Residents of Jefferson County, Colorado, know that raising children can be very expensive. But as expensive as that is, adoption can cost couples even more. However, there are tax deductions allowed by the Internal Revenue Service that could help lessen the costs. Applying for a tax credit can bring as much as $12,000 in savings, money that can be very helpful in raising an adopted child.
To be eligible for the tax credit, an adoptive parent must have a keen eye on the details of the adoption process. This includes knowing when the adoption fees were paid, whether the child is a U.S. citizen or not and when the adoption was officially finalized. Parents can start off by preparing adoption documents including a final adoption decree, court documents, an authorized agency's placement degree and a Colorado document vouching for special-needs children.
A paper tax return must also be filed. While the IRS no longer requires parents to attach adoption documentation, it still doesn't allow electronically filed returns when claiming tax credit for adoptions. Parents can, however, still use the Free File Program of the IRS.
Claiming a tax credit for a non-U.S. citizen can be more complicated. Costs incurred will only be deductible in the same year that the adoption was finalized. This covers adoption charges, court expenses, costs for travel and attorney fees. The credit will also be based on the "immediate relative" visa issued by the Department of State. A quick check of the IRS' Announcement 2005-45 can help determine the specific circumstances for a particular IR visa. Other circumstances adoptive parents might want to consider are income exclusion, the age of a child and whether the child is considered a special-needs child.
Whatever the cost and no matter how confusing the paper work gets, having children can bring priceless joy to Jefferson County couples. Guidance from a family law professional familiar with the nuances of adoption, including tax exemptions, can make a significant difference for adoptive parents.
Source: Fox Business, "IRS Can Help With Adoption," Katy Bell, Mar. 3, 2014