Creating a Family: Talk about Adoption & Foster Care

Adoption Tax Credit 2019

January 17, 2020 Creating a Family Season 14 Episode 3
Creating a Family: Talk about Adoption & Foster Care
Adoption Tax Credit 2019
Show Notes Transcript

If you have adopted within the last several years or even if you are in the process of adopting, you need to understand the Adoption Tax Credit for 2019. We talk with Becky Wilmoth, an Enrolled Agent and Adoption Tax Credit Specialist with Bills Tax Service in Illinois and Josh Kroll, Adoption Tax Credit specialist at the North American Council on Adoptable Children (NACAC).

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:   0:08
Welcome to Creating a Family Talk about Adoption and Foster Care. Hey, guys, before we get started, please do us a favor. Hop over to iTunes and give us a rating. It's quick, I promise. Although if you're right, if you actually make a comment, it's not super quick, but we we really appreciate either a star rating or a comment. And here's the truth. We honestly read every single one of them for the particularly nice ones. We send the monks around the email amongst our team here creating, and it really helps us get more listeners to our show. And it actually helps us know that what we're doing matters and it is helpful. So please up over there and do us a favor and give us a break. Today, we're going to be talking about the adoption tax Credit 2019 with Josh Kroll, adoption subsidy resource center coordinator at the North American Council on Adoptable Children, otherwise known as NACAC and Becky Wilmoth an Enrolled Agent, an adoption tax credit specialist with Bills Tax Service in Centralia and O'Fallon, Illinois. Hey, welcome back. Josh and Becky. Josh and Becky do this every year, and I feel like we're kind of having a reunion every year when we start talking to catch up on what's been happening, what the weather is like, what, how the family's doing. So we are so appreciative of your expertise, skies, Um, and truly you guys I think of as the ultimate experts on the adoption tax credit. So for 2019 the adoption tax credit for qualified adoption expenses is $14,080 for each child adopted, and that is regardless of whether they're adopted via public foster care, our domestic private adoption or international adoption. All right, so this is a credit. So, Becky, let's start with you. Uh, I think there is, um, a lot of misunderstanding about what a credit is. So what is a credit and and how does it differ from a deduction or some of the other forms of tax savings that we  

:   0:03
* Note that this is an automatic transcription, please forgive the errors.

:   0:03


spk_1:   2:19
What a tax credit actually does is help cover your federal tax liability. Um, after your adjusted gross income, your taxable income is determined. Um, you know, years ago we used to go to the tax book and it would tell us how much tax we owe on that taxable income. What that tax credit does, it covers that federal tax. And what a deduction does is help lower your taxable income. For example, you know, if you have enough to itemize your deductions, um, like mortgage interest, real estate taxes, charitable contributions, all those things, those air deductions that help lower your taxable income where the tax credit actually helps cover the tax on your tab. Taxable income. So we're a credit is so much better because it helps cover the tax liability that the I arrest says. Okay, you owe this much amount on your taxable income.

spk_0:   3:24
So if you don't have federal tax liability for whatever reason, should you still take the credit? Are our Should you just blow it off because you don't really? You don't own any? Oh, anything.

spk_1:   3:35
Oh, no. You should absolutely go ahead and take the credit for several reasons. Number one everybody's tax situation can change from year to year, and also in the event that it does become refundable again. Um, you you have once the initial year of claiming, um, the adoption tax credit. You have five years to carry it forward, so ah, lot can change in six years, and if that becomes refundable again, you will have that carry forward credit sitting there waiting to be refunded to you. So it's a lot easier to carry it forward than to go back and amend your tax. Return you to claim that credit. So it's It's just a lot easier just even if you have zero tax liability, go

spk_0:   4:24
ahead

spk_1:   4:24
and take it and just keep carrying it forward. That way you'll have it there in the event that your tax situation changes or it becomes refundable again, which we are still advocating very strongly for

spk_0:   4:37
Yeah, I should mention for those It's interesting it people now who are considering and thinking about adopting and are, or have adopted our thinking about the adoption tax credit most of them were not aware of our may have just her rumors that there was a brief and shining moment way in the past that, uh, it was a refundable tax. It is not a tax credit. It is not a refundable tax credit now, but we are actively working to get it to be refundable. Let's go ahead, Josh, tell people where to go just from what we usually do this at the end. But since we're talking about refund ability now, where should people go? Who would like to help join the advocacy? Forgetting this tax credit to be a refundable tax credit again?

spk_2:   5:28
Really easy website called the adoption tax credit dot org's. Um and that's something that, ah nach AC and other groups um ah, look together toe sort of compile information, give advocacy and let people know what current legislation What. Bill's not legislation, but bills are out there that would make the tax credit refundable again.

spk_0:   5:54
Okay. Yep. And advocacy is a huge amount of those of us who have benefited from adoption in general. But also those of us who would like to see adoptions more affordable on the tax credit is certainly one aspect of that. We should all be involved in advocacy. Also follow either creating a family or nah, kick in a c A c in any of the social media, and we both post and we share each other's posts about when we need people to take action from an advocacy standpoint. So it's easy to do and, you know, and we really try to keep the what we ask of you from an advocacy standpoint is usually pretty easy. So Ah, follow us. And Ah, and let's take action. Okay, Josh, we mentioned at the at the beginning that the adoption tax credit and that is I should mention a federal adoption tax credit. There are certain states that have them as well. But today we're talking about the federal adoption tax credit, which applies to your federal taxes. All right, so I mentioned at the beginning that it applies to adoptions from public foster care, domestic private adoptions and international adoptions. But there are other types of adoptions. So let's a list if you you tell me, um, if they're covered or not. How about step parent adoptions?

