The cost of adopting a child can vary greatly for families in Sarasota, and elsewhere, based on a number of factors, including the age of the child, the type of adoption, the circumstances of the adoption, and the type of facilitator or placement agency that is used. According to the Children’s Bureau of the U.S. Department of Health and Human Services’ Administration for Children, Youth and Families, adoption expenses can range from minimal to more than $40,000. For some prospective adoptive families, the costs of adoption may make it difficult to afford.
In order to help offset some of these costs, the federal government offers an adoption tax credit. Through this credit, according to the U.S. Internal Revenue Service, qualifying adoptive parents may be able to reduce their federal tax liability when they adopt an eligible child. Depending on a number of factors, including their incomes, adoptive parents may be eligible for a tax credit of up to $12,970 for the 2013 tax year. This means that if their annual tax liability totaled $15,000, it could be reduced to only $2,030 with the full credit.
To qualify for the federal adoption tax credit, people must have adopted a child under the age of 18 and have paid qualifying adoption expenses. The child cannot be the adoptive parent’s spouse’s child and the adoption cannot be a surrogate arrangement. Furthermore, the adoption cannot violate state or federal law.
The expenses that qualify for the federal tax adoption credit are, as defined by the IRS, the reasonable and necessary costs paid for the purpose of, and in connection with, the legal adoption of an eligible child. This can include attorney fees, court costs, traveling expenses and other costs that are directly related to adopting a child. Any expenses that are covered by the adoptive parents’ employers, through adoption assistance programs, do not qualify.
Adoptive parents can claim the adoption credit on Form 8839, Qualified Adoption Expenses when filing their federal tax returns. In order to claim this credit, people cannot use Form 1040A or 1040EZ. Instead they must use Form 1040. While it is not necessary to send in copies of relating documents, it is a good idea to keep associated receipts, cancelled checks, and other pertinent documentation.