2003 Tax Credit

Originally Posted By Ed WestYou mean it is a flat tax credit. No, up to $10,00 or qualifiers?I can't find the bill on Thomas nor anything on the IRS site but I will keep looking.Thanks,Ed

Originally Posted By SharonFor all international adoptions and for domestic non-special needs adoptions, the actual amount of the credit depends on the amount of your "qualifying adoption expenses." If they are equal to or greater than $10,000, you get the full credit. If they are less than $10,000, you get an amount of credit equal to the amount of qualifying adoption expenses.In an earlier version of the bill, which did not pass, domestic special needs adoptions were subject to the same rule. However, many in Congress objected, because it did not give enough incentives to people adopting the hardest to place American children. So the final version of the bill gave a flat $10,000 credit to people adopting domestic special needs kids.Do remember, however, that this is a CREDIT, not a cash gift. In other words, it reduces the amount of your total tax liability. By total tax liability, I mean the full amount you owe, whether it was already deducted from your paycheck or whether you pay it on April 15. If your total tax liability is less than $10,000 in the year you file for the credit, you can carry over any remaining credit to subsequent years.Here is an example:You finalize an adoption of a domestic special needs child in 2003 (when the special needs provision first takes effect). Your total tax liability that year is $5,000. Your employer had already deducted $3,000 from your paycheck to cover those taxes, and you would normally have paid the remaining $2,000 when you filed your 1040 for 2003.You will use $5,000 of the adoption tax credit to wipe out your total tax liability that year. That means, you overpaid tax by $3,000, when it was deducted from your paychecks. So you will get a $3,000 credit. Then, in 2004, when your total tax liability is $6,000, the remaining $5,000 credit will reduce your liability to $1,000. If that has already been deducted from your paychecks, you won't owe anything when you file your taxes. If more than $1,000 was deducted from your paychecks, you will get the balance back as a refund. To read the law in its entirety, follow these instructions:1. Go to 2. Type in H.R. 1836, where it asks for bill number, and click on "search".3. Click on the version of the bill marked "enrolled as agreed to or passed by both House and Senate." That is the one that was signed into law by the President.4. When the text of the bill comes up, go to Section 202 and click on it.5. The part about the credit being a flat $10,000 for domestic special needs adoptions is in the second section marked (a).The IRS forms and instructions for 2002 and 2003 have not yet been published. However, you can get some information on how the adoption tax credit will work as follows:1. Go to2. Where it says "Search forms and publications for...", type in 968.3. On the next screen, click on "Publication 968, Revised January 2002"4. Most of the publication relates to the old tax credit. Look at that mainly to get the general idea of how a tax credit works.5. On page four of the publication, however, there is a section that begins, "New Rules for 2002". Read them carefully.If you are having difficulty reading either the law on Thomas or the tax publication from the IRS, it is probably because you do not have Adobe Acrobat Reader installed on your computer. You can get the Adobe Acrobat Reader downloaded at no charge by going to the Adobe website. It is definitely something that everyone should have, as you can't read most government documents on the Internet without it.I hope this is helpful. If you continue to have questions, please ask.

Originally Posted By SharonFor all international adoptions and for domestic non-special needs adoptions, the actual amount of the credit depends on the amount of your "qualifying adoption expenses." If they are equal to or greater than $10,000, you get the full credit. If they are less than $10,000, you get an amount of credit equal to the amount of qualifying adoption expenses.In an earlier version of the bill, which did not pass, domestic special needs adoptions were subject to the same rule. However, many in Congress objected, because it did not give enough incentives to people adopting the hardest to place American children. So the final version of the bill gave a flat $10,000 credit to people adopting domestic special needs kids.Do remember, however, that this is a CREDIT, not a cash gift. In other words, it reduces the amount of your total tax liability. By total tax liability, I mean the full amount you owe, whether it was already deducted from your paycheck or whether you pay it on April 15. If your total tax liability is less than $10,000 in the year you file for the credit, you can carry over any remaining credit to subsequent years.Here is an example:You finalize an adoption of a domestic special needs child in 2003 (when the special needs provision first takes effect). Your total tax liability that year is $5,000. Your employer had already deducted $3,000 from your paycheck to cover those taxes, and you would normally have paid the remaining $2,000 when you filed your 1040 for 2003.You will use $5,000 of the adoption tax credit to wipe out your total tax liability that year. That means, you overpaid tax by $3,000, when it was deducted from your paychecks. So you will get a $3,000 credit. Then, in 2004, when your total tax liability is $6,000, the remaining $5,000 credit will reduce your liability to $1,000. If that has already been deducted from your paychecks, you won't owe anything when you file your taxes. If more than $1,000 was deducted from your paychecks, you will get the balance back as a refund. To read the law in its entirety, follow these instructions:1. Go to 2. Type in H.R. 1836, where it asks for bill number, and click on "search".3. Click on the version of the bill marked "enrolled as agreed to or passed by both House and Senate." That is the one that was signed into law by the President.4. When the text of the bill comes up, go to Section 202 and click on it.5. The part about the credit being a flat $10,000 for domestic special needs adoptions is in the second section marked (a).The IRS forms and instructions for 2002 and 2003 have not yet been published. However, you can get some information on how the adoption tax credit will work as follows:1. Go to2. Where it says "Search forms and publications for...", type in 968.3. On the next screen, click on "Publication 968, Revised January 2002"4. Most of the publication relates to the old tax credit. Look at that mainly to get the general idea of how a tax credit works.5. On page four of the publication, however, there is a section that begins, "New Rules for 2002". Read them carefully.If you are having difficulty reading either the law on Thomas or the tax publication from the IRS, it is probably because you do not have Adobe Acrobat Reader installed on your computer. You can get the Adobe Acrobat Reader downloaded at no charge by going to the Adobe website. It is definitely something that everyone should have, as you can't read most government documents on the Internet without it.I hope this is helpful. If you continue to have questions, please ask.