spk_2:   7:14
No, but there's a caveat. I'm gonna put their the lost scientifically says it's not to adopt your spouse's child. And so, if you were, um, if you had a partner significant other and you adopted their child but you weren't married to that person, I'm quite certain that would qualify.

spk_0:   7:39
Okay. No, wait. You know

spk_2:   7:40
the reason I

spk_0:   7:41
bring sex partner Second, are you talking about second parent adoption, sexual partners or even unmarried heterosexuals? Okay. Yep. Oh, okay,

spk_2:   7:51
right? Because it is specifically in the law, it says, for adopting your spouse's child.

spk_0:   7:58
Becky, would you agree with that? That same sex partner, Second parent adoptions are unmarried. Heterosexual Second couple's second parent. Adoptions are correct as

spk_1:   8:07
long as they are not married because, like Josh said, the law is very specific. It is your spouse's child. So let's say you adopt your fiancee's or your boyfriend or girlfriend's child. You absolutely qualify as long as you are not legally married.

spk_2:   8:23
And just because the irises the I arrest, um, you know, timing issue don't get married that year because they'll look at you more. I mean, like, if you have any control over things, if I adopt, you know my girlfriend's kid today, um, I wouldn't want to get married till 2021. Not that it would be wrong, but it's gonna make your life easier. If you've got back

spk_0:   8:49
sort of control,

spk_1:   8:50
it will

spk_0:   8:51
be all that makes her.

spk_1:   8:52
I arrest letters if you

spk_0:   8:53
d'oh! And so unless you really want to talk with the I rs. Yeah, you You haven't been married for this long. Just wait another year. Oh, all right. What about, Ah, embryo adoptions, which I must add, is actually not a term that is, it really is used. The term that were encouraged to use is embryo donation. But plenty of people call it embryo adoption, especially those agencies that follow an adoption model for the placement of embryos. So it is a term that's out there. So embryo adoption, Josh,

spk_2:   9:31
I don't think I mean, people may have personal feelings towards us, but I'm quite sure there the embryos don't have illegal status is a child so it's adopting a child. Um,

spk_0:   9:44
so

spk_2:   9:44
I don't I'm gonna say no.

spk_0:   9:46
Okay? And that is what we voice told people as well that Ah, it is. It is not covered. All right, So, Becky, can you get the credit for each adoption you complete? If even if they were more than one completed in the same year, or or adopting siblings or, uh, or 22 unrelated Children at the same time, do you get just one credit or just a credit? Go for the child. Each child

spk_1:   10:13
it is. It is the credit for E which individual child. So if you draw, adopt a sibling group of two or three You, you know, and you call, you meet the qualifications you qualify for however many Children, you top. That's how many credits you would be able to claim.

spk_0:   10:32
Got you So you'd have those credits. Now, whether or not you have the tax liability to be able to utilize all the credit is a different issue. But you will get the credit. Correct. Okay. So the way the I. R. S regulations are written, the credit can be applied to qualified adoption expenses. So let's go through some things that are typically considered qualified adoption expenses. Ah, and I tell you what, I'll just rotate between the two of you. Josh will start with you. Agency fees, the your feet to your agency or your attorney too. Ah, to process the adoption are to do all the work that's associated with the adoption.

spk_2:   11:13
Definitely.

spk_0:   11:15
Okay, Becky. Home home study cost.

spk_1:   11:18
Absolutely.

spk_0:   11:20
Okay. Um, how about ah, particularly tricky. One is birth parent expenses or expectant parent expenses. Ah, they considered and I should mention that different states have different rules on what is legal to pay an expectant parent. Ah, or a birth parent after the placement. So Ah, but assuming it's legal in your state Ah, can you cover a You're expected, uh, parent expenses are birth parent expenses. I can't remember who I was on. Let's think

spk_2:   11:56
I'm gonna I'm gonna We're gonna attack a little here. Sorry. Um, so

spk_0:   12:02
far. Well, I expected nothing less. So the

spk_2:   12:06
first

spk_0:   12:06
thing

spk_2:   12:07
is, you know, we've been helping people. I've specifically been helping people if the tax credit since 04 on I'm not a not a tax professional like Becky is. So, um, and we generally here from people are confused to have questions or have problem

spk_0:   12:24
right

spk_2:   12:24
in the two refundable years, 2010 and 11 the adoption tax credit. They were asking for documentations. And we did hear from some families who were denied when they claimed those, even though they were legal benefits in those states. Now, we didn't actually hear from families who had those go through without any issue. The one thing I really want to do is a caveat is, um, a lot of private domestic adoptions because that's who we're talking about with birth mother expenses here have fees that exceed 14,000 and 80. Last year, 2019 amount. I wouldn't sweat those types of expenses. If all your other types that are very clear exceed that amount, be able to claim another 4000 and birth parent expenses isn't going to change how much credit you have available to you. That makes sense.

spk_0:   13:25
Yeah, let me say it another way. Ah, Ah. Which is I think, the same thing. Um, I we have always told people that we did not think that birth mother, we're also not experts. So, actually, maybe you are the expert stop right now and just Becky. But what is your thought on, uh, birth or expectant parent expenses?

