Last Friday and Saturday I had the privilege of attending and speaking at the annual Together for Adoption conference in Louisville, Kentucky.
During one session I attended a breakout on the adoption tax credit with Becky Wilmoth from Bill’s Tax Service. We met last May at another conference and Becky’s been a great resource for me as people ask me questions.
Even still, I learned a couple new things in the breakout.
First was a great tip. If you, even before your adoption tax credit, anticipate receiving a refund from the IRS, fill out your regular federal income tax return WITHOUT claiming the adoption tax credit. File it and then, once you have received your refund, go back and amend your taxes and file for the adoption tax credit. Somewhere around 68% of returns filed claiming the adoption tax credit get held for further review and/or a request for additional documentation. This way if that happens to you, you entire refund is not being held up, just the adoption part.
Second, and this was completely new information for me, grant money received must be taken off the top of your expense total before figuring the amount to claim.
For example, here’s one scenario:
Total adoption expenses – $25,000
Grant money received – $15,000
Remaining qualified expenses – $10,000
YOU CAN ONLY CLAIM $10,000 of the adoption tax credit*
Scenario 2
Total adoption expenses – $25,000
Grant money received – $7,000
Remaining qualified expenses – $18,000
You can claim the full $12,970 credit (amount for 2013)
(*If your domestic adoption is declared a special needs adoption you get the full credit regardless of expenses. Does not apply for international special needs adoptions though generally your expenses will be above the limit.)
It is important that you adoption agency deduct the grant money received from your expenses and show an “after grant” total on your receipt. Without this, it is likely that the IRS will kick back your return for further documentation.
If you have questions about the adoption tax credit, contact Becky. They are located in Illinois but process returns from anywhere. They are THE GO TO PEOPLE for adoptive families. I send people to them all the time because most CPAs don’t know much about the tax credit and I can tell you tons of stories of tax returns that either got screwed up or families who were told they weren’t eligible when they were.
Even if your adoption was past (in the last 5 years) and you didn’t file, contact Becky and see if you DO qualify. She got a $46,000+ refund for a single mom whose tax preparer said her adoption of 4 kids didn’t qualify for the credit.
