Financing Adoptions.

Julie Lamey said...

I was wondering how one goes about financing an adoption since I have heard how expensive they are.

First the short answer God Provides.

Second, while it can be very expensive to adopt a child, it does not have to be. The total cost to us for adopting our eight children is about $21,000 total. This will drop to as low as about $8,000 over the next four years as the ongoing effect of the adoption tax credits have their effect on our tax bill. Most of that came from our first adoption which occured before the current tax laws went into affect. The last six children were essentially adopted for free once the ongoing tax credits are accounted for. Of course, I am not talking about the cost of raising them here only the cost of the actual adoption.

Because of its importance, let me talk first about the federal adoption tax credit. The federal government gives you up to $10,000 in tax credit per child to cover the cost of an adoption. This a credit not a deduction, which takes away from your taxes owed, not your income. It also will carry over for up to five years if you cannot ues it all the first year. As an example, let's look at the tax liability of a couple with no kids making $55,000 a year and taking the standard deduction. Before the adoption their taxes look like this:

Adjusted gross income	$55,000
Standard/Itemized deductions	$10,300
Personal exemptions	$6,600
Taxable income	$38,100
Tax liability before credits	$4,960
Child tax credits	$0
Estimated tax liability	$4,960

As you can see, they would owe about $5,000 in taxes. However, after adopting a child and spending at least $10,000 their tax situation would look like this:

Adjusted gross income	$55,000
Standard/Itemized deductions	$10,300
Personal exemptions	$6,600
Taxable income	$38,100
Tax liability before credits	$4,960
Adoption credit	$4,960
Child tax credits	$1,000
Estimated tax liability	-$1,000

As you can see, they now get a $1,000 REFUND! That is because the adoption credit covered all of their tax liability, and they still get the $1,000 per child credit that everyone gets, and it is refundable. This will keep going, until the have used up the entire $10,000 of the adoption credit. Assuming their tax liability is high enough, they will get all of their money back from the government within five years. In addition, the states will often give you a deduction for adoption expenses.

Of course, this doesn't solve all of the financial issues. The adoption may cost more than $10,000 and you still need to get the money up front to do the adoption with. I will deal with reducing costs and getting money in the next couple of posts.