spk_1:   13:47
Um, there's there's generally it has always been that birth mother expenses were not I'm qualified expenses. The reason being, um, not because it is on either isn't isn't on form 88 8 39 instructions, But because in the IRS code, no living expenses are allowed per iris code. Um, so and as you know, as always, we have always discussed before 99% of the time. All of your other expenses are greater than the amount that you would be allowed to claim. Because the form 88 39 form you know is very specific. It says you know any necessary and directly related expenses for the principal purpose of legal adoption of an eligible child. And there is, you know, a few qualified expenses do not include, um, funds that you will receive violation of state or federal law. That's that. That sentence right there is what you know. Nick's is the living expenses for a birth mother. Um, and it says for carrying out a surrogate parenting agreement. That's not qualified. Course. We've already discussed the adoption off a spouse's child. Anything reimbursed by an employer. And so the federal law part is because no living expenses are allowed for any other i. R. S code, and so therefore, it violates federal law. Um, And like I said, generally all of the other expenses that you're going to have for a domestic adoption are going to be far greater than the 14,000 and 80 you know, without the birth mother expenses. So, as a professional, um, I would not take the birth mother expenses just because it violates other federal law.

spk_0:   15:55
Okay, so we have a little bit of a disagreement between the two of you, but I

spk_2:   15:59
go with Becky. I'm She's a

spk_0:   16:03
professional incident. Yeah. All right. So birthmother expenses are not allowed. And And from what? I, uh, the underlying thing that I also here is be practical, because don't if if If you're not sure oven expenses, Whether it would be a qualified adoption expense. Don't take it because, especially with international or private, uh, domestic infant adoption you're gonna have chances are very good. You're going to have farm or expenses than you do. Have a credit. So stick with the ones that are obvious and clear. Exactly. Okay, Becky, how about the cost for advertising? Are looking for an expectant mom who may be considering adoption. Is that a qualified adoption expense? And let me point out that that can happen again. Legalities differ in states on whether it's allowed, and they're also a lot of different ways it might look it could be taking an ad out in a penny. Pincher are taking an ad out putting Ah, Facebook ads. Or it could be, um, including the service is the website service is that allow you to post your portfolio? Ah, and your profile, your parent profile. All of those would fall under the really general term advertising.

spk_1:   17:26
Yes, ma'am, it is. It was. It is a qualified expense.

spk_2:   17:29
And I I agree with that. But we do know in the refundable years, the iris is pushing back at that. I'm something please we talked to

spk_1:   17:39
Yeah, especially when it's refundable. There there will be a lot more. Um, you know,

spk_2:   17:45
the government

spk_1:   17:46
that that was always the issue in 2010 and 11 with documentation issues because so many people either didn't have the right documentation or didn't you know, maybe they didn't come home with it or they didn't know what to send in, but a lot more picking a part of things when it's refundable versus when

spk_0:   18:04
it

spk_1:   18:04
is not refundable

spk_0:   18:06
for sure.

spk_2:   18:07
The other thing I will say. Though Thio in defense of parents and tax professionals in those years, the iris didn't know what they were looking for specifically to start with. And we're not doing a good job communicating what they knew it.

spk_1:   18:21
It took. It took people like Josh and I to say, Okay, here, here's what you need to send in. Don't send the originals than good copies. Joe, put yourself security number of the top of it. Um, because they direst really didn't know how it

spk_2:   18:37
works. No,

spk_0:   18:40
when they were learning to I mean, this was used you for them, girl. And unfortunately, it didn't stay refundable for very long. So ah, you know, the they didn't have years of experience and improving their system. All right, Next up, how about in the Josh's will be you have about the cost. Ah. If family chooses to use an adoption consultant, which an adoption consultant, uh, could be defined different ways under different states laws, however, generally they are not placing. They are not searching for specific expectant parents, but they are consulting with explaining the process. Austin helping you fill out create your your profile, your portfolio, Um, helping you register with different agencies. General advice, such a set. All right. Just filling people in. What a consultant? This all right, Josh, do you think that would be a qualified adoption place to call

spk_2:   19:38
Lifeline Becky?

spk_0:   19:41
Yeah. Becky. Yeah.

spk_1:   19:43
Yes,

spk_0:   19:43
that is a

spk_1:   19:44
qualified expense because it says reasonable and necessary expenses. And we have we all know, adoptive families that have used a consultant to help them because it's not. It's not anything that violates federal or state. Well, it's not actual birth mother expenses. It would still go under the umbrella of advertising, you know, and fees. You know all of those things. So, yes, a consultant is absolutely qualified expenses.

spk_0:   20:16
Okay, Um, and Becky and that's gonna ask you this next one, because it's ah, I wantto after a couple of questions based on this is a question we got from Nate. He says my wife and I are looking for an I. R s enrolled agent in Southern California who has experienced utilizing the adoption tax credit. It is quite difficult to find some with one with experience in this, Especially since we're trying to use the credit for a failed or a non completed adoption, an attempt made in which we completed a home study and paid an advertising organization to post our portfolio. I have found two, two, I assume he means ah, tax specialist who do not think it is possible, though I have heard that it is. So. His question is a couple of different things are failed. A domestic adoption attempts expenses allowed under the adoption tax credit would be his first question the 2nd 1 would be Could he claim the advertising, his home study, which we've already said yes. And the advertising organization, which we've already said yes, and then I'm gonna ask 1/3 question off of that. So first, let's talk about failed adoption Attack.

spk_1:   21:30
Yes, absolutely. For a domestic adoption that is not final or has failed, you can claim the adoption tax credit. The stipulation of that is you have to wait following tax year to claim those expenses. So let's say, for example, you accrued, um, adoption expenses. That's not fine or failed up to 2018. They were either paid before 2018 or they were paid in 2018. Then you could not claim them on your 2018 return, however you claim them on your 2000 and 19 tax return. Of course, that everybody is, you know, getting ready to file. Um, the only thing of that is, of course, you will not have a Social Security number or 18 number two tag to that failed or not final adoption, so your return will need to go in paper instead of Elektronik and put not final And then what I personally recommend is, um, get a, uh, copy. Ah, good copy from the agency. The advertising agencies in the home study and attach it to that return. Normally, I don't attach anything to return, but in an adoption that's not final or has failed go ahead. Just make the copies and attach it to that paper return. But, yes, you can absolutely take failed adoption expenses. I mean, you just have to wait until the following year, and then you have to. Absolutely. Advertising expenses are definitely a qualified expert.

