guide to adoption tax credit

When the holiday decorations are back in the basement, the new year’s resolutions have been made (and broken), and the weather turns cold, my thoughts turn to taxes. Well, taxes and hot cocoa, but mostly taxes.

As you boot up the Turbo Tax, you need to start thinking about the Adoption Tax Credit if you have adopted recently. To help you out, we’ve got a few tips for claiming the Adoption Tax Credit on this year’s taxes.

Tips for the Adoption Tax Credit

  1. Check out the Adoption Tax Credit 2021 course with two of the leading experts* on the Adoption Tax Credit. It is a great overview, including information on how to advocate for the return to refundability and impacts of Covid relief money and more.
  2. If you are adopting from foster care and claiming that the child has special needs you must have a signed and dated copy of your Adoption Assistance Eligibility Determination, also known in some states as a Subsidy Agreement.
  3. You must have proof of payment for all qualified adoption expenses, not just the receipt. Proof can be in the form of a bank statement, credit card bill, etc. (You don’t have to submit this proof to the IRS unless they request it, but you should keep it in your files for 7 years.)
  4. Birth mother expenses, even though legal, are not considered a “qualified adoption expense” under the Adoption Tax Credit.
  5. Chances are good that if you are adopting an infant domestically or adopting internationally you will have more expenses than the amount of credit allowed under the Adoption Tax Credit. If you are uncertain whether a certain expense would be a “qualified adoption expense” don’t include it. Stick with the bigger and clearer expenses first.
  6. Put all documentation for the Adoption Tax Credit in a safe place and keep them for 7 years in case the IRS decided to audit your returns or in case the Adoption Tax Credit become refundable again in the future.
  7. Make good copies of all your originals. This is especially true for foreign documents because these may fade quickly and become illegible within a few years.
  8. Make sure to change the name on your child’s social security card when the adoption is final so that it matches the new name for the child on the adoption decree.
  9. If you have to file a paper tax return, or if you have to amend your return, or if the IRS asks for documentation, write the primary taxpayer’s name and social security number in red permanent marker at the top of each piece of paper that you submit. Put it in the same spot at the top of each page(e.g. top right).
  10. Don’t automatically assume that your tax preparer will know about the Adoption Tax Credit! If they tell you something that conflicts with information in the Adoption Tax Credit Headquarters or the most current Adoption Tax Credit podcast, ask questions and send them the link to the podcast. Before you agree to pay your them a “research fee,” ask the tax preparer to read fully the Instructions to IRS Form 8839, because most questions are answered there. Keep in mind that if your tax preparer appears clueless on the Adoption Tax Credit, you can use a knowledgeable tax preparer located in another state if they work remotely, which many do.

*Our guest experts on the CreatingaFamily Adoption Tax Credit 2021 podcast were Josh Kroll, Adoption Subsidy Resource Center coordinator at the North American Council on Adoptable Children (NACAC), and Becky Wilmoth, an enrolled agent with the IRS and Adoption Tax Credit Specialist with Bill’s Tax Service.

Other Creating a Family Resources You Will Find Helpful

Sources: Creating a Family Adoption Tax Credit Show 2021
Updated 1/24/22