As an owner of a CPA firm and a CFO of an adoption agency, I regularly get asked tax questions regarding adoption fees and donations. Here are the top three questions that I receive.
- I’m considering adopting, what will be the tax effect of the adoption?
- I’m considering a donation to an adoption firm, what will be the tax benefit of that donation?
- I’m considering contributing directly to a family member’s adoption fees with an agency, what do I need to know for taxes?
First, I’ve been blessed to see the gift that adoption can be in all lives affected. From the child to the adoptive parents and to the birth mothers. It’s truly been a joy to see tough decisions made that have the capacity of bringing great blessings into people’s lives.
Tax should not be the primary motivator of such an immense decision, but it should help ease the cost of an adoption or a donation.
For Adoptive Families
For adoptions finalized in 2023, there is a federal adoption tax credit of up to $15,950 per child. The tax credit is NOT refundable. Because it’s not refundable, it means that the credit can only be applied against taxes that you have (or would have) paid. This unused credit can be carried forward for up to 5 years. This amount changes slightly from year to year.
There is a phase amount in credit amounts once your income exceeds $239,230 and it fully phases out at $279,230.
Qualified expenses include:
- Court costs and legal fees
- Adoption related travel expenses like meals and lodging
- Other expenses directly related to the legal adoption of an eligible child
- Adoption fees
For Donations
Donating to a 501c3 for an adoption can be a great blessing to a family looking to adopt. There are agencies that can put your donation toward an adoption and there are special agencies that create grants for applicants. They pay on behalf of families using those grants.
As long as you contribute to a registered 501(c)(3), you can deduct these as charitable contributions on Schedule A. The only limits on this contribution are limited to 60% of your adjusted gross income.
For Contributions to a Specific Adoption
Often when a family member contributes directly to a specific adoption situation, they ask about the tax benefit of such a donation. Unfortunately for the donor, these types of contributions are not tax deductible. An agency cannot issue a donation receipt to an adoptive family, not can they issue a donation receipt to an extended family member.
Yes, adoptive families may receive credit for some of the expenses (as outlined above) using FORM 8839, but not as donations. The same goes for extended family, except that extended family cannot use form 8839.
Travis Shreeve is a CPA and partner with Shreeve Landry CPAs. He is also the CFO for A Act of Love Adoptions.