spk_0:   23:16
Okay, now what happens if let's say Nate and his wife are able that that happened in Ah, let's say 2018. They had a failed expense. A failed adoption. Um, now, in 2019 they were successful. They were, ah, matched. And, ah, the birth parents relinquished their rights and they were successful in adopting a child. Do they get to take two credits? One for the failed and one for the successful Are do they just get one credit?

spk_1:   23:51
Well, you have. It depends on if it was final. If it was final in 2019 I would say combine all of the expenses together because what happens is when you claimed credit for adoption That's not final or that has failed. Whatever credit you received off of that failed or not, final adoption must come off the successful one, and then

spk_0:   24:15
you won't start

spk_1:   24:15
over. Okay,

spk_0:   24:17
So,

spk_1:   24:18
generally, since it was that such a quick succession, um, you know, I I would recommend just combine all of those expenses into the one successful one. That way, you would just start completely over on a CE faras adoption. A tax credit wise, you would just basically start over.

spk_0:   24:37
It is if you have, uh, if you have claimed basically the let me rephrase it in a way that makes sense to me. All right, You get the adoption tax credit for the adoption of a child and the failed placement. The failed adoption, uh, counts as part of your effort to adopt one child. So when you are successful, all the costs which would include the cost that you spent even if you have to redo your home, study the cost you spent for the first home study. All of that is considered part of the cost for the adoption of this one. child. And if the expenses would otherwise be qualified adoption expenses, they can be taken. Did I say that correctly,

spk_2:   25:22
Huh? Really close yet? Oh,

spk_0:   25:25
Oh, dear. No, close doesn't count. So close Only counts. And what hand grenades And whatever the issues. Yes, it was a great age. Okay, so what part was not 100% spot on

spk_1:   25:40
sometimes it's mainly how people perceive tax years. Um, because, you know, people think, Oh, well, I you know, the if it was paid in 2019 I'm doing my tax return in 2020. It doesn't work that way when you're filing your tax return on the 2019 even though you're filing it. And 20 it's still your 2019 returns and income and expenses and credits and all of those things. Um, so that's where sometimes people kind of get twisted up. Um, as far

spk_0:   26:15
as Okay,

spk_1:   26:16
the expenses that were paid, you know, in 18 for the failed, you know. And they would be able to take those on their 2019 return. However, um, you know, I'm I'm pretty sure. You know, I've I've talked to Nate. Um, and this is where Josh and I both come into AA lot. People have told them over. You don't qualify, but you actually d'oh, there's just a couple of details that you gotta figure out in between,

spk_0:   26:44
right? Okay, But the but the part that I was trying to make the point and I saw that I got confused. I messed up the years aspect. The part I'm trying to make the point of is that it's your The adoption tax credit applies to the adoption of a child. And if your failed attempt, you don't get a separate. If you are then successful in adopting you can't then take two credits, Correct? Uh, yeah, that's the point. I was trying to make it and did not make. Although I will say

spk_2:   27:15
that if all you're doing is one child in the examples in the instructions, they talk about this successfully later on adopting twins, which, ironically, is what my neighbors did last year. Well, I guess in 2018 they had a failed attempt and then later adopted twins successfully, so they had to credits. But that's because they successfully adopted two Children,

spk_0:   27:39
right? That would make sense now the second How are the third, I guess question I want to ask about Nate's question is this. He lives in Southern California and is looking for in a tax specialist in Southern California. Is it necessary? But he is right that obviously from his experience, not a lot of of tax preparers are very familiar with the adoption tax credit. Now some are obviously, but but many are not. Do you need to use a tax preparer that is in your region, in your location, in your city? Or can you go outside? And just there would be somebody who is located anywhere else. Can you? Maybe even in Illinois, can you use that person? Are do you need are their advantages to being using someone who is a local, too?

spk_1:   28:42
Yeah, absolutely. You know that the most important thing is whether their local or not is not. To me, it is important as if they have the experience. Um, obviously, enrolled agents are the highest license that you can get with the Irish because we specialize in taxation. We passed three federal stringent federal exams to obtain that designation. I'm the first thing you need to act them is how many adoption tax credit returns. Have you gone? Um um, because of technology is a wonderful thing. You know, most most tax professional tax places do tax returns all over the United States now, enrolled agents are licensed for all 50 states. Um, so I do taxes for all 50 states. I represent clients for all 50 states, and we have a secure portal. Um, I did 42 different states last year, so you know, number one you need to ask the year that prepare whether their local or not. How many adoption tax credit returns have you done? Are you familiar with the law? How many cases have you won? You know, have you won all your cases, If not what? Your percentage? I mean, those air things that you know, we we wouldn't walk into a doctor's office and them not be a licensed professional position, you know, And when, especially when you're dealing with this large amount of money, you know you don't want to take the chance because, um, you know, I I am in tax returns all year long, or either someone who actually qualifies and was told that they didn't buy more than one person that was attacks from here. So local is not as important as experience and knowledge.

spk_0:   30:32
Yeah, exactly. Okay.

spk_2:   30:34
But I will say and not mean obviously back. He's an expert. Fabulous. But this tax credit is often not that complicated. And people can

spk_0:   30:47
try

spk_2:   30:47
do it themselves, too.

