Uncle Sam and Embryo Adoption

In case anyone doing embryo adoption (or any other medical treatment) is interested, I wanted to share our experience of itemizing for our taxes. I am NOT by any means a professional, but maybe this can point you in the right direction. 

-We used Turbo.Tax, as we always do. No problems. We did pay $45 for audit protection since we've never itemized before, just incase. The program did speculate that we have a low chance of being audited. 

-Our standard deduction was around $12.5k (married filing jointly). To claim medical, our total deductions (for us things like mortgage and student loan interest, in addition to medical) had to be more than that. We could claim any medical over 10% of our AGI. Once we added up all our medical and subtracted 10% of AGI, we had around $16k. So, it was worth it for us. 

-We tracked medical expenses on a spreadsheet by date and included date, provider name, which one of us it was for, amount, and mileage to appointment (if applicable). As it turns out, Turbo Tax asks for it by category (facility, provider, pharmacy, lab, etc), so we had to divide the spreadsheet up by category. 

-We were not able to claim premiums paid on insurance since our coverage is employer based. My understanding is if you have a private policy, you may be able to. 

-We were able to claim hotels for transfer trips (IRS limited to $50/night) as well as food when we were out of town. 

-We wanted proof of payment in case of audit. For our major services we had throughout the year, we called providers and asked for statements of 2014. It was surprisingly easy. W.algreens required us to show ID and come in person. Everyone else faxed or mailed with minimum hassle. 

-We did not claim anything adoption related such as homestudy or ODAs (open donor agreement). There were random things we found we could claim such as pregnancy tests.

Nearly 70% of Adoption Credit Claims Were Audited by the IRS

Add another item to the list of red flags that may get you audited: Adopting a child.

The Internal Revenue Service mishandled tax returns of adoptive families, flagging for further review 90 percent of those who claimed the adoption tax credit for the 2012 filing season. And a report by the federal agency’s Taxpayer Advocate Service also found that nearly 70 percent of adoptive families — more than 35,000 — had at least a partial audit of their tax return. By contrast, just one percent of all returns are audited.

"The IRS's misguided procedures, and its failure to adequately adjust these processes when it learned its approach was seriously flawed, have caused significant economic harm to thousands of families who are selflessly trying to improve the lives of vulnerable children," according to the report.

Unless the IRS alters its approach to refundable credits and incorporates more taxpayer-focused procedures, the federal agency will continue to cause problems for taxpayers, the report continues, including those eligible for the new refundable credit contained in the Patient Protection and Affordable Care Act — also known as “ObamaCare.”

The Adoption Tax Credit was created by Congress in 1996 to encourage adoption and to help offset costs to low- and middle-income families, which are estimated to run as high as $40,000. At the time, lawmakers touted the promotion of adoption as “one of the most important things” to strengthen American families.

But IRS officials selected 69 percent of returns claiming the credit in the 2012 filing season for audit, compared to just 1 percent of all tax returns. The payoff, however, was relatively small, the report found.

“Of the $668.1 million in adoption credit claims in tax year 2011 as a result of adoption credit audits, the IRS only disallowed $11 million — or one and one-half percent — in adoption credit claims,” the report continued. “However, the IRS has also had to pay out $2.1 million in interest in TY 2011 to taxpayers whose refunds were held past the 45-day period allowed by law.”

An IRS official said the agency must make sure claims are accurate. "The IRS implemented the adoption credit program with an approach that balanced the objective of paying legitimate credits in a timely manner with that of ensuring that claims were accurate," IRS spokeswoman Michelle Eldridge said in a statement to FoxNews.com. "Our experiences and lessons learned from other refundable credits taught us that high dollar credits have high risk and the potential for fraud. We must ensure delivery of the credit to those entitled while protecting the government’s interest in minimizing exposure to fraud."

The crux of the problem, according to the report, began in 2010 as part of  the Patient Protection and Affordable Care Act. Congress at that time increased the maximum credit per child to $13,170 and made it fully refundable for the 2010 and 2011 tax years, meaning that even taxpayers who had no tax liability in those years could receive the credit as a refund. That led to a drastic increase in refunds, making more families eligible for larger returns.

In the 2008 tax year, 89,134 taxpayers claimed the adoption tax credit for a total of $354.5 million. By 2010, those figures reached 110,591 and $1.2 billion, respectively. In 2011, 51,539 taxpayers claimed $668.1 million in credits.

The National Taxpayer Advocate recommends, among other things, that the IRS provide examples of acceptable adoption credit documentation for taxpayers, develop a third-party affidavit form for verifying a child’s special needs status and to allow electronic filing of adoption tax credit returns that included substantiation in a digital format.

