Many families I talk with don’t realize there’s a tax credit available after their adoptions finalize.
If that sounds like your family, it’s important to know that this credit may be an available option for you, and knowing that may help give you the financial flexibility and knowledge to move forward with your dream of adoption, especially if adoption costs are a barrier.
I recently had the opportunity to sit down with our valued coaching partner, Kelly Ellison. Kelly is the CEO and founder of the Adoption Finance Coaching System and Employee Adoption Assistance Program. Kelly is a true subject matter expert in this field. Below, she has expounded on what every family should know about the tax credit as they explore adoption. Please read on for Kelly’s explanation, and for what you can do to help advocate for this credit in the future.
I often call the Adoption Tax Credit the “eighth wonder of the adoption world.” It’s helped thousands of adoptive families recoup the costs of their adoption.
For adoptions completed in 2016, the credit was $13,460.00. For adoptions completed in 2017, the credit is $13,570. At this time, information about the 2018 tax credit has not been released, but you can check the IRS website (tax topic 607) for updated information.
Please see the resources at the end of the article for more about what’s happening currently with the credit and what you can do to be an advocate.
Bridging the Gap: Demystifying the Adoption Credit
Unfortunately, many families don’t take full advantage of this credit, most often due to a lack of understanding about the credit itself, or because they haven’t received a lot of direction from their tax professional. Some families may have forgotten or might have filed their taxes once their adoption was complete without taking the credit.
The Adoption Tax Credit may be claimed one time for each child and it is, just as its name says, a credit, which means that you can receive back only what you have paid in tax liability. (For a short period in 2010 and 2011, the credit was refundable—i.e., the credit/refund could be more than your tax liability.)
Looking Ahead: Advocates for the Tax Credit
There are many organizations, individual advocates and legislators who support the Adoption Tax credit and who have continued to advocate for it to one day be refundable. They advocated for the importance of the credit when it was in jeopardy in years past, as it may be again in the future.
If this vital credit, which so far, has continued to help so many families today, becomes refundable in the future, it will be that much more of a “wonder” to me. But first, we need to ensure the credit is there in the future by sharing how it supports families with the financial realities of their adoption … so they can focus their attention on growing their family, and on the child who needs their care.
Guidelines to Help You Take Full Advantage of the Adoption Tax Credit
It’s important to plan and be prepared, so while being an advocate on the one hand, here are practical tips you can use related to the tax credit.
- Find out if your tax advisor or accountant knows about the Adoption Tax Credit. If they do not, then find an accountant who is knowledgeable about it and who has used it before. An excellent resource for this (that we at Your Adoption Finance Coach recommend) is Bill’s Tax Service, located in Centralia, Illinois (contact is Becky Wilmoth). I know no better resource that is willing to help families work through all of the intricacies of this credit.
- Ask for a review of tax liability … Once you find an accountant or tax advisor who knows about the tax credit, take it one step further and ask them to review your tax liability and to provide some insight as to how the credit can benefit you.
- Start early. Too often families wait until the end to do this review and planning. It’s much better knowing as you’re going in what kind of refund to expect, or even if it’s better to lower your dependents for a period of time until the adoption is complete.
- Keep all of your receipts! Invest in a folder or binder and mark it “ADOPTION TAXES,” and keep every receipt that you get for your adoption. Don’t try to make the decision about whether it’s deductible or not; you can do that when you sit down to apply for the credit. If you are adopting internationally, the moment you return home, make copies of all of your receipt. Many times, the ink from your receipts collected when traveling will fade over time. This is a ‘Becky Wilmoth recommendation.’
- Know when to file. You’ll file your adoption tax credit once the adoption is complete. For instance, if you began your adoption in one year, but completed the adoption the next year, you’ll claim the credit in that next year’s taxes.
- Learn the income eligibility and phase out ranges for the credit. For instance, for 2016, if your modified adjusted gross income was $243,540 or more, your allowed credit would have been zero, based on the IRS’ income caps for the credit. For those making between $201,920 – up to $243,540, the credit is reduced. Each year this amount changes. Consult www.irs.gov or —or use the resources at the article’s end—to learn about the income caps and where the credit phases out for the tax year you’re inquiring about.
- Don’t forget your state adoption tax credit! Although it is true many states have phased out the adoption tax credit, it’s worth it to find out whether you live in a state that still has this credit. Ask your tax advisor or check your State Department of Revenue website.
- Check with your tax advisor or accountant about how long you can take the tax credit. According to the North American Council on Adoptable Children (NACAC) website, the credit can be taken for six years, the first year your adoption is complete and then for five years after.
The Bottom Line
This credit is an important factor when considering adoption. While there is no “silver-bullet” or now “one thing” that’s going to pay for all of your adoption costs, there are many ways to develop a plan for how you’ll come up with the funds you’ll need to bring your family together.
Adoption Tax Credit Resources for Today (… And Being An Advocate to Ensure the Credit for Tomorrow)
In the meantime, some excellent resources are listed below to help you learn more about the credit … and to help you reach out to your legislators, which has again become important to do in communicating why this credit is vital.
Although the tax credit was made “permanent” … and it is facing current challenges once again, with tax reform and a re-evaluation of federal tax credits. You can make a difference by contacting your state legislators to let them know how important the credit is to the future of so many families. WACAP recommends this Adoption Tax Credit Advocacy webpage with messaging and tips on what you can share with your legislators and for updates about the most current legislative efforts.
Other Recommended Resources for More Information
- North American Council on Adoptable Children
- NACAC’s Adoption Tax Credit FAQ’s
- Bill’s Tax Service
- IRS – (Tax Topic 607)
About Your Adoption Finance Coach and CEO/Founder Kelly Ellison:
Your Adoption Finance Coach offers online resources, training and one-on-one coaching helping adoptive families create and implement a financial plan for completing their adoptions. Founder/CEO Kelly Ellison is also an adoptive parent, and understands the complexities of planning for an adoption and navigating the process. She holds an M.A. in Business Administration and has over 25-years of experience in nonprofit leadership, marketing and fund-development. An experienced speaker, facilitator and executive coach, Kelly brings her background and adoption expertise to over 1,200 families and professionals from over 30 adoption agencies across the U.S.