spk_0:   30:49
People don't feel comfortable

spk_2:   30:50
that they don't, you know, all for it. But this is I got in tow Facebook tiff a year ago with someone say no. This is too complicated on Lee. A couple of people in the world can do this. It's like no people in have done

spk_0:   31:05
this muscles, and

spk_2:   31:06
they still can. Right you

spk_1:   31:08
in

spk_0:   31:08
the press about complicated

spk_1:   31:09
doing doing

spk_0:   31:10
the

spk_1:   31:10
form is not the where where the issue comes in is dealing with it afterwards. Um, because there have been a lot of cases, um, where we have had to fight the iris, you know, and and we've won every case, but I agree with Josh. The form is not the complicated part. I mean,

spk_0:   31:29
there's a

spk_1:   31:30
particulars on which type of adoption windy claim it. You know, all the things, documentation, all those things. And that's and that's one of the reasons that Josh and I do. What we do is to help families

spk_0:   31:42
here.

spk_1:   31:42
You know, we're not saying you have to come up. Here's the information you know to help you do that. You know, if you want us to help, you will be more than happy to, um, but here's what you need to do

spk_0:   31:55
well. And let's note that in their most often it is going to be cut and dry. Your expenses are going to be out far greater, then the well, especially if you're doing ah, domestic, infant or international. Your expenses are going to be greater than the credit. There are tried and true expenses that you know are going to be your agency for your home study or whatever. And so you're going to get to the credit and you're gonna have easy documentation. So that's about that That's cut and dry. Generally, where you see people who are struggling is, as in Nate's case with a failed adoption, are things like that where it's outside the usual, and that's when you often will find that you don't have um, but you don't have professionals that no, however, I can't tell you the number of people who have told us that they have had their, ah, tax prepare, listen to this course and say, You know, to get information Ah, for the tax preparer. So anyway, it's It's possible to be done before we get off the failed adoptions. Josh, let me just confirm what about a failed international adoption? Because if international adoption fails, there's often significant expenses depending on at what point in time, the adoption falls apart.

spk_2:   33:14
Unfortunately, they are out of luck. The international requires of the adoption be final. There's, um, question there. There's some flexibility about when it's considered final, Um, and that can be found in revenue to different revenue procedures. And I'm happy to talk to people on that, Um, you know, it depends on us, Hey, country or not, But it happened to claim this credit. And the biggest, um, example in the last decade is when Russia closed down. Maybe it's more than a decade at this point. Those families were very unfortunately, out of luck. With all the money they paid up.

spk_0:   33:54
Yeah, that's for sure. Well, that's a great segue way, uh, into when can you claim the adoption tax credit? Uh, so Let's go ahead, Josh, and I'll have you Take that away. Let's start with uh, let's see. Let's claim, Ah, domestic infant if you have a doctrine adoption expenses for a domestic engine.

spk_2:   34:14
Um, if you're in process, um, you can cling the credit like a failed adoption the year after you pay them. So sometimes people take a couple of years. Let's say, started the process in 2017 I paid something in 2017. I paid something in 2018 and I paid something in 2019. Finally got placement and I'm gonna finalize here in 2020. Well, the 2017 expenses I can claim on my 2018 Texas my 2018 expenses I a moment 2019 axes and then my 2019 and 2020 Taxes of finalizing in 2020 claim a year from now when I do my 2020 times.

spk_0:   34:57
Got it. Okay, so that's domestic infant. Now what about international? And you imply that there might be a distinction whether you're adopting from a hey convention country are a non Hey convention country. Let me pause for a second and just briefly explain to people what we mean by that. You know, adoption is just like anything else. We have our own language and our own abbreviations and Hague stands for When you hear people talk about a hate country, it means they're the country that has is a member of or his sign They, uh hey, treaty for the place inter country adoption and, um and and you can adopt from a country that has signed or not signed and that would be known as a hey country are a non Hagen country. So take it away, Josh.

spk_2:   35:50
Um, basically not until final. And the issue that comes up with the two you know, the distinction between hanging on Haig. I can't remember what the exact distinction is. Um, is when it's a considered final. I think in most cases back, you might know if it's adopted. If it's finalized in country, the country that you actually go to and are getting the child from that is considered finalized, um, you

spk_0:   36:19
could

spk_2:   36:19
also, you know, if you're you might run into phasing out the amount of credit you can use. Um, I think there might be situations where you can, um, claim it when you do a re adoption. The US Let's say I you know, I did in country in November of 2019 and I'm re adopting here in Minnesota in January 2020. That might allow me some flexibility between 90 claiming in 2019 and 2020 but can't do it before finalization

spk_0:   36:51
in a Becky, let me ask you a question. That Does it matter whether you're Hager non? Hey, are Does it matter whether, um, most countries now the adoptions are finalized in the courts of the country where the child lives? Not always, though. And it used to be There were more countries where the adoption, the parents are the agency or given guardianship, and then the actual adoption takes place in the state where the family lives. Went here in the U. S. So the So, Is it a Hague Non Hague distinction? Or is it a finalized in country are finalized in the U. S. Distinction.

spk_1:   37:32
Well, generally a non haig country, um, you would need to re adopt in the United States, um, and then for the head countries. Yes, you do have that flexibility, as Josh said sometimes, but you have to make that distinction. Um, either you claim the adoption tax credit when its final in country, um or you climate when it is you re adopt, you can't claim it when its final in country and then try to turn around and claim it again for the re adoption expenses. So if you know that you're going to re adopt, um, you you know, you need to choose. Of course, that a lot of it depends on, you know, your tax situation. Um, you know, modified adjusted gross income. Um, if if you have, you know, in a qualified employer program, you know, to help, you know, taking the exclusion and the credit. Um, so But generally you have that choice. If you're going to re adopt, you could like, he said, you can choose 2019 because it was adoption was final in country. Or if you're going to re adopt. However, like I said on a non head country, generally you need to re adopt in the state. When you get back to the United States

spk_0:   38:53
and again just pointing out the obvious. You don't get to credits, right? It is one credit, right? What child? One credit. So the re adoption is not a brand new. Exactly. Um, yeah. It had that discussion

spk_2:   39:07
in purple People. If they're wanting to Google this revenue procedure 2005-31 is for the non Hey, countries and revenue procedure 2010. Dash 31 is for the Hague country.

