Adoption and Taxes - Filing Your 2005 Tax Return
If you had
adoption-related income and/or
expenses in 2005, any one or a combination of benefits, credits and exclusions could substantially reduce your tax liability.
NOTE: The tax credit does not cover expenses for adoption of a spouse's child (stepparent adoption).
The Adoption Tax Credit is a valuable benefit for adopting families, but one of the most complicated tax law provisions applicable to middle-income families.
What You Need to Know The first step is to learn what the tax credit covers, and how it works with other incentives, such as employer-paid adoption benefits.
- The tax credit applies to domestic and international adoptions, but the procedure is not the same. Expenses for international adoptions can be claimed only after finalization; for domestic adoption, they can be claimed even if the adoption does not go through.
- The credit of $10,630 is per child, not per year, so even if you claim expenses paid out over more than one year for one adoption, the total credit amount remains $10,630.
Best Resources:
Then, you'll want to
- determine your eligibility;
- learn how the credit works with your particular adoption;
- develop a system to track and document expenses;
- do your taxes, work with a professional.
Best Resource:
Once you've got a good understanding of these benefits, visit the IRS (Internal Revenue Service) for the official government explanations, forms, and guidance for completing the forms:
- Instructions and explanation of Form 8839 from the IRS
Make this your first stop at the extensive IRS site. This is the form you need to file. The form will include expenses covered by the Adoption Tax Credit, any payments or reimbursements you may have received from Employer Adoption Assistance Benefits, and your child's Social Security or Tax ID number (required for filing).
- Forms Download Page
Visit the download page to view and/or download the forms you'll need for adoption-related tax filing. Forms are available in various formats, and include: - Form 8839 - for itemizing qualifying adoption-related expenses.
- Form SS-5 - to apply for a Social Security Number for your child.
- Form W-7 - to apply for an Individual Taxpayer ID Number (ITIN) if your child is a resident or non-resident alien who does not qualify for an SSN.
- Form W-7A - to apply for an Adoption Taxpayer ID Number (ATIN) if you are in the process of adopting a US citizen or resident, and cannot get an SSN until the adoption is final.
Additional Benefits & Guidance Many states provide reimbursement of a certain amount of non-recurring adoption expenses. Be sure to check with your
state tax office to learn more about it, and contact your
local IRS office if you need more information or direct assistance with preparing your tax return.
Finally, consult
your own tax advisor to make sure you haven't overlooked anything!
© Nancy S Ashe
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