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2010 Adoption tax credit
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2010 Adoption tax credit

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A summary of the Federal and State of Michigan Adoption Tax Credit

A summary of the Federal and State of Michigan Adoption Tax Credit

Published in: Self Improvement

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  • Brother Jeff – story
  • IRS announced that carryovers of unused credits to 2010 from prior years would qualify as a refundable credit in 2010
  • Transcript

    • 1. Adoption Tax Credits Michael L. DeVries, CFP ® , CHBC, EA Personal e-mail - [email_address] Office – www.vmde.com
    • 2. Question Why Adopt?
    • 3. His Heart, Our Call
      • "He took a little child and had him stand among them. Taking him in his arms, he said to them, 'Whoever welcomes one of these little children in my name welcomes me; and whoever welcomes me does not welcome me but the one who sent me.'".....Mark 9:36 - 37 NIV
      • "What do you think? If a man owns a hundred sheep, and one of them wanders away, will he not leave the ninety-nine on the hills and go to look for the one that wandered off? And if finds it, I tell you the truth, he is happier about that one sheep than the ninety-nine that did not wander off. In the same way your Father in heaven is not willing that any of these little ones should be lost.".....Matthew 18:12-14 NIV
      • "Religion that God our Father accepts as pure and faultless is this: to look after the orphans and widows in their distress and to keep oneself from being polluted by the world.".....James 1:27 NIV
    • 4.  
    • 5.  
    • 6. Note of Change in the Adoption Credit
      • Was scheduled to sunset at the end of 2010
      • Healthcare legislation extended and revised the the adoption tax credit
        • Increased the amount
        • Extended the increased credit to 2011
        • Made the credit refundable
      • Credit Scheduled to Sunset after 2012
      • Reverts back to $5,000, or $6,000 (special needs)
    • 7. Federal Tax Credit
      • Credit
      • Dollar for dollar reduction of tax
      Year Credit Note 2010 $13,170 Refundable 2011 $13,360 Indexed; Refundable 2012 12,170 Not Refundable
    • 8. Qualified Adoption Expenses
      • Reasonable and necessary adoption fees
      • Court costs
      • Attorney fees
      • Traveling expenses (including amounts spent for meals and lodging) while away from home
      • Other expenses directly related to the legal adoption of an eligible child.
    • 9. Qualified Adoption Expenses
      • Not Expenses…
      • Connected with the adoption of a child of a taxpayer's spouse
      • Of carrying out a surrogate parenting arrangement
      • That violate state or federal law
      • Paid using funds received from a federal, state, or local program
      • That are reimbursed by an employer
      • But, benefits provided by an employer under an adoption assistance program may qualify for the exclusion.
    • 10. Qualified Adoption Expenses
      • Expenses in connection with an unsuccessful attempt to adopt an eligible child before successfully finalizing the adoption of another child can qualify.
      • Expenses connected with a foreign adoption (i.e., one in which the child isn't a U.S. citizen or resident) can only qualify if the child is actually adopted.
    • 11. Qualified Adoption Expenses
      • Taxpayers who adopt a child with special needs will be deemed to have qualified adoption expenses in the tax year in which the adoption becomes final in an amount sufficient to bring their total aggregate expense amount for the adoption up to $13,170 for 2010.
      • They can take the adoption credit or exclude employer-provided adoption assistance up to that amount, whether or not they had $13,170 of actual expenses.
    • 12. Eligible Child
      • Child under the age of 18 at the time the qualified adoption expense is paid
      • If the child turned 18 during the year, the child is an eligible child for the part of the year he or she is under age 18
      • A person who is physically or mentally incapable of caring for himself is also eligible, regardless of age
    • 13. Special Needs Child
      • Child whom the state has determined cannot or should not be returned to his parents and who can't be reasonably placed with adoptive parents without assistance because of a specific factor or condition, e.g., ethnic background, age, membership in a minority group, medical condition, or handicap.
      • Only a child who is a citizen or resident of the U.S. can qualify as having special needs.
    • 14. Employer Adoption Assistance
      • Also, adoptive parents may be able to exclude from their gross income up to $13,170 of qualified adoption expenses paid by an employer under an adoption assistance program. The credit is nonrefundable and both the credit and the exclusion are reduced (phased out) if the parents' income exceeds certain income limits.
      • Adoptive parents may claim both a credit and an exclusion for expenses of adopting a child. But they may not claim both a credit and an exclusion for the same expense.
    • 15. When to Claim the Credit
      • If the qualifying expenses are paid before the year the adoption becomes final, the credit is claimed for the year after the one in which the expenses are paid.
      • If the expenses are paid in the year the adoption becomes final or in a later year, the credit is claimed for the year in which the expenses are paid
    • 16. Example
      • $3,000 was paid in 2008
      • $5,000 in 2009
      • $5,000 in 2010
      • Adoption is Final in 2010
      • The taxpayer claims a $3,000 credit in 2009 (for the 2008 expenses).
      • The $10,000 of expenses for 2009 & 2010 are combined together for the credit in 2010.