spk_0:   39:26
Okay, now, um, let's talk about foster care. Becky, um, when can you claim the adoption tax credit for an adoption through foster care,

spk_1:   39:37
the year that it is final. So let's say your adoption is final in 2019 and you have the subsidy agreement and the final judgment adoption. You would claim the adoption tax credit on your 2000 and 19 tax return that you're getting ready to do. So whatever tax year that the adoption is final, that is the year that you take the credit.

spk_0:   40:04
Okay, Now, if he gets a good segue way into and Beck, I'd like for you to talk about this as well. Um, special needs adoption. And, uh, And then let's also talk at the same time about some of the unique aspects of adopting from how the tax credit applies to adoptions from foster care.

spk_1:   40:26
When a child, um, is declared special needs according to the state's criteria. Um, what the I arrest consider special needs and what you and I consider special needs is two complete different things. What,

spk_0:   40:39
the higher and for pointing that out. What? Yes, What

spk_1:   40:42
the IRS consider special needs is hard to place. So unless there is a subsidy agreement in place and signed with the adoptive family, So what that means is, when the the adoptive family, um you know, they choose adoption of that child, they they're in foster care, they will sign a subsidy agreement with the state, and then each state has different Christ criteria. But if you have that subsidy agreement, whether it's financial or whether it's medical or it doesn't matter what is actually on that subject agreement, it doesn't have to be financial. It's any any subsidy agreement that you have with state that qualifies that child, um, as special needs. And that is what qualifies that family for the full amount of the credit with no expenses. And, um, you know, uh, Josh and I hear it, you know, just probably on a daily basis, you know? Well, I was told I didn't qualify because I didn't have any expense is not the case. Not on a child adopted from the foster care system. They have very rarely, as a child, adopted out of the foster care system without a sub. The agreement, I mean, it does happen, but most of the time you know most. I would say 98% of them that I have seen have a subsidy agreement. And so that is what qualifies him. That is the documentation, the subsidy agreement and the final judgment of adoption. When you adopt the child out of the foster care system, those were the two documents that you need to keep. If the I. R s ever request more documentation and as we discussed earlier, that's always been the issue when it was refundable with documentation. So you know, you you you need to keep that it has to be a signed and dated have the agreement and a sign in dated final judgment adoption. That is what qualifies. That child has special needs,

spk_0:   42:47
got it, and and the distinction. I want to make sure that that it didn't didn't get glossed over in your explanation. And that is, most people who adopt from foster care will not have expenses that equal the $14,080 tax credit. In fact, many, many people have no expense at all. But you can still apply the credit to your taxable to your taxes. Uh, if you adopt from foster care, even if you have no expenses if it helps today. Okay, if you have a a subsidy agreement with the, uh with the state right assigned dated subsidy agreement, which the vast majority of special needs do now, Josh, let me ask a question, because sometimes in this it particularly happens when adopting a very young child or an infant. The child is, Beckett said. The criteria that oftentimes what states are using to decide whether to offer a subsidy agreement is whether the child is hard to place. And in fact, placing an infant is very often not hard. There are plenty of people, and at the time, the child may not be that that the caseworker, the state may not perceive that the child has any special needs air, not hard to place, and there's no perception that the child has a special need at the time. The child's a year old but Oftentimes parents are concerned and want to have the state have have access to re sources at the state money and as other resource is that the state might be able to provide through a subsidy agreement. But they don't need it now in the state would fight them. But they get an agreement that says that it's called different things in different states. But it says that if in the future the child develops and we have reason to believe, maybe the child might, you know, prenatal exposure are our mental health issues it with in the biological family? So what about those where it's an agreement? But you're not getting anything? Um, a TTE the time you're not currently receiving a monthly subsidy? What happens then, Josh.

spk_2:   45:03
So if you have an adoption assistance agreement and what my contact at the Irises said as long as it provides one of three things, these are the three things that are likely to come with an adoption assistance agreement. Um, the 1st 1 is the financial payment, and that's the one that you're basically saying. Some families are not getting that can be called deferred agreements, torment future needs. Um lots different things. High risk. Um, that's the most common thing that's missing in those types of agreements. But

spk_0:   45:35
most of

spk_2:   45:36
those come with Medicaid. There are some states where you might have to request the Medicaid, any family in that circumstance. Even if the plan plan to put the child in private insurance, I would always encourage them to take the Medicaid. Um, if they have toe specifically asked for. And the last thing that can come is reimbursement of non recurring adoption expenses. Sometimes that is a direct reimbursement to the family for auto pocket expenses that they had similar to, like the adoption tax credit expenses. Um, you know, court costs, home study fees, uh, attorney fees, etcetera. And in some states that is directly paid. Even though there is an actual agreement, it starkly played, too, Like the attorney. Um, as long as an agreement has one of those three things, Um, that is enough for the I arrest have been able to get in writing despite me, trying for a good hard decade. Um, that that is good enough for the iris. And we would go to battle for anybody if they were denied on that, um because it is proof for special needs. That's always been our position. Because I deal with adoption subsidy That what I deal with? What I'm not dealing with adoption tax credit. Um, the one state that I know of that has been an issue. Um, and I need Thio circle back to them in Georgia when they do the $0 agreement. It doesn't provide any of those doesn't provide the Medicaid doesn't provide the reimbursement of non recurring adoption expenses. And so that I know a least one case where they were denied it. And unfortunately, because there was no benefit in that otherwise agreement, we were not able to successfully really challenge that.

