Well it’s tax time again. Our first year as foster parents, we were a bit unsure how to file.
Do we claim the subsidy as income?
Can we claim our foster children as dependents?
Can we write off childcare expenses?
Thankfully our agency sent out letters answering some of our questions.
We were informed that we did not have to pay taxes on the child’s subsidy checks from the agency. They also let us know that we could claim any of our foster kiddos who had been in our home longer than six months (or six months and one day). Great news but even better news what that claiming the kiddos also meant that we could write off their childcare for that year.
Now think back to January 2008. If you felt a small earthquake it was probably me dancing around by my mailbox with the letter in hand. Oh, don’t we all love stuff we can write off at tax time!
We have filed the last several years under those same guidelines and never had an issue. Okay well, minus a minor hiccup in 2010. The IRS had flagged our claim because four children, with four different last names that were also different children from the year before understandably triggered an alarm on their end. Thanks to our wonderful CPA it was an easy clarification and the IRS was satisfied.
So fast-forward… we are now in the 2011 tax season as we close out the past year.
I learned several new things I wished I had known before. What you say? Well, did you know…
Parents who adopt children with special needs get the full $13,360 adoption tax credit, even if actual expenses were less.
Foster parents may be able to deduct some of the costs of being a foster parent as a charitable contribution. Example of this would be, unreimbursed out-of-pocket expenses to feed, clothe, care for and transport the foster child. Sure wish I had kept records and receipts to deduct under the charitable contribution deductions, but there is always next year.
This year also brought up a new question when preparing our taxes.
What if a foster child who is born during the last six months of the year is moved straight from the hospital to your home and remains there the rest of the tax year? Can you claim them as if you would a biological child who was born at any point in the year?
Here’s what I understand thus far from what I can read on the IRS site…
The qualifying child test states:
“The child (*eligible foster child) must have lived with you for more than half of the year.*2”
** An eligible foster child is an individual who is placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
“*2There are exceptions for temporary absences, children who were born or died during the year, children of divorced or separated parents or parents who live apart, and kidnapped children.”
So from what I’m reading, I believe our newest addition will qualify as a dependent. Our CPA will be double-checking before filing that way but we’ve already asked her caseworker to file for her social security number so that we have it ready if we can in deed claim her as a dependent.
Thank goodness for our wonderful CPA and NFPA for their 2011 Foster Parent Tax Guide! Taxes are one thing I’m glad to have someone else handle.
What lessons have your learned when filing taxes as a foster family?