“The IRS, facing a sizeable refundable credit, reacted with an enforcement strategy that was focused on stopping nearly all returns claiming the credit and subjecting a large percentage of them to an audit, instead of reaching out to stakeholders (including states) to understand the impacted taxpayer population,” the report concludes. “When problems emerged, the IRS simply continued selecting returns for audit. This approach forced taxpayers to withstand lengthy delays and the IRS to expend valuable resources with very little to show for them.”

Read more: http://www.foxnews.com/us/2013/05/24/nearly-70-percent-adoption-credit-claims-were-audited-by-irs-report-finds/#ixzz2UYD2jm4T

Funding an Adoption

In an effort to gather resources if we need them when the time comes, this is what I have found online (note I am only listing resources for domestic adoption- some of these may apply for international, and there are many more not listed for international assistance):


10/6/13 Update:
I found this listing with even more resources: http://www.bethany.org/assets/guides/Adoption-Financial-Resources.pdf


Grants
Gift of Adoption Fund
http://www.giftofadoption.org/
Eligibility: Any type of family
Range: $1,000-$3,500
Cost to apply: $50
Awards: Monthly
Factors Considered: status of referral or match, estimated travel and placement timeframe, extent of remaining need
Timeframe: "Although qualified applicants are invited to apply anytime after the successful completion of a home study, the committee will not typically review applications until a match or referral has been accepted and the adoption is expected to happen within six months"
What you need: their application, most recent tax form, recent check stub, copy of approved homestudy, two letters of reference
Meets BBB standards

Show Hope
http://showhope.org/restore-hope/adoption-aid/#
Eligibility: Christian singles or families
Range: Average of $4,000
Cost to apply: None noted
Awards: Six times per year (deadlines of Feb 28th, April 30th, Jun 30th, Aug 31st, Oct 31st, and Dec 31st)
Factors Considered: "Funding priority will be given, but not limited, to families with the greatest financial need who complete the application process with integrity, establishing that they are equipped to provide a child with a loving home consistent with the founding principles of Show Hope".
Timeframe: Once homestudy is completed (have to be using a placement agency)
What you need: Church address, phone number, e-mail and website; IRS tax information for the last two years it is available (Copies of those year's W2s and tax returns); Net worth of property, investments, goods, and liquid assets; Annual budget information for both income and expenses; Address, phone, name, and email of your adoption agency and caseworker; Your home study (these will help you fill out all documentation which includes statement of faith, financial worksheets, letter from agency, letter from pastor/church)
Charity Navigator score

Help Us Adopt
http://www.helpusadopt.org/faqs.html
Eligibility: "Anyone, as long as you are a US Citizen residing in the US. You must be able to demonstrate that you can provide a stable home environment for the child (approved home study) while demonstrating that you are facing significant financial obstacles and need financial assistance with your adoption expenses. Helpusadopt.org accepts applications from couples and individuals regardless of race, religion, gender, ethnicity, marital status or sexual orientation."
Range: $500-$15,000
Cost to apply: None noted
Awards: Twice a year (deadlines of 4/12/13 and 10/11/13)
Factors Considered: priority given to applicants without children; must demonstrate that while you can provide a stable environment for a child, you are facing significant financial obstacles and need financial assistance with your adoption expenses; must distinguish the difference between "not wanting" to write the check(s) for your adoption expenses and "not being able to".
Timeframe: Once homestudy is completed
What you need: application (online), copy of homestudy, copy of most recent tax return, typed personal statement
*GRANTS MUST be utilized within 12 months of award, or else are returned to agency

Lifesong for Orphans- Matching grant
http://www.lifesongfororphans.org/adoption-funding/adoption-grants/ 

"We provide you with a matching grant and a support raising kit. The grant acts as a catalyst to the process which allows friends who wish to support your adoption to receive tax deductible receipts for their donations".

 Eligibility: Two parent Christian homes
Range: $1,000-$4,000 (matched to amount fundraised)
Cost to apply: None noted
Awards: Ongoing basis (application processed in 8-10 weeks)
Factors Considered: The leading of the Holy Spirit; The need of the child (special needs, older child etc); The financial need of the prospective adoptive parents; the referral and level of support from the local church pastor/leader; availability of funds

Timeframe: After homestudy is complete
What you need: application (online), photograph, tax return, copy of homestudy, letter from pastor

National Adoption Foundation
https://fundyouradoption.org/fund-your-adoption/our-programs/naf-grants/
Eligibility:Any type of family
Range: $500-$2,000
Cost to apply: $10
Awards: The amount of each grant and the number of adoption grants awarded depends on the funds available at the time of the Board’s meeting.
Factors Considered:Unknown
Timeframe: Our selection committee meets four times a year (March 31st, June 30th, September 30th and December 31st) . We only notify those who have been awarded grants either by phone or email by within 15 days after the close of the quarter.
What you need: application (online); PDF of homestudy


Loans
Lifesong for Orphans
http://www.lifesongfororphans.org/adoption-funding/adoption-grants/