spk_0:   47:31
Interesting. OK, all right. So just wanted to cover because I think there is some confusion

spk_2:   47:37
over there.

spk_0:   47:37
Definitely

spk_2:   47:38
is. And that's why I've been trying to get a hard answer for, you know, since I think hold five rows six. I was trying to get a hard answer. I

spk_0:   47:45
got it. Let me pause and remind everyone that this show is brought to you by the generous support of the jockey being Family Foundation. They are our partners in underwriting this show and they are looking for adoption agencies who want to provide continued support to their families after adoption. Because Jackie, being family, believes in post adoption, they know that that's where the when the rubber meets the road, so to speak. They have a program called their jockey Being Family Backpack program that provides newly adopted Children with their own adorable backpack. It's personalized with their initials, and it's filled with a bear and a blanket and a tote bag with parenting. Resource is for their parents. This is free for the agency and free for the families and force free for the child. All you need to do is let your agency know about this wonderful resource. They can sign up at the jockey being family dot com website. Just click on the word back. All right. So, Josh, what income level is excluded from claiming the adoption tax credit?

spk_2:   48:55
Um, for 2019 if you your adjusted gross income or modified or just gross income is above, uh is equal to or above 251,160 you will not qualify, and between 202 111,160 the 251 I was in 160. It's always a 40,000 range. You will start to fade out, fade out Any credit that your, um able to claim that year?

spk_0:   49:30
Okay, Becky, we have a question from Alexandria. She says, Can the credit be carried over if you don't use it all? What if you can't use it all in one year because you don't have $14,080 in federal tax liability? How long can you carry it up?

spk_1:   49:47
The the credit is actually a six year credit. So what that means is the first year that you claim the credit, you can use that credit and what you do not use. You can carry it forward for up to five years. So whichever comes first whether you use all of the credit up or that five year carry forward credit timeframe, whichever comes first. So, yes, you can absolutely carry a port. You have to carry it forward on your tax. Return yourself. The iris will not carry it forward for you. So even if you have zero tax liability, as we discussed before, you need to make sure. And, uh you know, claim that credit and carry it forward each year. So you have one after the initial here claiming credit, you have five years to carry it forward.

spk_0:   50:40
Okay. Excellent. All right. Um, Josh, will the adoption tax credit offsets self employment tax? Our will only offset income tax liability.

spk_2:   50:51
It does not anything under other taxes, which is, uh, that's where this self employment tax shows up. It does not offset that. Just the income taxes, federal income.

spk_0:   51:03
Okay. And Becky, we're seeing. Which is this is a very good thing. We're seeing Maur. Employers offer benefits for adoption, which is a wonderful thing. And we are. We're thrilled that that is happening. So let's say you are one of the fortunate ones who has who works for a company. Our employer That does provide some amount of benefits for their employees who adopt. How is that handled eso you? Let's say you get 10,000 from your company to help offset costs. How is that handled in conjunction with the adoption tax credit?

spk_1:   51:43
Well, you have a couple of situations. If if you have a qualified adoption program to your employer, um, you can exclude up to the same amount, um, of income as the credit, which for 2019. 14,000 and $80. It just cannot be for the same expenses. So let's say, for example, you have, uh, you know, 28 above $28,000 in qualified expenses, you can take the credit for $14,080 exclude up to 14,000 and $80. And generally, with most employers, the adoption is generally has to be final. And then, you know, the employer reimburses, uh, the employees, uh, and there's a code on the W two that will reflect that. Um, but a lot of people don't know about that income exclusion. And if your employer does not have that program, it's not hard to do. Um, Dave Thomas Foundation has a great pdf packet on their website. You can take it to your HR department. They actually don't even have to, um, uh, give a grant or a reimbursement. The only actual qualification is that they offer it to all employees, and therefore they couldn't do that Income exclusion. 14,000. Uh, $14,000 of your income not being taxed is huge. So,

spk_0:   53:23
you

spk_1:   53:23
know, if if your employer does not have a qualified, um, adoption program and you're in the process of adoption? Absolutely. Download that. Pdf, take it to your HR department. And it's very, very easy to, um to get that in place.

spk_0:   53:42
Yeah. Excellent. Very good point. And that is the Dave Thomas Foundation. And they, uh, they also have a adoption in the workplace award every year where they list the best companies who provide. Ah, uh, certainly provide benefits and other adoption support their

spk_1:   54:01
name brand companies

spk_0:   54:03
out

spk_1:   54:03
there, Um, that actually have some very good and employee benefits for adoption.

spk_0:   54:11
Okay. Perfect. Earlier we've talked about documentation. Ah, and we spoke of it. Ah. Ah, particularly about how onerous it was during those golden years when the adoption tax credit was refundable. But what about now? It is a non refundable credit. Uh, so what type of documentation? So I'm asking two questions. What type of documentation should you submit with your taxes? And Josh, I'm gonna ask you that, then I'm gonna contrast that by asking Becky, what type of documentation should you keep in your records? So, first of all, Josh, what type of documentation should you submit with your taxes in order to prove that you qualify for the adoption tax credit.

spk_2:   54:56
Unless it's a domestic invent not final adoption, in which case you don't have a soul security number 8 10 And you're, um, having to paper file when, At which point we were suggesting earlier in the program that you said information about the agency or attorney that you're working with. Um, you don't send anything you e file and you do not actually send anything people want to. Don't that will confuse the iris. And you don't want to do that.

