Author Topic: Adoption tax credit questions  (Read 120461 times)

katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Adoption tax credit questions
« on: March 12, 2023, 04:16:34 PM »
Hello,

I am hoping someone who has experience with the adoption tax credit can answer a question for me.  It is Form 8839 “Qualified Adoption Expenses”.

My wife and I are in the process of domestic infant adoption.  This is a slow process and slower the past 2 years due to covid19.  I consulted a tax pro last year (from MMM forums) and understood we were eligible for the credit after paying expenses and the adoption was not finalized.  Here is how he explained it in his recap:

Your adoption expenses incurred in 2021 will be eligible as qualifying expenses for your 2022 tax return.
The expenses you incur in 2022 (Up to the remaining $14,400 limit) can be used as credit:

    On 2022 tax return if the adoption is finalized this year.
    On 2023 tax return if the adoption is not finalized this year.

-

We normally use FreeTaxUSA.  This is their explanation:

Do I qualify for the Adoption Credit?

You may be able to receive the Adoption Credit if you paid adoption expenses in 2021 or 2022. If the adoption is not finalized, you can use adoption expenses paid in 2021. You can take adoption expenses even if the adoption was unsuccessful. If the adoption is finalized, you can use adoption expenses paid in 2021 and 2022. If you are adopting a foreign child, you can only take the Adoption Credit after the adoption process is finalized.

-

In using the software today, I am stuck on the form input as it seems to require the child's name.  We have not been matched/placed yet, so we do not have a child's name to input.  Does this mean that we cannot claim the credit until the placement occurs?  This was not my understanding last year in working with the tax pro nor more recently reading the IRS publication. 

THANK YOU for any help!  This is a stressful time for our family.


Dee_the_third

  • Pencil Stache
  • ****
  • Posts: 557
  • Location: Podunk, Midwest
Re: Adoption tax credit questions
« Reply #1 on: March 12, 2023, 04:25:01 PM »
From the IRS website:

 Qualified adoption expenses paid before the year the adoption becomes final are allowable as a credit for the tax year following the year of payment (even if the adoption is never finalized and even if an eligible child was never identified).

https://www.irs.gov/taxtopics/tc607

If the software is requiring a name, you may have to print off the form and submit on paper. Check with their customer support first. My reading of it is the same as your tax pro- your expenses are allowable the year after you paid them.

katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Re: Adoption tax credit questions
« Reply #2 on: March 12, 2023, 04:37:49 PM »
Thanks @Dee_ !  I filed a support request earlier but they are closed today.

Do you have any info on how long the IRS is taking on paper submissions?  I think it was extremely delayed last year.  (We were hoping to file electronically to avoid a delay).

THANK YOU for any and all info!

Dee_the_third

  • Pencil Stache
  • ****
  • Posts: 557
  • Location: Podunk, Midwest
Re: Adoption tax credit questions
« Reply #3 on: March 12, 2023, 05:22:33 PM »
I filed a 2021 amended return on paper and was told 16 weeks 😅😅😅😅😅

Hopefully (non amended) returns are shorter, but I certainly wouldn’t expect less than 8 weeks.

One option may be to file without the adoption credit (assuming you’re still owed a refund) and then file an amended return to get the rest of it.

katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Re: Adoption tax credit questions
« Reply #4 on: March 12, 2023, 07:13:10 PM »
Thanks again, @Dee_

We would owe a small amount without the adoption tax credit.

If anyone else has input, I would sincerely appreciate it.  It seems like I didn't do my homework on this as well as I should have!

I am hoping this is an issue with the software I use (FreeTaxUSA).  If anyone is willing to play around in their preferred software, it is form 8839.  Again, any help is GREATLY, greatly appreciated!!

Adoption is ridiculously expensive!! :(

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5503
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Adoption tax credit questions
« Reply #5 on: March 12, 2023, 07:34:46 PM »
In using the software today, I am stuck on the form input as it seems to require the child's name.  We have not been matched/placed yet, so we do not have a child's name to input.  Does this mean that we cannot claim the credit until the placement occurs?  This was not my understanding last year in working with the tax pro nor more recently reading the IRS publication. 

From the instructions for line 1 of the form on page 3 column 2:

"If you can't give complete information about an eligible child you tried to adopt in 2021 because the adoption was either
unsuccessful or wasn't final by the end of 2022, complete the entries that you can on line 1. Leave blank any entries you are unable to complete. For example, if you don't have a social security number (SSN) or an adoption taxpayer identification number (ATIN) for your eligible child, leave column (f) blank."

-- https://www.irs.gov/pub/irs-pdf/i8839.pdf (emphasis added.)

I'd leave the name blank and file for the credit using your 2021 expenses on your 2022 return.  Then it looks like you can similarly use 2022 expenses on your 2023 return (and maybe 2023 expenses if your adoption becomes final this year).

