‘Tis the time to get ready for the season. Tax season, that is.
There are only a few more days to finalize your adoption in order to claim your eligible adoption expenses as credits on your 2015 tax return here in North Carolina. Here are some tips and information on tax credits and tax write offs for this year:
Which Expenses? – Qualifying expenses include reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging while away from home), and other expenses directly related to and for which the principal purpose is the legal adoption of an eligible child. Use Form 8839 just released for 2015. The revised instructions have not been published yet.
How Much? – For taxable years beginning in 2015, the credit allowed for an adoption of a child with special needs is $13,400. The maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $13,400.
Where does it phase out? – The available adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $201,010 and is completely phased out for taxpayers with modified adjusted gross income of $241,010 or more.
Is It Refundable? – Not currently. Encourage Congress to make it refundable again (so that it can reduce your tax below zero resulting in a refund). A bill was introduced in Congress in 2015 for that purpose. Despite the misconception that only wealthy families adopt, nearly 46 percent of the families adopting children from foster care have incomes that are at or below 200% of the Federal poverty level. Many of these families have tax liability that is so low that they do not have any tax liability against which to apply a tax credit. A non- refundable tax credit is of no benefit to these families. With a refundable tax credit, these families would receive an amount of money equal to the tax credit to which they would otherwise be entitled based upon their qualifying expenses and upon the special needs of the child.
What about next year? – The maximum amount of the Adoption Tax Credit for adoptions finalized in calendar year 2016 is $13,460, a per child (an increase of only $60 from the maximum in 2015). In 2016 the adoption tax credit begins to phase out at a modified adjusted gross income of $201,920 and is completely phased out for taxpayers with modified adjusted gross income of $241,920 or more.
Contact your Congressman – Contact your Congressman about the importance of the adoption tax credit. It is at risk of being lost as a part of a larger tax reform effort. The ATC as well as other tax credits have been targeted for elimination. Members of Congress who are working on tax reform indicated that for a provision of the tax code to remain in place it should do one or all of the following three things: 1) grow the economy, 2) make the tax code fairer, and, 3) effectively promote an important policy objective. A refundable adoption tax credit does all three things.
How? – Identify your three Members of Congress (two Senators and one Representative) by using www.senate.gov and www.house.gov. Using their websites, figure out the best way to contact each of them (often it will be through an email or a form on their website). Email each of them and explain the importance of adoption and how the credit makes it possible for working families. Ask for their support in protecting the credit.