      • How much, if this were a Foreign Adoption?
    • 17. When to Claim Exclusion
      • Employer-provided adoption benefits are excluded from the employee's gross income for the year in which the employer pays the qualified adoption expense.
      • In the case of a foreign adoption, neither the credit nor the exclusion may be taken until the year in which the adoption becomes final.
    • 18. Refundable vs. Nonrefundable
      • 2010 & 2011 – Refundable
      • Previously and after 2011 - Nonrefundable
      • The amount of the credit can't exceed the sum of your regular and alternative minimum tax, reduced by the sum of your other nonrefundable credits
      • The credit can reduce your tax
      • The amount of credit in excess of your tax will not be refunded, except for 2010 & 2011
      • Credit is carried-forward 5 years (Notice 2010-66)
    • 19. Income Limits
      • The credit allowable for any year is phased out for taxpayers with Adjusted Gross Income over these amounts:
      • The phase-out rules for high-AGI taxpayers apply for the exclusion as well.
      Year Starts No Credit Over 2009 $182,180 $222,180 MAGI 2010 $182,500 $222,520 MAGI 2011 $185,210 $225,210 MAGI
    • 20. How to Claim
      • Adoptive parents who paid qualified adoption expenses or who received employer-provided adoption benefits must use Form 8839 to compute the amount of the credit and the amount of benefits that may be excluded from their gross income.
    • 21. How to Claim
      • Need valid Taxpayer Identification Number (Social Security Number)
      • IRS can disallow the credit and the exclusion if a valid taxpayer identification number (TIN) for the child is not included on the return
      • Taxpayers can get what is in effect a temporary identification number for a child they are in the process of adopting. This form of TIN, called an adoption taxpayer identification number (ATIN), enables the adoptive parents to claim the credit and exclusion for qualified adoption expenses. Form W-7A is used to get an ATIN.
      • When the adoption becomes final, the adoptive parents must apply for a social security number for the child and, once obtained, the social security number, rather than the ATIN, must be used.
    • 22. How to Claim
      • Notice 2010-66 requires the following attachments to your return:
        • An adoption order or decree for US or foreign adoption finalized in the US
        • For foreign adoptions governed by the Hague Convention a Hague Adoption Certificate (Immigrating Child) and either an IH-2 Visa or a foreign adoption decree translated into English
    • 23. How to Claim
      • Notice 2010-66 requires the following attachments to your return:
        • For foreign adoptions not covered by the Hague Convention, either an IR-2 or IR-3 Visa or a foreign adoption decree translated into English
        • For US adoptions that are not finalized:
          • An adoption taxpayer identification number, obtained by the taxpayer for the child, included on the taxpayer’s income tax return
    • 24. How to Claim
        • Continued:
          • A home study completed by an authorized placement agency
          • A placement agreement with an authorized placement agency
          • A document signed by a hospital official authorizing the release of a newborn child from the hospital to the taxpayer for legal adoption
          • A court document ordering or approving the placement of a child with the taxpayer for legal adoption, or
          • An original affidavit or notarized statement signed under penalties of perjury from an adoption attorney, government official, or other person, stating that the signor:
    • 25. How to Claim
        • Continued:
          • An original affidavit or notarized statement signed under penalties of perjury from an adoption attorney, government official, or other person, stating that the signor:
            • Placed or is placing a child with the taxpayer for legal adoption, or
            • Is facilitating the adoption process for the taxpayer in an official capacity, summarizing the facilitation.
    • 26. How to Claim
        • Special needs children adoptions require the adoption decree or successful foreign adoption papers, as well as a copy of the state determination of special needs
    • 27. Dependency Deduction and Other Benefits
      • Your legally adopted child will qualify as your dependent if the other dependency tests are met, e.g., you provide more than half of the child's support.
      • Even if the adoption isn't yet final, the child will be your dependent is if he or she was placed with you for legal adoption by an authorized placement agency and was a member of your household for at least part of the year.
      • Special requirements apply to adoptions of foreign children who aren't U.S. citizens or residents.
      • Once child is your dependent, you will qualify for the dependency deduction and for other tax benefits, such as the child tax credit.
    • 28. State of Michigan Adoption Tax Credit
      • Eligible taxpayer can claim a credit equal to the taxpayer’s qualified adoption expenses that exceed the amount of the federal tax credit, or $1,200 per child, whichever is less.
      • Refundable Credit
    • 29. State of Michigan Adoption Tax Credit
      • Eligible Taxpayer is a taxpayer that claimed a credit under IRC § 23 for the same tax year that the taxpayer is claiming the Michigan adoption expenses credit.
      • Qualified adoption expenses are expenses that are eligible to be used under the federal IRC § 23.
    • 30. Adoption Tax Credit
      • Notice:
      • To ensure compliance with Treasury Department regulations, please be advised that any tax advice that may be contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.