Loan amounts are between $5,000-$10,000 and the exact amount is based on your financial need and Lifesong’s available funds. Repayment terms are determined on an individual basis and repayments are made on a monthly and/or annual basis.
Eligibility: Two parent Christian homes
Interest: Interest- free
12/2013 update: Application says loan amount between $3,000-$12,000

ABBA Fund
http://www.abbafund.org/faq.htm
There is no limit on the amount of assistance that a couple may request. However, at times our resources may be limited, so we expect the adopting parents to try to obtain financial assistance from other sources first (for example, your church, your employer, organizations providing grants, etc.) and use The ABBA Fund to make up any shortfall. That way, we are able to help more families.
Eligibility: Two parent Christian home; , (a) spiritual maturity; (b) worldview; (c) the length and stability of the applicants' marriage (but loans have been made to both young and old!); (d) church involvement; (e) philosophy of education; (f) whether the mother works outside the home or is at home with the children (the Board prefers the mother to be home with the children, although loans have been made in certain cases to couples where both parents work outside the home); and (g) how much of their own money the applicants are putting into the adoption (the Board prefers that the applicants have a large percentage invested in the adoption, but the Board has made loans in certain cases that covered almost all of the expenses due)
Interest: Interest-free


Fundraising
Both Hands
http://www.bothhandsfoundation.org/apply-for-adoption-assistance

Ask people you know to sponsor you while you and loved ones make minor repairs and do home improvement projects on the home of a widow (get supplies donated, and this allows you to keep 100% of what people donate). This organization supports you through the entire process: gathering a team, writing letters, etc. Their guidance is totally free based on donations they receive. I have personally met the director/founder, and I can say this is a great organization!
What you need: application (online), financial statements, copy of homestudy, most recent tax return

http://www.walkingbytheway.com/blog/the-ultimate-list-of-adoption-fundraisers/
Here is an ultimate list of adoption fundraising options, everything from t-shirts to selling jewelry to car washes and more.

http://www.addingaburden.com/2012/08/adoption-fundraising-advice.html
Here is a list from "Adding a Burden" which is a great adoption blog I love to read!


Other
http://kidsactivitiesblog.com/2195/save-money
Here are tips on being frugal and just in general saving money. So far two big things we have cut out to save money are not eating out as often and forgoing a vacation 2 years in a row (we normally go on a pretty big shebang every year in May).

http://adoptiontaxcredit.org/faqs/
The Adoption Tax Credit was approved several months ago (see my previous posts). Basically, you can get a $12,970 credit per child. The credit is not a deduction. The credit is a dollar for dollar reduction in the amount of federal taxes owed for the year. It can be carried over 6 years, assuming that most people won't have that high of a liability over just one or two years.

So, you will still need to have all your adoption expenses up front, but over the course of the next several years after finalization, you can get some money back on your taxes. This can help either by you using an interest free loan through above listed or other organization and utilizing this credit to pay them back, or to pay yourself back if you are taking money out of savings to pay for the adoption.

Adoption Tax Credit Update

Source of this information comes from the "Save the Adoption Tax Credit" Facebook page: "The IRS has released the official inflation-adjusted numbers for 2013. The maximum adoption tax credit for 2013 is $12,970. The credit begins to phase out for taxpayers with a modified adjusted gross income of $194,580, and the credit will phase out completely at $234,580." It is reported that the amount can be spread out over 5 years of tax returns.

Adoption and the Fiscal Cliff

If you're like me, you're sick of hearing about Congress slowly "working together" to get a financial plan for the new year. However, I have been interested in the outcome of the Fiscal Cliff legislation because it could potentially affect our adoption.

Since 1997, an adoption tax credit has been offered in several different forms. For example, last year there was a credit of $12,650, that could be carried across five years, meaning you got a credit of that amount on what you owe at the end of the year. If you paid $6,000 worth of taxes per year, you'd get that back for two straight tax refund checks. For a few years before that, the credit was refundable meaning you'd get the $12,000+ back on top of whatever refund you'd normally get. So long story short, even though many adoptions cost $20,000-$30,000+, you could potentially get part of that back through a tax credit. Yay!

Many agencies I have looked into even point out the adoption tax credit as part of "financing adoption". Well, that wouldn't help too much if the credit went away (or in the case of what almost happened, it would be cut in half and only apply to some adoptions).

Luckily, the adoption tax credit was part of the Financial Cliff deal. What was decided upon was a $10,000 credit that is non refundable, meaning you don't get that amount automatically back on your tax refund check, but you do get to credit that toward what you owe. What that means for us is we will likely get $10,000 but it will be spread over a couple years, won't start until the fiscal year after we finalize our adoption (which can only happen at least six months after a placement... so potentially years away), and will really be just getting some of the money back that we pay in taxes. It's better than nothing, and I am certainly grateful for it, because saving for an adoption sure puts a dent in anything else we would otherwise be saving for... house repairs, saving towards the next car, etc.