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Ten Facts about Adoption-Related Tax Savings

4/23/2013

 
Adoption can create new families or expand existing ones.  The expenses of adopting a child may also lower your federal tax. If you recently adopted or attempted to adopt a child, you may be eligible for a tax credit.  You may also be eligible to exclude some of your income from tax. Here are ten things the IRS wants you to know about adoption tax benefits.

1.  The maximum adoption tax credit and exclusion for 2012 is $12,650 per eligible child.

2.  To be eligible, a child must generally be under 18 years old.  There is an exception to this rule for children who are physically or mentally unable to care for themselves. 

3.  For 2012, the tax credit is nonrefundable.  This means that, while the credit may reduce your tax to zero, you cannot receive any additional amount in the form of a refund.

4.  If your credit exceeds your tax, you may be able to carry forward the unused credit.  This means that if you have an unused credit amount in 2012, you can use it to reduce your taxes for 2013.  You can carryover an unused credit for up to five years or until you fully use the credit, whichever comes first.   

5.  Use Form 8839, Qualified Adoption Expenses, to claim the adoption credit and exclusion.  Although you cannot file your tax return with Form 8839 electronically, the IRS encourages you to use e-file software to prepare your return.  E-file makes tax preparation easier and accurate.  You can then print and mail your paper federal tax return to the IRS.

6.  Adoption expenses must directly relate to the legal adoption of the child and they must be reasonable and necessary. Expenses that qualify include adoption fees, court costs, attorney fees and travel costs.

7.  If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies.  You may be able to take the tax credit even if you did not pay any qualified adoption expenses.  See the instructions for Form 8839 for more information about this rule.

8.  If your employer has a written qualified adoption assistance program, you may be eligible to exclude some of your income from tax.

9.  Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion.  However, you cannot claim both a credit and exclusion for the same expenses.  This rule prevents you from claiming both tax benefits for the same expense.

10.  The credit and exclusion are subject to income limitations.  The limits may reduce or eliminate the amount you can claim depending on your income.

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  • Home
  • About
    • Book An Appointment
  • Accounting
    • Dashboard
    • Xero+Accountency
    • Xero Intro
    • AutoMagical Accounting
    • QuickBooks >
      • QuickBooks Updates
    • Store
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    • Dashboard
    • Individuals
    • Businesses
    • Tax Stuff >
      • Individuals >
        • Income >
          • Debt Forgiveness
          • Foreign Income
          • Gambling Income
          • Unemployment
          • Other Income
        • Deductions & Credits >
          • Adoption
          • Charitable Contributions
          • Earned Income Tax Credit
          • Educational Expenses
          • Energy Tax Credits
          • Employee Business Expenses
          • Other Deductions and Credits
        • Affordable Care Act - Individuals
        • Children and Dependents
        • Death
        • Disabled Taxpayers
        • Educators
        • Health Care
        • Identify Theft
        • Marriage and Divorce
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        • Real Estate
        • Retirement Savings
        • Seniors
        • State Taxes
        • Record Keeping
        • Who Must File
        • Other Topics
      • Businesses >
        • Affordable Care Act - Businesses
        • Year-end Reporting Obligations >
          • 1099's
          • Health Insurance Premiums
          • Depreciation
          • Reimbursed Employee Business Expenses
          • Company Automobiles
        • Employment Tax Credits
        • Independent Contractors
        • Tax Credits and Deductions for Businesses
        • Other Business Topics
        • Required Business Posters
      • Amended Returns
      • IRS Notices and Problems
      • Tax Plan >
        • All About the Earned Income Tax Credit
        • 5 IRS Audit Red Flags
        • Retirement Plans for Sole Proprietors
        • Are You Claiming All of Your Tax-Deductable Business Expenses for 2015?
        • All About Past Due Tax Returns
        • Do You Need to File Form 1099s?
        • How to File an Appeal with the IRS
        • Why You Might Get a Letter from the IRS, and What to Do
        • How to File an Amended Tax Return
        • Should You Claim the Home Office Deduction?
        • How to Avoid -- And Deal with -- Identify Theft
        • Q & A: IRS Audits
        • Are You Using the Right Business Structure?
        • Starting Planning for 2015 Income Taxes Now: 5 Tips
        • What You Need to Know About Estimated Taxes
        • Contractor or Employee? How the Income Tax Obligations Differ
        • The New Form 1095-A: Reporting Health Insurance Coverage
        • Are Your Social Security Payments Taxable?
        • Do You Qualify for the Earned Income Tax Credit?
        • Are You Eligible for Health Insurance Tax Credits
        • Employee Retirement Plans - Tax Advantages and Other Benefits
        • 5 Business Tax Credits You May Be Missing
        • New Business in 2012
        • Is it a Bad Debt or a Simple Revenue Loss? Telling the Difference
        • Business Taxes Add Complexity: How Will This Affect You?
      • Tax Scams