Adoption Tax Credit

Between hurricanes, health care and tax reform, too many of my recent blogs have felt at best confusing and at worst depressing. Granted, as someone who works in taxes I am used to not always being a bearer of good news, but this has felt excessive. So today I am going to try to turn the tide a bit and speak of one of the positive times in which I do get to be involved.

One of those happy times comes when someone gets to adopt a child, for I then get to bring the news that it comes with a tax credit. Granted, this is a very small piece when weighed against the importance of the whole situation, but it is one of those instances where if the tax help exists, you should take advantage of it.

Unfortunately, and not surprisingly, this credit isn’t simple, and complicated enough that I could not hope to explain every bit of it in depth in this small amount of space. So to introduce it, I will let the IRS speak for itself. It states that, “tax benefits for adoption include both a tax credit for qualified adoption expenses paid to adopt an eligible child and an exclusion from income for employer-provided adoption assistance. The credit is nonrefundable, which means it's limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years. The maximum amount (dollar limit) for 2016 is $13,460 per child.”

And if any of that doesn’t make sense to you, well it’s the IRS so that’s not surprising, and I promise we will work through it if you are in a situation to utilize it.

I did, however, want to spend some time going through what qualified expenses are for this credit, because how much money one can spend before an adoption is finalized can be quite large. So first of all, these include all reasonable and necessary fees paid for the adoption itself, as well as court costs and attorney fees incurred during the process. Beyond that, though, traveling expenses during the experience count, and this includes food and lodging while away from home.

Another key point is that these expenses count even before an eligible child has been identified. This means that what one pays at the outset of adoption efforts, such as home studies, are qualified expenses. Also, as another point of definition, an eligible child is an individual under the age of 18, or a person incapable of self-care.

There are some limitations, though. First of all, there is a income limit based on your modified adjusted gross income. So it is possible to have enough income that this credit is eliminated. Also, qualified expenses do not include expenses one pays to adopt the child of a taxpayer’s spouse.

Regardless, this credit still applies to a great number of adoptions. It’s a little extra financial bright spot following the brighter spot of an actual adoption. So if you are someone who is eligible for this, please contact us, for we would love the chance to further help celebrate those positive times. It feels like we all could use it. 
​Warmly,

Nicole Odeh
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