The Adoption Tax Credit Podcast and Infograph

The topic that we receive the most questions about is the Adoption Tax Credit, and we hope this post will go a long way in answering everyone’s questions. The podcast, which is posted below the infograph, features Mark Tronconi, who is a Partner at Tronconi Segarra and Associates. Mark is a CPA and Adoption Tax Credit expert.

The infograph can be downloaded as a PDF and breaks down the tax credit to its simplest form if you finalize in 2011, 2012 or 2013. As it stands right now 2012 is the final year for the Adoption Tax Credit, unless you are participating in a special needs adoption. However Mark says in the podcast that there is still a possibility that this will change and the tax credit could be extended past 2012. Adoption STAR will keep everyone up-to-date on this information as the year progresses.

If you have any questions on the Adoption Tax Credit or your adoption journey, you can contact Adoption STAR by email or toll-free at 1(866)691-3300. You can also contact Mark directly by email.

Please click here to download the printable size PDF version of the Adoption Tax Credit Infograph,

Petition To Save the Adoption Tax Credit

We recently touched on the changes to the 2012 adoption tax credit in our blog post on the “Top Adoption Stories of 2011,” and here is a petition that is asking the federal government to reverse these changes and revert back to the 2011 regulations.

For those who finalized their adoption in 2011, you are eligible for a refundable tax credit of up to $13,360. 2012 is scheduled to be the last year of the tax credit and the maximum credit received will decrease to $12,650. The other important change is that the 2012 credit is not refundable, which means the only people eligible for this credit are those that will owe the government money at the end of the fiscal year. After 2012 the credit will cease to exist.

The petition, which is being hosted on change.org, states that its goal is to “extend the credit as it  currently stated in the Patient Protection and Affordable Care  Act, so that more money is available to families allowing them to provide a financially stable home to the adopted child.”

Adoption STAR is always looking for ways to make adoption as affordable as possible for all of our clients. One of the best ways for prospective adoptive parents to afford adoption is to take advantage of the adoption tax credit. If you would like to see the tax credit stay if effect, please sign the petition here.

 

Adoption In The News: “I.R.S. Denied Lesbians Legitimate Tax Credit”

While New York State, and several other states, have recently legalized LGBTQ marriage, the Federal Government still does not recognize these unions. This effects these couples in several ways, including taxes and applying for the Adoption Tax Credit.

According to a New York Times Blog post, because the federal government views these couples as “strangers in many spheres of their financial lives,” they may be at an advantage as it relates to the Adoption Tax Credit.

The blog post went on to say that “If you adopt your spouses child, you cannot claim the (adoption tax) credit. But since same-sex couples are not considered spouses under federal law, they are permitted to use the credit.”

Issues arose recently, according to the article, because several lesbian couples who applied for the adoption tax credit after adopting their spouses child, received letters from the I.R.S. claiming that their application had been denied.

Patricia Cain, who is a Professor at Santa Clara Law and an expert sexuality and federal tax law, said that the two main reasons the I.R.S. gave for denying these applications for the Adoption Tax Credit were that the “birth mother did not terminate her rights as part of the adoption… and the adoptive mother is the domestic partner of the birth mother.”

Cain said that both of these reasons are illegitimate. Regarding the first reason the I.R.S. gave, Cain said that a lesbian birth mother would not relinquish her parental rights when performing a “second parent adoption.” Cain also said that there is nothing in the “tax code that requires the termination of parental rights.”Cain explained in the blog post that the second reason the I.R.S. gave was incorrect because “there is nothing in the tax code that says domestic partners cannot claim the credit.”

According to the blog post, a Government Accountability Office Report on the I.R.S. claimed that the tax examiners were not properly trained in all aspects of the Adoption Tax Credit, which may explain why these couples were incorrectly denied their Adoption Tax Credit.

If you believe you were incorrectly denied your Adoption Tax Credit there are forms that you can fill out, and an appeals process to go through.  Cain said in the blog post that ““Most taxpayers, after pushing back hard, have had the credit allowed.”

In the article, the IRS said that “any taxpayers who feel that they were improperly denied the credit should contact the I.R.S.”

There will be many changes to the Adoption Tax Credit in the 2012 financial year. To learn about all of these changes, please consider attending Adoption STAR’s Financial Planning for the Adoptive Parents Seminar on Tuesday, January 10.

To read the full New York Times blog post, click here.

An Adoption Tax Credit Primer

On their federal income tax return, adoptive parents may be able to claim a tax credit for qualified adoption expenses and/or income exclusion for employer-provided adoption assistance for qualified adoption expenses for both domestic and international adoption.

For tax year 2009, the maximum credit for qualified expenses of a legal adoption was $12,150.

A tax credit is typically more valuable than a tax deduction because qualified expenses are subtracted dollar for dollar against your tax liability. For example, if you owed $5,000 in federal taxes and have $3,000 in qualified adoption expenses, your tax bill is reduced to

$2,000. If your tax bill is smaller than the credit, the unused portion of the credit may be carried forward for up to five years.  The Adoption Tax Credit, which was scheduled to expire in 2010, has been extended for one year, through 2011. The Adoption Tax Credit will see several positive adjustments:

• The maximum credit will increase from $12,150 to $13,170;

• The Adoption Tax Credit was made refundable. If a family has no tax liability, the IRS will refund the amount due.

The extension of the Adoption Tax Credit through 2011 was passed as part of the health care reform bill signed into law by President Obama on Tuesday, March 23, 2010. These tax credit changes have been published in detail by The Journal of Accountancy:  “For 2010, the maximum adoption credit is increased to $13,170 per eligible child (a $1,000 increase). This increase applies to both non-special needs adoptions and special needs adoptions. Also, the adoption credit is made refundable. The new dollar limit and phase-out of the adoption credit are adjusted for inflation in tax years beginning after Dec. 31, 2010. Also, the scheduled sunset of EGTRRA provisions relating to the adoption credit is delayed for one year (i.e., the sunset becomes effective for tax years beginning after Dec. 31, 2011).  For adoption assistance programs, the maximum exclusion is increased to $13,170 per eligible child (a $1,000 increase). The new dollar limit and income limitations of the employer-provided adoption assistance exclusion are adjusted for inflation in tax years beginning after Dec. 31, 2010. The EGTRRA sunset of provisions relating to adoption assistance programs is also delayed for one year (i.e., the sunset becomes effective for tax years beginning after Dec. 31, 2011).”

Visit the Adoption STAR glossary and search for Adoption Tax Credit for more information and for a link to the IRS website.

The IRS guidelines are available here.

Parents should contact a tax professional to review the IRS guidelines in order to understand the impact of the adoption tax credit and the income exclusion provisions on their own situation.