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Tax Benefits of Adoption

This week we discuss some of the tax benefits of taking advantage of the adoption credit opportunity.  Not only is it good to be able to help another human being and better their lives, but you actually get assistance from Uncle Sam for adopting children.


This tax credit is taken in the year the child is actually awarded to you by the courts, as your adopted child, once the adoption is final. Sometimes, you may pay for the adoption money early, last year for example, but when you actually finalize the adoption is when you get the tax credit.


Here are some points to consider for expenses used as an adoption credit:


  • All expenses used to adopt a child, are given as a tax credit for up to the limit on IRS Tables (Adoptions prior to 2012 receive a refundable tax credit. From 2012 on, the tax credit is non-refundable. This means you will not get a check from the IRS for adoption, just reduce your taxes down to zero. Refundable credits actually may give you a check for the credit amount. This is one tax benefit that does NOT require you to keep receipts for the adoption expenses. Be sure to ask us about whether you need to keep receipts or not for this benefit.)


  • Each dollar of tax credit may be equivalent up to $3 of tax deduction (This is because a tax credit reduces your tax directly, while a tax deduction only reduces the income which is taxed, but the true benefit depends on your tax bracket.)


  • The credit starts to phase out when your household income exceeds certain IRS limits (The IRS publishes annually of the income phase out for this limit. As us what the phase out limit is for this year.)


  • Employers can also pay for adoption expenses and receive a tax credit of the same amount as individuals (Self-employed individuals may claim a tax credit through their C-Corporation, but owners of S-Corporations claim the credit on their personal returns)


  • Special needs children qualify for even bigger tax credits (Be sure you understand the “special needs” description. It is wider in scope than you think. For instance, abused (defined more than just sexually for this tax benefit) children may qualify as special needs)


Be sure to check with us for the current adoption credit amount. Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331.



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