Adoption Tax Credit

It's Tax Day!

Which for us, is one of the best days of the year..... the adoption tax credit!

Because Caleb is a Financial Wizard, we've always known about this credit, but unfortunately many adoptive families (and even accountants who help people with their taxes) do not know about and do not receive it. 

I am not a Financial Wizard and I do not understand the first thing about taxes or even navigating PayPal. So I am the last person in the world to write anything about a tax credit. But maybe that's a good thing here because hopefully I'll be able to shed light on an unknown topic in an understandable way. 

So here's the deal. The adoption tax credit is a credit- not a deduction, and it's better that way.

For 2016, the maximum credit amount is $13,460. Here is a scenario online I found: 

If your family spent $10,000 on an adoption, and you owe the IRS $7,000 in taxes this year, then the adoption tax credit is applied and you pay ZERO this year. Plus, you have the remainder of the amount you owe carried over to help out next year (in this scenario that is $3,000). 

  

Which brings me to the second great point about this credit: you carry over unused credit each year until you hit the max credit amount of $13, 460. 

Our example: AB's adoption was not finalized until 2014. All total, our domestic adoption expenses for her hit at exactly $15,000. Last year, we didn't hit the max amount, so we're still able to receive the credit on her this year. So we didn't even touch on Joshua's credit this year!

One thing to note. No matter how much your adoption costs, you only get credited up to the max amount of $13,640 (2016). It changes every year due to inflation, so it might be even more next year. 

Who qualifies? Domestic, International, Foster, and Same-Sex Partners (step-parent adoptions do not)

What counts as "qualified expenses"? adoption fees, court costs, legal fees, travel, lodging, and meals directly related to the adoption

If you have adopted since 2011, but have not applied for the adoption tax credit, click here for more information on how you can claim your credit now. 

Also, don't be surprised if you get notified of an audit. There is a 100% audit rate when filing for the adoption tax credit. We have our taxes handled by a professional whenever we are using the credit just to make sure everything is on the up and up when that audit comes in. Still worth it!

Thanks to Abby Bette's tax credit last year, we were able to swing Joshua's crazy expensive adoption. Don't miss out on it!

And can I just reiterate the fact that I do NOT understand taxes! Please leave any insights or better explanations in the comment section. My goal was to help make people aware that this tax credit exists, but I'm not sure I really did a great job explaining it.