You’re adopting! It’s so amazing to be paper pregnant. But those fee deadlines… those can sneak up on you. So, you’ve applied (and been awarded) for adoption loans to help ease the financial stress during the journey. But, now that your child is home, you’ve got a debt to pay. The fastest way to lessen that debt at one time is to pay it off using your adoption tax credit.
The April after your completed adoption can be a magical one. What was once a stressful season of financial information and IRS deadlines has turned into a wonderful time, where your face smiles simply at the sound of the word “refund.” If you have a completed adoption with qualified adoption expenses (which are defined by the IRS), you are eligible to receive the tax credit. First, you will fill out Form 8839 during tax time and list all your adoption related expenses. You can be reimbursed up to $13,570 per eligible child for past paid expenses in 2017. Your tax credit will pay for all the taxes you owe that year, no more no less. So, for example, if you claim $5,000 in eligible adoption expenses, and you owe $5,000 in taxes, your adoption tax credit will pay your taxes for you. In the same situation, if you had already paid $3,000 throughout the year in tax withholdings, you will get a $3,000 refund! If your claimed eligible expenses exceed the amount you owe, for a single year, it will roll over to the following year.
Once you’ve received your governmental refund, you can then use that deposit to pay off your adoption loan. Knowing approximately how much you pay in taxes throughout the year will help you know how much of a loan you will be able to pay off come April. Remember, you only get a refund for what you’ve already paid, since the credit pays off your yearly taxes. So, use the tax credit wisely. It can be an important strategy for funding your adoption–getting a loan, then using the tax credit to pay it off the following year absolutely works. This method may not only help you complete your adoption, but it can help you do it while incurring very little debt along the way. You just have to make sure you know how much to ask for, and how much you’ll be getting refunded.
The adoption tax credit is a serious blessing that adoptive parents can tap into. Without it, many adoptive families would still be swimming in debt, whether it be interest free or otherwise. Many adopted children come home with other medical needs, so you don’t want to be paying off a loan when you need to be paying for a behavioral therapist. When Uncle Sam gives you your money back, take advantage of it!
For more information from the IRS, please visit: www.irs.gov/taxtopics/tc600/tc607.