spk_0:   55:27
Yeah, you don't want a confused I rest Agent is not a good thing. And twice now, we've mentioned a 10 that stands for adoption tax payer identification number. All right, Becky, what type of documentation should you keep in your records? Because in case just in case. And we hope this doesn't happen. But if the i r. S decides to audit you or just request additional information even short of an audit, what do you need to have in your files?

spk_1:   55:54
Um, depending on the type of adoption for the foster care adoption, what you need to keep is the final judgment of adoption and the subsidy agreement. As I said before, those must be signed and dated. Um, for domestic adoption, you will need to keep the different places, call it different things. Adoption decree. Final decree of adoption but basically the final judgment of adoption. Um, home study, Um, and you know, copies of all of your expenses. Those are the things that are required, and same for International. You will need the final decree of adoption, final judgment of adoption home study, and then ah, good copy of all of your expenses. Those are the things that you really need to keep, um, in an iris marked envelope. And if they ever do request more documentation, you know, don't panic. Just make very good copies. And, uh, whenever you send those copies in, make sure and put whoever is the primary taxpayer on the tax return, make sure and put their Social Security number at the top of every page because sometimes documentation doesn't necessarily get back to the tax returns. But if you put the primary taxpayer social security number at the top of every page, it will get back to their file. So those are the things that you need to basically keep in a in an envelope marked Iris

spk_0:   57:37
and then probably marked the year that yet that envelope per year. Okay, excellent. And in one thing that Ah, let me go back. And I don't think we specifically mentioned this and it comes up, not infrequently. Ah, and that is going back to when we were talking about special needs adoptions. Um, And when Becky said What the i. R. S consider special needs and what you and I consider special mates often difference. And that is particularly the case with international adoptions that could be a child with down syndrome, a child cliff, cliff, Cliff palace. A child with very obvious special need by anybody's definition other than the I. R. Est. Because Children with special needs adopted internationally are not treated the same. This special needs adopted from Austria here, um, anything you want to add Josh to that?

spk_2:   58:30
Yeah, I mean it. In U. S. Code. International adoptions cannot be considered special needs for

spk_0:   58:37
the

spk_2:   58:37
purpose of the I. R. S. However, international adoptions, even if they have lower agency fees and stuff like that, are probably going to exceed the 14,000 amount,

spk_0:   58:48
right?

spk_2:   58:48
Adoption tax credits. So it's it it probably doesn't matter. But the thing I do wanna stress, um, on this is the child has to have an adoption assistance agreement without that adoption assistance agreement. Even if everybody else Yes, this child is disability or something like that. They're not special needs for the purpose of the i. R s. They they've got more explicit. A family lost a case. Um, in tax court, um, where were all centered around the state determined is in in the federal walk and the child met that states definition of special needs. What? They weren't adopted through the state. And so there was never a state determination. And that's where the iris has gotten far more explicit on it has to be an adoption assistance, agree.

spk_0:   59:43
And that's a yes and that and thank you. And that's a great lead in to my final question. And that is kinship. Adoptions. Uh, Becky, how are they handled now? Very often. Uh, let's let's divide. Let's separate them into two categories. One kinship adoption. Where the child was never involved with the foster care system versus kinship adoptions were a child is involved with the foster care system, pecking

spk_1:   1:0:16
kinship, adoptions that are not through the foster care system. They would be for expenses on Lee up Tiu that maximum amount, Um, for 2019. 14,000 and 80 would be what they would be able to coin if the child was through the foster care system. And, um, they have that that subsidy agreement, whether it's, you know, financial or not. But they have that subsidy agreement in place. Then they would qualify for the full amount of the credit with no little or no expenses. So it all it all hinges, um on if they're through that foster care system or not, I said, if they are, if the kinship adoption was not through the foster care system, it would be for expenses on Lee up to the maximum amount

spk_0:   1:1:06
of

spk_1:   1:1:06
the credit. But if they were involved through the foster care system, even though it's a kinship adoption. But if they're through the foster care system and that's of the agreement is in place, then yes, they would qualify for the full amount of the credit with no expense.

spk_0:   1:1:24
And all of this is is um, a good warning for families to consider getting and negotiating for a subsidy agreement. Ah, sometimes families don't do that because they feel like they don't need the money. Ah, are they? For whatever reason, and so there are some advantages to having that subsidy agreement. From the tax credit standpoint, let me pause here to remind people that this show, as well as all the resources we provide it creating a family could not happen without the support of agencies who believe in our mission of providing support both pre adoption and post adoption, and to continue throughout the life span of adoptive families and foster families to continue to support. One such partner is this too. Damar. They are a license nonprofit adoption agency with over 65 years experience helping to create animals. They offer home study only service is as well as full service. Infinite option. International Home Study and Posting Option service is as well as foster to adopt programs. You could get more information about him at the website Vista del mar dot or and in addition, we also have hopscotch adoptions. They are a hate accredited international adoption agency, placing Children from Armenia, Bulgaria, Croatia, Georgia, gotta Chiana, Morocco, Pakistan, Serbia, Ukraine. And specialized in placement of Children with down syndrome and other special needs. They also do kinship adoptions, and we thank them for their support. Okay, well, thank you, guys. This has been, as always, it's been a lot of fun. Ah, we, uh it's it's such an interesting topic. So thank you so much. Josh Kroll and Becky Wilmoth for being with us today to talk about the adoption tax credit. Let me remind everyone that the views expressed in this show are those of the guests and do not necessarily reflect the position of creating a family, our partners or are underwriters. Also keep in mind that the information given in this interview is general ice. To understand how it applies to your specific situation, you need to work with your adoption or foster care professional. Thank you, everyone. And I will see you next week.