Many taxpayers claiming the expanded adoption credit are slowing down their refund by not attaching required documents to their tax returns. Ensure your clients know what they need to do to get the Adoption Tax Credit to which they are entitled. To find out more on requirements and other important information go to www.irs.gov, key word “Adoption Credit.”
The Affordable Care Act raised the maximum adoption credit to $13,360 per child for tax year 2011. The credit is refundable; your client may be eligible even if no tax is owed for the year.
The Adoption Tax Credit is based on reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. The amount of the credit could be limited by your client’s income.
In addition to filling out Form 8839, Qualified Adoption Expenses, eligible taxpayers must include with their 2011 tax returns one or more adoption-related documents. Use this chart or refer to the Instructions for Form 8839 for a list of acceptable documents. This documentation requirement, designed to ensure that taxpayers properly claim the credit, means taxpayers claiming the credit will have to file paper tax returns.
If your client adopted a special needs child, they may qualify for the full amount of the Adoption Tax Credit even if they paid few or no adoption-related expenses. If claiming the credit for a special needs final adoption, your client only needs to submit the final adoption order or decree and the state’s determination of special needs or subsidy agreement.
It could take up to three weeks to get a refund, even with proper documentation attached to the return.
Families claiming the credit can still use IRS Free File to prepare their 2011 tax return and Form 8839, but the tax return and Form 8839 must be printed and mailed to the IRS, along with all adoption credit-related documents.