With 2011 coming to an end, there are a lot of questions about the adoption tax credit and what it will be for 2012 and beyond. The credit has changed over the past few years, and it looks like it will be changing again in 2012.
First, let me say that I am not a tax professional. Due to the complexity of the adoption tax credit, I recommend using a tax professional to complete your return.
In 2010, the IRS reported that 68% of the nearly 100,000 tax returns that included adoption tax credit were audited by mail. This means there is a good chance you’ll get audited so it makes sense to pay a tax professional to help you.
2011 Adoption Tax Credit Info
–For adoptions that are finalized in 2011, the tax credit is up to $13,360 per child. The credit is refundable which means you can get the full amount even if you don’t owe taxes for 2011. Here are two examples:
1. Your qualified adoption expenses for one child are $7,000. You can get the entire $7,000 amount back in a refund.
2. Your qualified adoption expenses for one child are $20,000. You can get the full tax credit of $13,360.
–The credit is paid for each adopted child.
–If you adopt in the U.S. you can claim the credit either in the year they finalize the adoption or in the year after incurring the adoption expenses.
–If you adopt internationally, you can only claim the adoption credit for the year in which you finalize.
–The credit begins to phase out if your modified adjusted gross income (MAGI) is $185,210/year or higher. If your MAGI is $225,210 or higher you cannot receive the adoption tax credit.
–The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified adoption expenses.
–You can only claim adoption expenses that are reasonable and necessary. Here are some examples: adoption agency fees, court costs, attorney fees, and travel expenses.
–You cannot file electronically. You must file a paper tax return so the IRS can properly review it, which means a longer than usual processing time of your refund.
–The IRS says it could take 6 to 8 weeks to get your refund if all of your paperwork is correct. I’ve heard many stories where it has taken several months to get your refund back.
2012 Adoption Tax Credit Info
–For 2012, the credit is lowered to $12,650 and it becomes non-refundable.
–Since the credit is non-refundable (as it was in years prior to 2010) it means you can only reduce your tax liability. In other words, if your tax liability is $5,000 the credit will reduce your tax liability to $0 and the remaining $7,650 you can use in 2013 and beyond.
–As we have seen in the past, it is entirely possible that the law could change for 2012 and beyond, so stay tuned.
Here are links to the IRS about the adoption tax credit:
—6 things the IRS wants you to know about the expanded adoption tax credit.
–Explanation of the Adoption Taxpayer Identification Number.
–Here is the IRS publication that shows the 2012 adoption credit changes.
–Here is the page showing the adoption documentation required for your taxes.
