Adoption is a beautiful opportunity for families who want to grow while helping a child in need at the same time. If you are considering adoption, you already know this, but you might not know it can offer some financial benefits as well. There are certain tax incentives that are available for families who choose to adopt. The following information can help you better understand the tax incentives available as well as what eligibility requirements you must meet to qualify for them.
Tax incentives cover costs of adoption
The adoption tax credit is offered to families who successfully adopt a child, or children, to alleviate some of the expenses they incur throughout the process. Court costs, fees for the adoption and an attorney and expenses associated with travel are all intended to be covered by the tax credit. According to American Adoptions, if such expenses have previously been claimed as deductions or credits, however, they are ineligible to be claimed through the tax credit.
Special needs adoptions may qualify for more
To claim the full tax credit available, families must provide documentation of the expenses they incurred. If you adopt a child who is special needs, though, you may qualify for the tax credit without any such documentation, regardless of whether you are claiming any qualified adoption expenses. In this case, the child you adopt must be designated special needs because of her or his age, ethnic background or other qualifying criteria.
You may also qualify for adoption assistance benefits
Families who claim a one-time tax credit may also be eligible for monthly assistance through adoption assistance benefits. These payments are intended to provide support for adopted children's medical needs and other costly expenses. Families may be eligible to receive such support until the child is 18 or even 21 years of age.
Claim the benefit for the right year
Some adoptive families make the mistake of claiming their tax credit for the wrong tax year. Doing so can complicate the process and make it more difficult to get the right credit. When you should claim the credit depends on when you paid the expenses, whether it was a foreign or domestic adoption and when the adoption was finalized. Typically, however, you should claim for the tax year when the adoption was finalized.
If you are wondering about some of the other specifics of adoption, legal advice may be your best resource. Contacting an attorney can provide the guidance you need.