How Do I Claim the Adoption Tax Credit?

The adoption tax credit is nothing to overlook if you are considering adoption as a family making less than $243,540 each year. As of 2017, the credit is $13,570 per child, and you have up to six years, including the year the adoption was completed, to get the credit. For that amount of time, it is money that you will not have to pay in income taxes while you are recouping some of the funds you laid out to provide a permanent home for a child or children. How do you claim the credit for your family? Here is how you can begin:

1. Finalize Your Adoption

Throughout the adoption process, you will find yourself the keeper of many “adoption papers,” including adoption certificates, new birth certificates, and/or medical documents that show you have adopted and are now the legal parent or parents of a child. You will want to hold these in a safe place, as they are proof that the adoption is final, legal, and official. Most adoption agencies can also provide you with a receipt that shows how much money you extended for each part of the process, such as the initial application, dossier fees, home study fees, etc. If it does not, you will want to keep a detailed list yourself as well as receipts and bank records that specify exactly how much money was spent, who it was paid to, and what it was for. You will also want to keep receipts for transportation, lodging, and food that were related to adoption travel, especially if you adopted internationally. All of these qualify as adoption-related expenses that are sheltered from being taxed up to the limit if your family qualifies for the credit.

2. Do Your Taxes

When doing your taxes after your adoption was finalized, complete form 8839.pdf, Qualified Adoption Expenses, and attach it to your individual income tax return. As always, enlisting the help of TurboTax or a CPA with tax credentials is important when you are adjusting your income before and after an adoption. Having an in-person conversation with your partner and a financial professional can do much to clear up any confusion you may have regarding the tax credit and how it will impact your family’s financial decisions going forward. Maintaining detailed records on your own will also provide you with peace of mind, as the adoption process can seem tangled with fees and reimbursements, but organization can help you keep track of how much you owe as well as how much will be repaid through the tax credit, employer assistance, and grants before you look at your own savings.

3. Change Your W-9

If you want to change your cash flow after the adoption is finalized but before you complete your income taxes for that year, you may want to change your withholdings on your W-9. Speak to your accountant or tax professional about the best way you can recoup funds that were laid out for adoption. Remember that adoption is an exhilarating adventure with unexpected joys and frustrations, but providing an orphan with a loving home is worth every ounce of effort.