November is National Adoption Month

“My big stand is this:  Every child deserves a home and love.  Period.”

Dave Thomas
Founder of Wendy’s
Adopted child 

Many people feel the same as Dave; including the IRS.

The IRS allows adoptive parents a tax credit of up to $11,390 for qualifying expenses paid to adopt each eligible child. In addition, you may qualify to exclude adoption benefits paid by your employer.   The credit reduces your taxes, and the exclusion allows you to exclude from your gross income any employer-paid expenses. 

Okay, so what’s an eligible child and what’s a qualifying expense?

Eligible child:

• Under 18 years old, or
• Physically or mentally incapable of caring for him/herself

Special Needs Eligible Child

If the child is a United  States citizen or resident, and a state determines that the child cannot or should not be returned to his or her parent’s home, and probably will not be adopted unless assistance is provided, they are considered a special needs child.  The amount of your qualified adoption expenses may be increased if you adopt a child with special needs.  In addition, the credit may be allowed for the adoption of a child with special needs, even if the taxpayer doesn’t have any qualifying expenses.

Qualifying expenses:

• Reasonable and necessary adoption fees
• Court costs
• Attorney fees
• Traveling expenses – including amounts spent for meals and lodging while away from home
• Other expenses directly related to and for which the PRINCIPAL purpose is the adoption of an eligible child

The adoption credit or exclusion cannot be taken for a child who is not a United States citizen or resident unless the adoption becomes final.

An important point to remember:  you cannot claim the credit or exclusion if you adopt your spouse’s child(ren) from a prior union.  These are not considered qualifying children.

So how much credit can you take?  Well, there’s a credit and an exclusion.  Both are subject to a dollar limit and an income limit.  This means that you may not qualify to deduct all of your expenses.

Here’s an example from IRS Tax Topic 607:

“…if we assume the dollar limit for the year is $10,000 and you paid $9,000 in qualifying adoption expenses for a final adoption, while your employer paid $4,000 of additional qualifying adoption expenses, you may be able to claim a credit of up to $9,000 and also exclude up to $4,000.”

If you are planning to adopt, or are currently going through the adoption process, PRO-TAX can help make sure you get all the tax deductions and credits associated with the adoption.  Click here to find a PRO-TAX location near you. 

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