Breaking Down the Adoption Tax Credit for 2020 Tax Returns

Although you can’t legally get out of paying taxes, you can qualify for tax credits that reduce your total tax load. For the 2020 tax year, the IRS allows adoptive parents to deduct qualified adoption expenses of up to $14,300 per child. Rather than passing up free money, you should learn how to qualify for the Adoption Tax Credit for the 2020 tax year.

What Does the Adoption Tax Credit Cover?

Although the IRS wants to help adoptive parents, the federal agency doesn’t allow you to deduct any parenting expenses. Rather, the Adoption Tax Credit only covers two types of tax dollars:

-Adoption assistance income provided by your employer.

-Expenses used to initially adopt an eligible child.

Eligible children include people who are unable to care for themselves and those who are under 18 years of age.

Some of the most common types of qualified adoption expenses include:

-Adoption-related court costs and adoption fees.

-Meals, lodging, and other travel expenses qualify assuming that you travel to adopt your child.

-Fees paid to New Jersey adoption lawyers.

Are There Any Expenses That Aren’t Covered by the Adoption Tax Credit?

Many spouses enter marriages with children from previous marriages or relationships. Oftentimes, the other spouse petitions the court to become an adoptive parent. In addition to offering sentimental value, this measure may offer tax benefits — but not under the Adoption Tax Credit. The IRS prohibits taxpayers from claiming the Adoption Tax Credit for adoptions involving their spouses’ children.

Funding that comes from any government programs, including those at the local, state, and federal levels, can’t be claimed as qualified adoption expenses under the Adoption Tax Credit.

Some employers and organizations reimburse adoption expenses. Although not nearly as common, loved ones or other individuals may also provide reimbursements for adoption costs. Neither of these can be included under the Adoption Tax Credit in 2020.

Lastly, qualified adoption expenses don’t cover adoptions related to surrogate parenting agreements. Of course, you also can’t take deductions for expenses that are covered by other tax credits or that violate any laws.

Can You Get Money Back on Your Tax Refund for the Adoption Tax Credit?

Tax credits can generally be split into two categories: refundable and nonrefundable. Assuming you have no additional tax liability, which means you won’t have to pay any additional money out of pocket when you file your tax return, qualifying for refundable tax credits means that you’ll get additional refund money. Refundable tax credits, for example, include the Earned Income Tax Credit and the American Opportunity Tax Credit.

Nonrefundable credits, on the other hand, can only reduce your tax liability. Even if you don’t have a tax liability, you won’t receive a payment from the IRS for these nonrefundable credits.

Unfortunately for you, the Adoption Tax Credit is totally nonrefundable. Although not as attractive as refundable tax credits, you can still take advantage of the Adoption Tax Credit.

Do You Exceed This Income Level? You Might Not Qualify.

Many tax credits have phaseouts that prevent well-paid taxpayers from qualifying for them. This is true for the Adoption Tax Credit as well.

In 2020, this phaseout begins at a modified adjusted gross income of $214,520. If you’ve earned more than $254,520, you won’t qualify for the Adoption Tax Credit at all.

Don’t Risk Losing This Opportunity — Get Professional Help With Qualifying

Although tax-preparing software has grown to replace the roles formerly filled by many accountants, these websites and computer programs can’t replace insight from a skilled New Jersey adoption lawyer such as Donald Cofsky of Cofsky & Zeidman — we’re waiting to hear from you. Headquartered in Haddonfield, New Jersey, Cofsky & Zeidman can help you plan out adoption expenses ahead of time to minimize your tax load. Call our Haddonfield location at (856) 429-5005, or if you’re located a little farther south, give our Woodbury office a ring at (856) 845-2555.