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Adoption Tax Credit Eligible Expenses and Documentation

March 09, 2022 11:00 AM | Anonymous


Tax season is upon us and if you are in the adoption process then you know that adoption is expensive and those expenses and rack up pretty quickly.   The Adoption Tax Credit is a permanent part of the tax law and was created to benefit adoptive families that have completed a domestic, international or foster adoption. 

We work closely with the experts at  Bill’s Tax Service to help us and our clients to answer all questions related to this important tax credit.  Below we've listed some of the most important steps as you consider filing for the adoption tax credit.

Seek a professional to file the adoption tax credit 

It’s important to inquire if your tax advisor or professional has any experience filing the adoption tax credit.  Many tax preparers do not have much experience with this tax law and it’s advised to seek out one that does.  Bill’s Tax Service is available and experienced in this law and can help.  We recommend contacting them for more information.  

When to file for the Adoption Tax Credit

This seems to be one of the most popular questions and concerns that we get when discussing the adoption tax credit.  The basic rule of thumb is to file for the adoption tax credit in the tax year that your adoption was finalized.  For example, if your adoption was finalized in December of 2021, you can file for the adoption tax credit in your 2021 tax return when you file in 2022.  If you adoption is finalized in January 2022, then you need to wait until you file your 2022 taxes in the year 2023.  

Another important tip about this is that even if your adoption has taken a few years you will combine all of your expenses over those years and take the tax credit in the year that it was final.  

What are the Eligible Expenses?

You'll find on the IRS.gov the qualified adoption expenses on the form 8839.  Basically, any and all expenses that are directly related to the adoption are considered qualified.  The only exception to this is birth mom expenses.  Any expenses associated with the birth mom in a domestic adoption are not considered qualified expenses. 

We recommend that if you are just getting started on your journey to keep all of your expenses in one place - a large envelope to keep the paper receipts is helpful.

When you’re documenting your expenses, you need to keep track of the following:

  1. Adoption Fees

  2. Legal Fees

  3. Court Costs

  4. Traveling Expenses (especially out-of-state and international adoption-related travel).

Documentation Needed 

The IRS is known for is its insistence on documentation to prove expenses and eligibility for the tax credit. But if you get a letter from the IRS requesting documentation, the important thing to remember is not to panic. This doesn’t necessarily mean you are in trouble and an audit is probably not going to be forthcoming. 

  1. The Final Judgment of Adoption (this may go by different names based on the jurisdiction of the court you go through)

  2. An authorized agency’s Home Study/Placement Agreement

  3. Form 8839 - from the IRS website

  4. For Foster Care adoptions you’ll need:  Adoption Assistance Eligibility Determination (also known as the Subsidy Agreement); On this document, it needs to indicate the special need of the child.  

A few tips to remember -- do not send the original documents.  Make a copy of each of these and keep the originals.  You can in some cases file electronically but be prepared to send in any supporting documents.  

If you are asked to submit any documentation, then it's advised to write your Social Security number on the top of every document.  At the IRS, many documents go in different directions and it's important to be able track what is associated with your return.

Resources for Adoption Tax Credit

If you’re interested in learning more about the adoption tax credit, there are resources you can use. We recommend the following websites for more information:

Educate and Advocate

Educating others and advocating when we can is very important. We continue to work toward the adoption tax credit becoming refundable.  In the years 2010 and 2011 the adoption tax credit became refundable and it was a game-changer for so many families.  We recommend contacting your local representatives and telling them your story to help them understand how important the tax credit was for you and how it impacted your family.

Your Adoption Finance Coach Provides Support

We created Your Adoption Finance Coach to help families like YOU raise the money you need to complete your adoption journey and bring your child home – no matter the situation or timeframe or circumstance. We consider it a privilege to work closely with families on such a personal journey and we’d welcome the opportunity to assist you.

If you are interested in learning more about our services and how we can help your family, please reach out to us at coach@youradoptionfinancecoach.com.

YOUR ADOPTION FINANCE COACH  |  1233 West 70th Street  |  Kansas City, MO 64113  |  816.682.5500
coach@youradoptionfinancecoach.com