adoption practice areas

Adoption Tax Credit

One of the most common concerns hopeful adoptive parents have is the cost of the adoption process. Things can become expensive quickly. How can you make the numbers work?

Without fail, this is the most prominent point of stress for families we work with. While some types of adoption have become more costly in recent years, this is a concern we’ve seen in families for more than 20 years. So, if you are considering adoption but scared of the finances, take a deep breath. You’re not alone, and there’s support available.

There are grants, loans and fundraising options that any family can turn to. There’s also the adoption tax credit, a federal credit that can be a massive support to qualified families who have adopted. Applying for, and successfully receiving, the adoption tax credit can be tricky. We can help.

Your attention will be pulled 100 different ways during the adoption process. You’ve got to delegate to make it through. So while you handle the emotional roller coaster, adoption requirements and new responsibilities of parenting, let us work out the adoption tax credit for you.

It may give you a greater peace of mind to understand what’s happening with the adoption tax credit and how it works. We’ll cover the most important things you should know about the federal adoption tax credit in this guide, and how the Gillespie Law Group, LLC can provide support and guidance during your adoption process.

While this article shouldn’t be taken as legal tax advice, we do hope it is helpful. For more specific guidance, you can always call us at 312-332-6339 to talk about the adoption tax credit, or speak with a tax professional.

What is the Adoption Tax Credit?

The adoption tax credit has been around in one form or another since the mid-1990s. Initially, it was a $5,000 credit lumped into the Small Business Job Protection Act of 1996. As time went on and adoption advocacy increased, the credit increased as well.

During the long and heated debates in 2018 over the largest change to U.S. tax code in recent memory, the adoption tax credit was, momentarily, on the chopping block. However, a loud chorus of voices from family advocates across the country kept it enshrined in law.

To this day, it is a valuable resource for many adoptive families.

How Does the Adoption Tax Credit Work?

The adoption tax credit is a non-refundable credit available to qualified families that can cover certain adoption expenses. “Non-refundable,” in layman’s terms, just means that the credit is limited to your tax liability for the one year you claim in.

The exact parameters of the adoption tax credit can change year-to-year. This can include the requirements for qualification, the amount available to qualified families and more. This is one of the reasons we encourage families to seek legal help — tracking the changes on your own can be difficult. We can serve you be staying up-to-date on how you can receive the most credit possible.

With the 2019 adoption tax credit, up to $14,080 is available to qualified families for qualified adoption expenses. The adoption tax credit is also available to families who adopt through foster care, and these families do not have to have any qualified expenses.

Most families who adopt will qualify to receive at least a portion of the available credit. Eligibility is primarily based on income level, and these levels can change from year to year. Currently, the adoption tax credit is:

  • Available in-full to families with a modified adjusted gross income of less than $211,160
  • Partially available to households with income between $211,160 and $251,160
  • Unavailable to families who earn more than $251,160

Qualified adoption expenses, according to the official IRS information sheet on the 2019 adoption tax credit, are:

  • Reasonable and necessary adoption fees
  • Court costs and attorney fees
  • Traveling expenses
  • Other expenses directly related to, and for the principal purpose of, the adoption of a child

What Can I Do to Receive the Adoption Tax Credit?

There are a few practical steps you can take to make sure you get the most possible out of the adoption tax credit. The amount you receive will, first and foremost, be determined by a combination of your eligible adoption expense and modified adjusted gross income. Outside of these factors, you can be proactive in several areas:

  1. Research. First, keep researching the credit. The better understanding you have, the more prepared you will be when it comes time to file. Your research can also help guide some of the financial decisions you make throughout the adoption process.
  2. Stay organized. Second, be meticulous in your record keeping. If it’s a document that has to do with your finances, especially finances attached to your adoption process, then you need to save it. Create a filing system for receipts, credit card statements, bank statements and anything else you spend on your adoption. From travel expenses to agency fees and anything in between, keep your all of your records. This will make it much easier when it’s time to file for the adoption tax credit.
  3. Work with Gillespie Law Group. Last, but certainly not least, is to work with an adoption attorney who has experience with the adoption tax credit. While self-filing services like TruboTax and HR Block may be adequate for basic tax returns, they are not always sufficient for something like the adoption tax credit. You want to get this one right, and be 100% certain that you got the largest possible return.

It is important for prospective adoptive parents to be aware of their full scope of legal and financial options when it comes to adoption. While the Gillespie Law Group does not offer representation in tax law matters, and our attorneys are not tax experts, we do provide clients with basic information regarding the adoption tax credit. Our goal is to provide prospective parents with all the help they need — legal, financial and otherwise — to create their family.

If you want the best shot at receiving serious financial relief from the adoption tax credit, follow these three practical steps.

Find Out More Today

To learn more about the adoption tax credit and how it could benefit you, call our office today. We’ll schedule a free consultation, provide helpful advice and create a plan to get you the biggest return possible on the adoption tax credit.