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Ok. I'm pretty clear on the fact that you get a $10k credit for adoption expenses. Ours will end up being more than that, so my question is: can I also deduct additional expenses (beyond the 10k)? Not for a credit, of course, but just as a normal tax deduction.
It appears there is something called an exclusion for people whose employers have paid for adoption expenses. So they can get a credit for up to $10k they have spent themselves, PLUS they can exclude another $10k from their gross income if their employer has paid some costs. This doesn't make sense or seem fair to me at all: the employer paid these costs, but the individual gets a tax benefit? What about for the rest of us whose employer will not pay anything and so we bear the costs ourselves? We can't exclude them, so all costs above the 10k credit are paid with post-tax dollars?
How are you all handling any costs above $10k on your taxes? I guess my basic question is: can adoption expenses exceeding the credit be an itemized deduction (just like mortgage interest, charitable contributions, etc)
Thanks.
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I'm not exactly sure I have a handle on excluding income as it pertains to employer adoption assistance, but this is how I THINK it works:
Employee pays a certain amount for their adoption of a child.
Employer hands employee a check for, say, $2,000 as part of the employer's adoption assistance program.
Normally, you'd have to go and add that $2,000 into your income at the end of the year, and pay taxes on it.
But, because you are allowed to exclude the amount of employer's adoption assistance from your income, you don't claim that $2,000 as income. So you don't pay taxes on that money you received from your employer as part of that benefit.
That seems fair to me. If your employer is so great as to hand you some money because you adopted, it would REALLY stink for the IRS to claim some of that money as their own. With the exclusion, they can't. The money your employeer intended for you stays with you.
I do not believe there is anything else that can be done with your taxes to cover an adoption that costs more than you're getting back. Do check into the federal tax credit, any state tax credit your state may offer, employee assistance, etc. You do get the dependent child credit, don't forget. But beyond that, it's just like paying for legal services for anything else - you just pay it.
You are correct that the amount an emloyer pays toward the adoption is deducted from the credit you would calim because the employer contribution was pre-taxed income and there is no tak to credit back to you. So you have already gotten the tax credit on any money an employer pays.
The TAX credit is only for qualified expenses and is limited to the amount allowed during the year the adoption finalizes. For 2003 it was about $10,126 per adopted child....
Reading the threads about how this works with Special Needs or Foster children adoption would likely be confusing because the families who abopt special needs children get the credit no matter how much the adoption cost....
Anything over the amount of the credit is a cost you will have to assume there are very few ways I can think of that these costs might be deductable.... Sorry....
I sort of try and rationalize this because most families who have babies end up with some extra uncovered medical costs, and maternity clothes cost sooo much, and gas to drive to doctor visits, and all the costs that add up when you have a baby the old fashiond way are not deductable either---so in a way it is to be expected that NOT all of the costs of adoption will be covered... Besides, having a child costs a lot anyway so I guess it is a start at getting used to it.......I KNOW THAT SOUNDS SARCASTIC but I am one of those kinds of people who tries to boil it all down....
Hmmmmmm, my husband's employer gave us a $3,000 adoption contribution, but they took out taxes as if it had been paid as a bonus.
We don't get to claim the tax credit this year though because the finalizing paperwork didn't get back to us by Dec. 31st, so I guess we have a year to figure anything out that we need to.
We are definitely going to a CPA for taxes when we do the adoption tax thing. Most people I know that have claimed it, have been audited to make sure they really did adopt. One was audited three years after their adoption.
Jen
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Hi,
I found the irs website pretty helpful. In case the link doesn't come ok. It's irs.gov. Type "adoption " on the search box and it will bring you the updated 968 form info for 2005.
[url]http://search.irs.gov/web/query.html?col=irsweb&col=0&col=0&charset=utf-8&ht=0&qp=collection%3Airsweb%2C+-Wct%3A%22Internal+Revenue+Manual%22&qs=& qc=&pw=100%25&ws=0&la=en&qm=0&st=1&nh=10&lk=1&rf=0&oq=&rq=0&si=0&qt=adoption&criterias=1a&Go.x=14&Go.y=4[/url]
Janine