Qualified Adoption Expenses: A Crucial Tool for Managing the Financial Burden of Adoption

Adoption is an exciting and life-changing experience, but it can also be financially challenging. The good news is that the Internal Revenue Service (IRS) offers tax benefits to help families offset the costs of adoption.

What are Qualified Adoption Expenses?

Qualified Adoption Expenses (QAE) are the costs that adoptive parents pay to adopt a child that the IRS considers eligible for adoption. The IRS defines an eligible child as a child under 18 years of age or a child who is physically or mentally incapable of caring for themselves. Qualified Adoption Expenses include, but are not limited to, adoption fees, court costs, attorney fees, and travel expenses related to the adoption process.

The Benefits of Qualified Adoption Expenses

Qualified Adoption Expenses offer several significant tax benefits that can help families manage the cost of adoption. The most notable benefit is the adoption tax credit, which provides adoptive parents with a dollar-for-dollar reduction of their tax liability for up to $14,440 per child for the year 2020. This credit is available for both domestic and international adoptions.

Another benefit of Qualified Adoption Expenses is the exclusion of up to $14,440 of adoption assistance from an employer-sponsored program from an adoptive family’s income. This exclusion can help reduce the adoptive family’s taxable income, which may result in a lower tax liability.

Additionally, some states offer their own adoption tax credits or deductions, which can further reduce the financial burden of adoption for families.

Eligible Adoption Expenses

While the list of Qualified Adoption Expenses is extensive, it’s important to note that not all adoption-related expenses qualify for tax benefits. The IRS has established guidelines to determine which expenses are eligible, and it’s crucial for families to keep detailed records of all adoption-related expenses to maximize their tax benefits.

The following expenses are generally eligible for the adoption tax credit:

• Adoption fees
• Court costs
• Attorney fees
• Travel expenses
• Re-adoption expenses for international adoptions
• Home study fees
• Medical expenses related to the child’s care before adoption
• Costs related to caring for the child before the adoption is finalized

How to Claim the Adoption Tax Credit

To claim the adoption tax credit, adoptive parents must complete and submit IRS Form 8839 with their tax return. Adoptive parents must also provide documentation to support their Qualified Adoption Expenses, such as receipts, invoices, and legal documents related to the adoption.

It’s essential to consult with a tax professional to determine eligibility and ensure that all documentation is complete and accurate.

Conclusion

Adopting a child is a beautiful and life-changing experience, but it can also be expensive. Qualified Adoption Expenses offer valuable tax benefits that can help adoptive families manage the financial burden of adoption. While navigating the adoption process and the associated tax benefits can be complex, consulting with a tax professional and keeping detailed records can help families maximize their tax benefits and reduce the financial strain of adoption.

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