Adoption is a beautiful way to expand your family and provide a loving home for a child in need. However, the process of adoption can be expensive, often costing thousands or even tens of thousands of dollars. Thankfully, there are various financial resources available to help families with the cost of adoption, including the Adoption Tax Credit.
1. What is the Adoption Tax Credit?
The Adoption Tax Credit is a non-refundable tax credit that allows adoptive parents to offset some of the expenses incurred during the adoption process. This credit helps reduce their federal income tax liability and can result in significant savings.
2. How much can you claim?
For 2020, adoptive parents can claim up to $14,300 per child as part of the Adoption Tax Credit. This amount increases annually due to inflation adjustments but may vary depending on your circumstances. It’s important to note that this credit is non-refundable; however, any unused portion can be carried forward for up to five years.
3. Who qualifies for the credit?
To qualify for the Adoption Tax Credit, you must have adopted a child under 18 years old or an individual with special needs who was legally determined by a state authority as having special needs before turning 18. Additionally, adopting through foster care or privately both qualify for this credit.
4. What expenses are eligible?
Eligible adoption expenses include reasonable and necessary fees directly related to legal and agency fees, court costs, travel expenses (including meals and lodging), and other documented costs associated with adopting a child.
5. Income limitations
It’s worth noting that there are income limitations when claiming the Adoption Tax Credit. For 2020, these limits begin at $214,520 of modified adjusted gross income (MAGI) per year and phase out completely at $254,520 MAGI per year.
6. Employer-provided benefits
In addition to claiming the Adoption Tax Credit on your federal tax return, some employers offer adoption assistance programs. These programs can provide additional financial support to employees who are in the process of adopting. Be sure to check with your employer’s human resources department to see if they offer any adoption benefits.
7. Seeking professional guidance
Navigating the intricacies of tax credits and deductions can be overwhelming. It’s always a good idea to consult with a certified public accountant (CPA) or a qualified tax professional who has experience in adoption-related tax matters. They can help ensure you maximize your available credits and deductions while avoiding any potential pitfalls.
8. Keeping accurate records
To claim the Adoption Tax Credit successfully, it is crucial to keep detailed records of all eligible expenses incurred during the adoption process. This includes receipts, invoices, legal documents, and travel records. By keeping thorough documentation, you’ll have everything you need when filing your taxes and potentially increase your chances of receiving the full benefit of this credit.
In conclusion, the Adoption Tax Credit provides much-needed financial relief for adoptive parents by reducing their federal income tax liability. By understanding how this credit works and keeping accurate records, families can receive substantial savings that make the dream of adopting a child more attainable for many loving individuals and couples across the country.