What Documents Do I Need to File for the Adoption Tax Credit? - Weekend Wisdom

Having the right documentation, signed, dated, and completed, is crucial to maximizing the claim and avoiding delays or audits. But before we jump into the actual documents, let's start with the big changes to this year's adoption tax credit, because these are important details for families to know this year.

Resources:

• Adoption Tax Credit Resource Page
• Finding a Tax Specialist to File Your Adoption Tax Credit Claim
• Adoption Tax Credit (IRS)
• 5 Things to Know About the Adoption Credit (IRS)

Transcript

Please pardon any errors, this is an automated transcript.

Welcome to Weekend Wisdom. My name is Tracy Whitney. I'm the content director for
Creatingafamily .org and your host for this quick conversation about the Adoption Tax
Credit. If you have a question about adoption, foster care, or kinship care,
we would love to hear from you. Send your questions to info at creatingafamily .org
and put weekend wisdom in the subject line. We'll search our archives and put
together an answer that we think will strengthen your family and build your parenting
toolbox. We are
The first question we usually hear is, how much is the adoption tax credit? But
then the very quick follow -up question is, what do I need to document my claim to
the adoption tax credit? And it's true. Having the right documentation, signed,
dated, and completed is crucial to allowing you to maximize the claim and do it
without any delays or audits. But before we jump into the actual documents, let's
start with the big changes to this year's adoption tax credit, because these are
important and good details for families to have this year. The adoption tax credit
is $17 ,280 per child. It's now partially refundable.
That's a huge major shift and a win from recent years. So in the past,
the credit could only reduce what you owed in federal income taxes. Now, up to $5
,000 of that credit can be refunded even if you don't owe that much in your income
taxes. As another bit of good news, that refundable portion can also be used to
cover self -employment tax or early pension distribution penalties, which is especially
helpful for self -employed parents or families who need to access retirement funds in
order to complete their adoption. Another important update is also tied to retirement
accounts. Under what's called a qualified birth or adoption distribution or cubode,
each spouse can withdraw up to $5 ,000 from a qualified retirement plan without
penalties in the year that the adoption is finalized. That doesn't mean it's tax
-free, but it does mean no early withdrawal penalties, which can make a huge
difference in funding and financing and adoption. So let's move on to now that we've
covered all the good news, let's talk about the documentation that you need so that
you can maximize your claim to the adoption tax credit. The documentation portion is
where some families get tripped up, so we're going to go through each one step by
step and talk about it. The first is that every adoption requires a final judgment
of adoption. It's non -negotiable. It must be the final court order and it must be
signed and dated by the proper authority. If it's missing a signature or a date,
the Internal Revenue Service will not accept it. If you adopted through foster care
and you're claiming the credit for a child who has been designated as having special
needs, you also need your adoption assistance eligibility determination,
also sometimes called a subsidy agreement. That document clearly needs to state that
the state has determined the child has special needs. Without that designation, you
may still be eligible for the credit, but the documentation requirements will change.
For non -foster adoptions, such as domestic, private, or international adoption, you
need a home study or a placement agreement completed by a licensed or authorized
placement agency. Again, this document must be signed and dated and completed.
Drafts, unsigned copies, or documents missing approval dates are common reasons that
claims get delayed or audited. You will also need documentation of qualified adoption
expenses. These are the out -of -pocket costs directly related to your adoption,
such as agency fees, legal fees, court costs, travel expenses, and required adoption
-related services. It's important to know that birth mother expenses are not qualified
expenses. Keep all of your receipts, your invoices, canceled checks,
or payment confirmations. Digital copies are fine, but they must clearly show what
was paid, when it was paid, what the expenses were for, and to whom it was paid.
It's important to note that foster care adoptions generally do not require expense
documentation because families are often claiming the credit based on the child's
special need designation rather than the expenses paid. Having said that,
though, you still need the proper eligibility and court documents. And another detail
that cannot be overstated is that the documents must be signed, dated,
and fully completed. The IRS will not accept unsigned home studies, unsigned placement
agreements, undated subsidy agreements, or adoption decrees. Even if everything else in
your claim filing is correct, missing signatures or dates can stop your claim in its
tracks. You also should know that you don't need to submit all of this documentation
with your initial tax return. You do need to keep it readily available and if the
IRS requests verification and many families are asked for verification,
you will need to respond quickly and completely so having everything organized and
together ahead of time while you're making your claim can save you months of stress.
Mark it clearly, clip it all together, and have it easily accessible where you can
find it if you do get a request for verification or anything like that.
It's also where working with a tax professional who understands adoption can be
incredibly helpful, although it's not necessary. Adoption tax issues are specialized
and not all preparers are familiar with how the credit works, especially with these
newer refundable portions and the retirement -related rules. We will list a resource
in our show notes about how to find a qualified tax specialist that has experience
with the adoption tax credit. And finally, we always encourage families to use
trusted official resources for filing for their taxes. Creating a family has a clear,
parent -friendly adoption tax credit resource page. I will link that in the show
notes for you.
provisions that were made for the 2025 tax filing can help ensure that you receive
the most benefit that you're entitled to. Help this information helps.
It's sometimes overwhelming and sometimes confusing. We do have a resource page
specifically for the adoption tax credit, again, that we will link in the show
notes. And we always have an annual podcast, we have an online course,
and we have, again, that resource page. So there's lots of help available to you.
And I hope that you get the full benefit of the adoption tax credit for you and
your family this year. Looking forward to talking to you next week, and I hope you
have a great one in the meantime.