Originally Posted By Ed WestThank you very much!After this one is done we hope to adopt one more time so I'd like to learn all I can the first time around.You have been most helpful.Now, let's hope Congress gets around to making this tax credit available for 2002.Any ideas on how to know if & when they do?Thanks again,Ed

Originally Posted By SusanI am no tax expert, but that is my impression too. That you can take it no matter what your expenses are.

Originally Posted By Cheeba SobotkaYes. We've done this two times and are adopting a third prior to 2002, on which we will claim the exemption. We live in Indiana.

Originally Posted By David T. DaultonDear Ed: Yes, the tax credit is available for a special needs adoption wihtout showing nay receipts for actual, unreimbursed moneys spent on the adoption. Howewver, the tax credit is only dollar for dollar credit against your tax liability, and can be rolled over for up to five years. Problem with many lower income families who adopt special needs is they do not incur that much tax liability; no tax liability, no credit to off-set the taxes. Best of Luck!

Originally Posted By Jim SeasIn speaking with my tax accountant...what I found was...YES. The flat tax credit is to assist in compensating family's that adopt a "special needs child" who might need to get a bigger car, a larger home, remodel to make use of special things (ramps, wider doorways for wheelchairs, etc.) as well as assist families to bring permanancy to these kids and make a family. I look forward to Jan. 1, 2003 as I move forward to finalizing my adoption of my youngest son whom I will be adopting out of the MN Foster Care System. THE KEY TO THE FLAT TAX CREDIT IS - the finalization MUST occur beginning Jan. 1, 2003 - if you finalize within 2002 - that credit cannot be taken. ALSO...it can be spread over a FIVE year period - thus if you don't use the entire $10,000 in year #1 - you can use the "remaining balance" within years 2, 3, 4, and then finally in year 5.BEST OF LUCK!

Originally Posted By BJCW@earthlink.net wroteDoes this amount and tax credit applies to international adoption also? ThanksHemlata

Originally Posted By BJCW@earthlink.net wroteDoes this amount and tax credit applies to international adoption also? ThanksHemlata

Originally Posted By chieffan9Hemlata,The $10,000 federal tax credit DOES apply to international adoptions. However, this thread was specifically talking about the "Special Needs" tax credit. I believe that virtually all foreign adoptions do NOT qualify as a special needs adoption. The difference in the two credits is that for a regular or non-special needs adoption (which probably includes your foreign adoption), you only get the credit if you can prove and document that you had qualifying expenses, such as all of your adoption agency fees, travel expenses, INS fees, etc. For a special needs adoption, you get the entire amount of the credit, whether you had qualifying expenses or not. In most cases, a domestic special needs adoption will cost much less than $10,000 to complete. However, like it has been stated in earlier messages, the government will go ahead and give these adoptees the full $10,000, mainly to help these families offset other expenses that will occur with these special needs adoptions, such as making their houses handicapped accessible, getting a larger car or a van, etc. Even though these are not really "adoption" expenses, they are still expenses that will now occur because of the adoption and the government has made this credit for them available to help. I am also adopting internationally, and, I will assure you that in 99.9% of all foreign adoptions, your expenses will be in excess of $10,000 anyway, so you will almost certainly get the full $10,000 credit.Chris

Originally Posted By Lannywas is tax liability? my husband and I hold out the maxium allowed so that we do not have to pay any taxes and we always get a refund at the end ahould we not do this? we have just started the adoption process so we will finish in 2003 any help would be appreciated thank you

My wife and I tried to use a local accountant to do our taxes this year and we learned a very valuable lesson: DON'T! The way the laws have changed really leaves some investigation and most local accountants claim to know, but don't really understand all the little points involved. We ended up paying a little more and going through H&R Block. Boy are we glad. We are getting bak more money, but they also took the time to explain the changes in the laws to us in detail before doing anything. We will gladly go back to them and have spent a lot of energy promoting them to other adoptive families. Please save yourself a major head and heartache by going with a large firm(like H&R Block)and avoid the mistake we almost made.

Does anyone know -- for this "Special Needs", who defines what special needs are. Do older children in the domestic system qualify as "Special Needs"? Also what about siblings? If they are both "Special Needs" is there one credit or two? Thanks.

Mex - the person placing the children will know if they count as your state's definition of "Special Needs" or not. Usually, older children from foster care do qualify, with very few exceptions to that. The credit is per special needs child. A sibling group of 2 special needs children would be two tax credits. A sibling group of 3 special needs children would be three tax credits, etc.