Learn About the 2016 Adoption Tax Credit
Adopting a baby can seem overwhelming on so many levels. Not only can the adoption process seem like a journey, but the actual financial stress can cause some individuals and families to simply give up. One of those most important financial pieces to consider when adopting a newborn baby is the 2016 Adoption Tax Credit. The 2016 Adoption Tax Credit is a tax reduction that can be applied for as an adoptive family. According to the IRS, the maximum adoption tax credit for the 2016 year will be around $13,460. Over time, the adoption tax credit has helped thousands of people and families actually afford the financial aspects of adopting a baby.*
Credit Versus Deduction
Now one of the most important things to remember about this financial tax benefit is that the benefit itself is a credit not a deduction. Depending on your situation, one might even say its better! Let’s take a look at the difference between the two:
What Is A Tax Deduction?
There are actually two types of deductions that can be claimed at year’s end: Standard Deductions & Itemized Deductions. Standard deductions are whole dollar amounts that can reduce your overall taxable income. For example, in the 2012 tax year single filers were able to reduce their entire income by $5,950 while in the year 2013 that same reduction increased to $6,100. This amount is simply subtracted from your AGI (adjustable gross income).
Itemized deductions, on the other hand, are more detailed lists of items that may outweigh a standard deduction. Itemized deductions depend on documentation of items like medical expenses, donations to charity, property based taxes, mortgage interest, and many other items.
Tax deductions are much more common than tax credits.*
What Is A Tax Credit?
Tax credits are much less common than tax deductions and although they cannot reduce your income tax liability stress below zero, they are extremely helpful in lessening higher end of year tax incomers. The 2016 Adoption Tax Credit can help to lessen this end of the year financial burden significantly allowing families and individuals alike to focus on the one thing that really matters: raising your baby!
Let’s take a look at a quick example (The following information is compliments to Dawn Davenport at Creating A Family):
The precise amount of the tax credit depends on the expenses incurred and the amount of taxes owed by the adopting parents. Here are two examples:
- If the adopting parents spent $10,000.00 in recoverable adoption costs but owe only $7,000.00 in federal taxes, they can take a tax credit for only $7,000.00 in the first year following the adoption. But they may carry forward the unused credit for five tax years or until it is used, whichever comes first.
- If the adopting parents owe $30,000.00 in federal taxes in one year and pay $10,000.00 in recoverable adoption costs that same year, they can claim the full $10,000.00 tax credit, thus reducing their tax liability to $20,000.00.
Considering Adopting A Baby?
Contact our Jacksonville Adoption Attorneys here at Love Adoption Life. We can help you navigate all of your options, including the most up-to-date yearly financial breakdowns of what it actually costs to adopt a baby today! Our Jacksonville birth mother and adoptive family experts are standing by and are passionate to help you through your adoption journey here in Jacksonville and throughout Florida. Call us at 904-723-1406 today or simply contact us for a free no obligation consultation.