It's April 15th, tax day so we thought it was fitting to post some info on the adoption tax credit! We'll give you some of the main points and there are links below with much more detail. Did you know that if you adopt a child you are eligible for up to $13,190 for 2014 and $13,400 in 2015 in tax credit for qualified expenses? It adjusts for inflation every year so that's what the rate is more for 2015. The great news is, this is a tax credit, not a mere deduction, or reduction in taxable income. A credit is a dollar for dollar tax reduction. In 2012, Congress and the Obama Administration made this a permanent part of the tax code. "The adoption tax credit offsets qualified adoption expenses, making adoption possible for families who may not be able to afford it. " So, this means that you can actually reduce your tax burden by up to $13,190. If you owe less in taxes than what the credit is, you can actually carry over the remaining balance for up to 5 tax years. So, for example, say you owe $10,000 in taxes for 2014 and have adopted 1 child. That means you could use $10,000 of your tax credit and not actually pay any taxes for 2014 and carry over the remaining $3,190 into 2015. Pretty nice! If you adopt twins, or triplets, or more than one child in a year the tax credit is for each child.
What are qualified expenses? They include attorney or agencies fees, travel costs, and any other expenses directly related to legal adoption. There are income limits for each year as well. For 2014 if your adjusted income rate is <$237,880 you may not claim the credit.
This tax credit does relate to both domestic and international adoptions. If the child is born in the US, you can claim the tax credit in the year after you incurred the expenses. But, if you finalized the adoption the same year you incurred the expenses you can claim the tax credit in that year. For international adoptions you can only claim the tax credit after the adoption is final. Be sure to seek advice from a tax accountant and making sure you are getting the full qualified benefit.
Here's some articles with more detail and where we sourced our info: