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The ins and outs of adopting a child are many, and the decision to adopt a child will certainly affect family finances, but how about your tax bill? This is a detailed area and one that should be discussed with a tax professional, but I do get many questions from clients during the adoption process, and this is usually one of them.
As we near the end of 2015, this is always a good time to begin organizing your tax-related questions and paperwork. Although there are many tax laws that help families pay for adoption expenses through allowable deductions and direct tax credits, most will affect your federal tax return and not your Rhode Island Resident tax return. It is important to learn about these deductions and credits in order to take full advantage of all of the tax benefits owed to you.
Although the State of Rhode Island does not offer an additional tax credit or deduction for adoption, there are few tax laws that you may qualify for in order to lower your Rhode Island state tax bill if you have adopted a child this year or plan to in future years.
If you are a working parent, you may qualify for a tax credit based on allowable work related dependent care expenses. Certain expenses such as child care deducted on your federal tax return are also eligible on your Rhode Island State return. In many cases, this can lower your adjusted gross income and tax liability. Does your employer offer flexible spending benefits? Often times, work related child care can be paid for in pre-tax dollars, reducing your taxable income dramatically.
Many employers also offer financial help to employees adopting children. These benefits range in design from financial reimbursement to paid time-off programs. It is always important to understand benefits offered by employers and many times, these benefits can change year to year.
If you are considering or have recently completed an adoption, this is a great time to meet with your lawyer or financial adviser to learn more about how adoption will affect your finances.
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