Thursday, April 8, 2010

Adoption Tax Credit Article By John Hine and Laura Godwin

Laura Godwin from Nightlight Adoption sent me this article to post. See my previous post below for information on tonight's webinar if you would like to learn more. Please feel free to use the article below but please credit John and Laura. Also, please consult with your accountant for advice. This article is for informational purposes only as we continue to learn more about the new adoption tax credit.

Adoption Tax Credit

By John M. Hine, Esq. and Laura Beauvais-Godwin

Great news: The adoption tax credit has been extended for one more year, has increased, and you could get a tax refund!!!

The Adoption Tax Credit has been extended another year, and starting this year, it has increased to $13,170. So if you adopt this year or next, you can receive not only a tax credit of $13,170 but for the first time, the tax credit is refundable. Except for the increase in the amount of credit you receive and the fact that the tax credit is refundable, the previous rules remain essentially the same.

What this means to you, the adoptive families:

The adoption tax credit will not sunset on December 31, 2010, it has been extended to December 31, 2011.

You may apply up to $13,170 of your adoption expenses toward your federal taxes when you file your 2010 or 2011 taxes, depending up the year that your adoption was finalized.

If you do not receive the full $13,170 in tax credit, you may be getting money back from the IRS for your adoption expenses. Yes, money back. If your tax liability for the year of your adoption is less than the amount of credit you are applying for, the IRS will refund the portion of the unused credit. This means you could receive some or all of the balance as a refund on your federal taxes. The Earned Income Credit is an example of another refundable tax credit.

What if I adopt 2 children? Do I get double the tax credit/refund?

If you adopt two children, you could have a tax credit up to $26, 340 if your total expenses came to $26,340 or more. It is important to note that if your income is too high, you could be phased out of the tax credit. However if your income is low enough, and you paid $26,340 or more in adoption related expenses, you could get a tax credit and a refund. If you adopt three children, the credit/refund could be as high as $39.510, as long as your adoption-related expenses are that high.
This means that if you adopted two children and the adoption fees and expenses came to $30,000, and your federal tax liability was $7,000, you would receive the $7,000 as a credit against your liability; in addition, you could receive the remaining $19,340 back in a refund from the IRS even though you did not pay that in taxes.

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