Parents adoping a child may spend up to $30,000 before all requirements are met and all fees are paid. However, you might be able to offset your tax bill with a credit for your qualified adoption expenses, as long as you meet certain eligibility requirements.
If you are in the process of adopting a child or even considering it, you may be interested to hear about a federal tax credit that can save you a lot of money on your taxes. The process of adopting a child usually comes with a substantial number of expenses. Fortunately, the IRS allows adopting parents to reduce their tax bill on a dollar-for dollar basis for a significant amount of adoption expenses.
Generally, the typical expenses you will incur include court fees, fees paid to an adoption agency, the cost of hiring an attorney and all expenses you incur when it’s necessary for you to travel away from home. In order to take the credit, you can only file your tax return on a 1040 form and you must calculate the amount of credit you’re eligible for on Form 8839. However, if your employer reimburses you or pays for any of your adoption expenses, you can’t include those amounts in your tax credit. This also applies to the financial assistance you receive from other organizations or government agencies. It is also important that you take the credit in the right year—it won’t always be the year you pay the adoption expenses. Unless the adoption is finalized in the same year you pay the expenses, you must wait until the year after paying the expenses to take the credit. And if you continue to make payments for these expenses once the adoption is final, you can take the credit in the same year you pay the expenses.
Unfortunately the credit is not refundable. If you find that the sum of your adoption credit and the tax payments you make during the year exceed the tax you calculate on your return—the IRS will not refund the difference to you. One last thing to remember is that you can still take the adoption credit even if you’re never able to finalize the adoption. However, you will only qualify for the credit in this situation if the child you try to adopt is a U.S. citizen or resident.
When you file with TurboTax, we’ll ask you simple questions about your adoption expenses and determine how much of the adoption credit you’re eligible for.
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