It does look like the maximum credit is now $14,890 (2022 form line 2).

Not an expert on this credit.

katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Re: Adoption tax credit questions
« Reply #6 on: March 13, 2023, 07:21:35 AM »
Thanks @secondcor521

The bolded line is what I understood initially from the IRS documentation too. 

The software also requires year of birth so I am wondering if you cannot claim the credit in reality until you're further along in the process (ie child is born). 

I am trying to reach a CPA today to learn more.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5503
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Adoption tax credit questions
« Reply #7 on: March 13, 2023, 09:44:02 AM »
Thanks @secondcor521

The bolded line is what I understood initially from the IRS documentation too. 

The software also requires year of birth so I am wondering if you cannot claim the credit in reality until you're further along in the process (ie child is born). 

I am trying to reach a CPA today to learn more.

I would think you could leave year of birth blank as well.  I would suggest you try different tax preparation software if it doesn't comply with IRS instructions on a credit which you appear to be entitled to.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5503
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Adoption tax credit questions
« Reply #8 on: March 13, 2023, 04:25:52 PM »
Thanks @secondcor521

The bolded line is what I understood initially from the IRS documentation too. 

The software also requires year of birth so I am wondering if you cannot claim the credit in reality until you're further along in the process (ie child is born)

I am trying to reach a CPA today to learn more.

I would think you could leave year of birth blank as well.  I would suggest you try different tax preparation software if it doesn't comply with IRS instructions on a credit which you appear to be entitled to.

[Emphasis added.]

Again, I'm not an expert in this particular credit, but anyone (like me) spending 5 minutes with the instructions for that form can clearly see that adoption expenses for an adoption which isn't finalized (or even an adoption which is never completed) qualify for the credit.  In such cases, it is patently obvious that the taxpayer may not have a name or birthdate, and the instructions clearly say that you can leave that stuff blank.

Given the value of the credit, it would be economically worthwhile to check other tax software programs to see if they handle it better.

katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Re: Adoption tax credit questions
« Reply #9 on: March 13, 2023, 07:29:20 PM »
Thanks again @secondcor521 - I appreciate your help.

I agree with your interpretation as well!

I ran through TurboTax and it works better but still gets hung up on year of birth.  No way to indicate not matched/not born yet, etc.  Error message states: Year must be on or before the current tax year

I am going to try H&R Block as well.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5503
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Adoption tax credit questions
« Reply #10 on: March 14, 2023, 10:32:56 AM »
You could try Free Fillable Forms, assuming it supports that form.  It doesn't do any checking.  It's a bit cumbersome because it barely helps out with the math, but if you've got a not-too-complex tax return already done in another tax program, it would be a matter of carefully typing everything in.  FFF can even e-file.

Or paper file always works, albeit can be slower to get refunds.

katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Re: Adoption tax credit questions
« Reply #11 on: March 15, 2023, 02:50:13 PM »
Thanks again...

I am planning to go with H&R Block preparation.  It will cost a little more but they were able to confirm credit applies and answer some other questions.  Worth it in this case.

secondcor521

  • Walrus Stache
  • *******
  • Posts: 5503
  • Age: 54
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Adoption tax credit questions
« Reply #12 on: March 15, 2023, 03:01:56 PM »
Glad you got it sorted and found a solution that will get you the credit you are entitled to.  Good luck with the adoption(s)!

Alternatepriorities

  • Handlebar Stache
  • *****
  • Posts: 1635
  • Age: 43
  • Location: Alaska
  • Engineer, explorer, investor
    • Alternate Priorities
Re: Adoption tax credit questions
« Reply #13 on: March 17, 2023, 01:34:22 PM »
Is that a refundable credit for adoption expenses?

OP do you have a good resource where I can start learning about it?

Before today I didn't know there was a credit for adoption and never thought it would be relevant, but it seem like it will likely be relevant for me next year and it would probably simplify things to track expenses going in if I need to.

katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Re: Adoption tax credit questions
« Reply #14 on: March 17, 2023, 01:45:23 PM »
Is that a refundable credit for adoption expenses?

OP do you have a good resource where I can start learning about it?

Before today I didn't know there was a credit for adoption and never thought it would be relevant, but it seem like it will likely be relevant for me next year and it would probably simplify things to track expenses going in if I need to.

Non-refundable but you can use it over 5 years.

2 best links I know of:

https://www.irs.gov/taxtopics/tc607

https://www.irs.gov/forms-pubs/about-form-8839


katsiki

  • Handlebar Stache
  • *****
  • Posts: 2015
  • Age: 43
  • Location: La.
Re: Adoption tax credit questions
« Reply #15 on: March 17, 2023, 01:45:58 PM »
Glad you got it sorted and found a solution that will get you the credit you are entitled to.  Good luck with the adoption(s)!

Thanks @secondcor521 for that and all of your help!