The tax credit adoptive parents need to know about

The only thing some people know about the adoption process is that it is very expensive. The cost of an adoption is a fact that steers some prospective adoptive parents away from going through with their decision to add to their family.

Parents of adopted children will not refute the fact that going through the process can be financially cumbersome. In fact, the price of adopting a child internationally can sometimes soar above the $20,000 mark.

Still, one fact that goes wildly unnoticed is that these parents can get a good chunk of that money back through what is called the adoption credit. This tax break is designed to help adoptive parents recuperate some of the money they spent.

Parents who adopt children are so focused on nurturing a healthy family (as they should) that many of them are not aware of this tax credit geared especially toward them. This was reflected in the number of adoptive parents that took advantage of the credit in 2010. That year, 96,949 tax returns were filed claiming the credit. The total amount of money credited by the Internal Revenue Service that year was $1.2 billion.

By overlooking the credit, adoptive parents are missing out on a huge financial advantage. For the 2011 tax year, the credit was worth up to over $13,000 for each child and came as a refundable credit.

But, because the credit potentially carries so much money, it is watched closely by the IRS and requires a lot of extra legwork. There are also specific guidelines for parents of domestic-born children and those that adopted internationally. The process will require the help of a qualified accountant, but the end result can be quite favorable, and benefit adoptive parents.

One couple that took advantage of the credit received just under $5,000 in 2009 and just over $7,000 in 2010. They were able to put that money aside in an education saving accounts to benefit their child later in life.

Source: Detroit Free Press, “Susan Tompor: Adoption credit is not well known,” Susan Tompor, April 5, 2012