How Will Adopting A Child Affect Someone's Tax Filing?

How will adopting a child affect someone's tax filing? If you have recently adopted a child, there may be some things you'll want to be aware of when tax season rolls around. Adopting a child can be an emotional...

Adopting a child can be an emotional time, full of anxiousness, a fair amount of stress, and, eventually, great joy. If you have recently adopted a child, there may be some things you'll want to be aware of when tax season rolls around.


One good thing is that children legally placed in a home for adoption are considered by the Internal Revenue Service to be the same as natural-born children. "When you have a child," explains Brian K. Gilroy, Florida Attorney and CPA, "you get one more dependent and exemption per year." An exemption generally will reduce your taxable income.

In addition to an exemption, when you adopt a son or daughter, it also may make you eligible for additional tax credits. "They're... trying to encourage adoption, so there is actually an adoption credit," explains Mr. Gilroy. "It's Internal Revenue Code Section 23, and it's 'expenses incurred in the legal adoption of a child under age 18, or the adoption of incapacitated or special needs person regardless of age.'"

Some of the expenses that may qualify for the adoption credit are adoption fees, attorney fees, court costs, and expenses, including meals and lodging, if the adoption process requires traveling. This credit is 'phased out', depending you your adjustable gross income (AGI). "'Phase outs' being that, if you make more money than a specified amount," Mr. Gilroy explains.

"If you adopt a child you probably want to go to a tax professional to make sure it's done properly," adds Mr. Gilroy.




As stated above, a legally adopted child is treated by the Internal Revenue Service the same as a natural child. Therefore, in addition to the adoption credit you may receive, you will also be eligible for any credits for your adopted child that you would be eligible were he or she your natural child.

Some of the credits you may be eligible for are:

The Child Tax Credit- in which you may receive up to $1000 (in the tax year 2005) per qualifying child.

The Additional Child Tax Credit- which you may be eligible for if you did not qualify for the full amount of the Child Tax Credit.

Child and Dependent Care Credit- a credit for working families with children under the age of 13 who have paid child care expenses in the tax year.

And, if your child opts to go to college, you can continue claiming him or her as an exemption until age 24, and may also be eligible for education credits, such as:

The Hope Scholarship Credit- a credit of up to $1,500 (in tax year 2005) in educational expenses for qualifying students.

The Lifetime Learning Credit- a credit of up to $2,000 (in tax year 2005) for qualifying educational expenses for qualifying students.

In addition to education credits, student loan interest may be deductible if you are still able to claim your child as a dependent.

Remember that, because an adopted child is treated as a natural child, your adopted child must meet the same qualifying tests as a natural child in order for you to be eligible for the credits. The tests mandate such things as the child being under 19 by the end of the year (or under 24 if a full-time student enrolled in a post-secondary school), living with you for at least half of the tax year, and for whom you have provided more than half their support.

© High Speed Ventures 2011