It’s that time of year again — tax season. If you were lucky enough to have adopted a child in 2019, you’ll be able to take advantage of a huge tax credit: the Adoption Tax Credit.
We know taxes can be confusing. Even though we’re not tax professionals, we have a few tips to help you get started when filing as a new adoptive parent. But, when in doubt, please speak with a tax professional; they can provide the best guidance for your situation.
For most families, claiming the Adoption Tax Credit involves a few simple steps:
Step 1: Understand What the Adoption Tax Credit Is
The Adoption Tax Credit is available for parents who adopted a child (not a stepchild) and paid out-of-pocket expenses relating to their adoption. It’s a nonrefundable credit that offsets the costs of qualifying adoption expenses and is recalculated each year. This year, families who finalized their adoptions in 2019 can receive a $14,080 credit.
As long as you spent that much in qualifying adoption expenses and your modified adjusted gross income is below $211,160, you can receive the full Adoption Tax Credit when filing. This can be applied to reduce your overall tax liability for the next five years following your finalization.
Step 2: Gather Your Eligible Adoption Expenses and Documentation
So, what are eligible adoption expenses for the Adoption Tax Credit?
- Court fees
- Home study fees
- Legal fees
- Medical examinations/physicals
- Travel expenses
- Agency fees
- And any other fees directly related to the adoption
It’s important to note that birth mother living expenses do not qualify as “adoption-related expenses” for the Adoption Tax Credit.
All that documentation you’ve been holding onto will come in handy now. You’ll need to determine exactly how much you spent on eligible adoption expenses. You’ll also need to provide additional documentation to the IRS:
- Final judgement of adoption
- Home study/placement agreement completed by authorized placement agency
- All documentation of paid qualified expenses
All these documents must be signed and dated.
If you’re confused about which documentation is needed and how to determine your eligible adoption expenses, please reach out to a tax professional.
Step 3: Talk to Your Tax Professional
At the end of the day, American Adoptions is a child-placing agency — not a tax professional. Because the Adoption Tax Credit changes every year and how to use it varies greatly from family to family, none of the information in this article is intended to be nor should be taken as financial advice. Instead, we advise every adoptive family to speak with a tax professional for more information.
A tax professional can evaluate your entire financial situation and determine how the Adoption Tax Credit may impact your filing. For most families, it’s a fairly simple process, but working with a professional ensures that every aspect is handled with 100% accuracy.
Not sure how to find a tax professional? The IRS offers a few tips to help you get started.