First, a disclaimer that your OK FSA co-chairs are NOT tax professionals and that you should talk over your own tax situation with someone qualified if you have questions about your adoption credits.
Next, the great news about adoption tax credits in Oklahoma.
If you had adoption expenses in 2010, even if your adoption isn't final, even if a child hasn't been placed with you yet, Oklahoma has a special deduction for qualified adoption expenses.
Here is the scoop, from the OK tax forms:
Qualified Adoption ExpenseAn Oklahoma resident may deduct “nonrecurring adoption expenses” not to exceed $20,000 per calendar year (Title 68 O.S. Section 2358). Expenses are to be deducted in the year incurred. “Nonrecurring adoption expenses” means adoption fees, court costs, medical expenses, attorney fees and expenses which are directly related to the legal process of adoption of a child. Enclose a schedule describing the expenses claimed.
If you live in Arkansas, my sincere apologies, I don't have much knowledge of that state's tax laws. I've tried researching adoption tax credits, but haven't come up with anything yet. If any of you have info, send it my way so I can post it for everyone.
Now, here is some information on the Federal tax deduction. I hope that I don't confuse you more. They have changed a few things recently (so recently that they don't even have their forms finalized as of this posting). After spending more than an hour discussing our personal adoption situation with the IRS on their phone help line, here is some information I can give you.
If you haven't had a finalized adoption , or even if a child has not even been placed with you yet, if you had adoption expenses in 2009 (yes, I mean the year before last), you can claim them for a credit on the 2010 tax return. I found this rather surprising because I had heard that you can't claim ANYTHING related to an adoption until it is final. But, this is completely untrue. You just have to send in documentation proving that you paid home study fees, etc. There are also special situations that apply differently to special needs adoptions and foreign adoptions.
However, if you started the adoption process in 2010, but haven't had a child placed with you yet, you will need to wait until you file your 2011 tax return to get a credit. If you had expenses in 2010 AND the adoption was finalized, you can claim 2010 adoption expenses on the 2010 tax return.
In any case, here is the information on the 2010 Federal Adoption Tax Credit (and please forgive me for boring you on this post):
Adoption Credit
You may be able to take a tax credit of up to $13,170 for qualified expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses.
If your modified adjusted gross income (AGI) is more than $182,520, your credit is reduced. If your modified AGI is $222,520 or more, you cannot take the credit.
Qualified adoption expenses. Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. These expenses include: - Adoption fees,
- Court costs,
- Attorney fees,
- Travel expenses (including amounts spent for meals and lodging) while away from home, and
- Re-adoption expenses to adopt a foreign child.
. Nonqualified expenses. Qualified adoption expenses do not include expenses: - That violate state or federal law,
- For carrying out any surrogate parenting arrangement,
- For the adoption of your spouse's child,
- For which you received funds under any federal, state, or local program,
- Allowed as a credit or deduction under any other federal income tax rule, or
- Paid or reimbursed by your employer or any other person or organization.
Eligible child. The term “eligible child” means any individual: - Under 18 years old, or
- Physically or mentally incapable of caring for himself or herself.
Child with special needs. An eligible child is a child with special needs if all three of the following apply. - The child was a citizen or resident of the United States (including U.S. possessions) at the time the adoption process began.
- A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home.
- The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
- The child's ethnic background,
- The child's age,
- Whether the child is a member of a minority or sibling group, and
- Whether the child has a medical condition or a physical, mental, or emotional handicap.
When to take the credit. Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. See the instructions for Form 8839 for more specific information on when to take the credit. Foreign child. If the child is not a U.S. citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final. Substantiation requirements. For 2010, you must include a copy of one or more adoption-related documents with your return to claim the credit. Adoption finalized in the United States. For a domestic or foreign adoption finalized in the United States, you must provide a copy of an adoption order or decree. Domestic adoptions that are not final. For domestic adoptions that are not final, you must include an adoption taxpayer identification number, obtained for the child, on your tax return or provide a copy of one of the following documents. - 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 you for legal adoption.
- A court document ordering or approving the placement of a child with you for legal adoption.
- An original affidavit or notarized statement, signed under penalties of perjury, from an adoption attorney, government official, or other person, stating that he or she (a) placed or is placing a child with you for legal adoption or (b) is facilitating the adoption process for you in an official capacity.
Adoptions of special needs children. If you are adopting a special needs child, you also must attach a copy of the state determination of special needs to your tax return.
For more information, including what documents to include for adoptions finalized outside of the United States, see the instructions for Form 8839.
How to take the credit. To take the credit, you must complete Form 8839 and attach it and your adoption-related documents to your Form 1040. Include the credit in your total for Form 1040, line 71, and check box b on that line.
