who is a U.S. citizen or resident, allows you to take the adoption credit or exclusion even if the adoption never became final. If you pay qualifying expenses in any year before the year the adoption becomes final, you would take the credit after the year of the payment. If paid the year the adoption becomes final, take the credit in that same year. If you have expenses that flow through any year after the year the adoption becomes final, take the credit in the year of the payment. Again, the expenses paid in an unsuccessful attempt to adopt an eligible child before finalizing the adoption of another child may qualify for the credit.
- If you are fortunate enough to have an employer-provided adoption assistance benefits program, you may exclude that amount from your income if the following apply: you completed an eligible adoption in 2011; you adopted a child with special needs and the adoption became final in 2011; or, you adopted an eligible foreign child in prior years and the adoption became final in 2011. You would take the exclusion from income in the year you received the benefit. However, any qualified adoption expenses reimbursed by your employer are not included in the calculation of the credit. You may be able to exclude up to the $13,360 limit from your income and also be able to claim a credit of up to $13,360, but you cannot claim both a credit and an income exclusion for the same expenses.
Check back tomorrow for part 2 of this blog!
Pamela Smitson, CPA
Smitson Erhart-Graves Tax Advisors, LLC
Pamela Smitson is a Certified Public Accountant who specializes in small business and individual taxation, tax planning, and financial planning services in Central Indiana.
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