Starting a surrogacy journey can be tough on your wallet and heart. Figuring out the tax rules is a big challenge for parents-to-be. Are you wondering if you can deduct surrogacy costs? The IRS has rules that might help lighten your load.
Looking into surrogacy tax deductions means checking federal and state laws. These laws differ a lot and affect your tax savings. The IRS says you can deduct medical costs over 7.5% of your income. But, surrogacy costs might not fit the ‘medical expense’ label, so some parents seek an IRS Private Letter Ruling (PLR).
The IRS used to be strict on surrogacy costs like paying the surrogate and medical bills. But things are changing. A new bill, the Equal Access to Reproductive Care Act, could make things fairer. It’s gaining support from groups like RESOLVE: The National Infertility Association and LGBTQ+ advocates. Yet, same-sex couples still face hurdles due to the IRS’s strict rules on medical care.
Getting help from a tax expert is crucial to understand these rules. Experts say getting a PLR and proving the need for medical care are key to getting deductions. While you can deduct some costs like IVF, most surrogacy expenses don’t qualify. For advice, agencies like ConceiveAbilities can offer valuable insights and help with financial planning.
Key Takeaways
- Section 213(a) permits deductible medical expenses exceeding 7.5% of adjusted gross income.
- Surrogacy expenses generally are not tax-deductible; consult the IRS guidelines carefully.
- Getting a Private Letter Ruling (PLR) can potentially allow for deductions on unclarified expenses.
- The Equal Access to Reproductive Care Act, introduced in June 2022, aims to change existing tax laws.
- Surrogacy expenses like surrogate compensation and medical bills are generally non-deductible.
- Consulting with tax professionals such as Edward “Brock” Brockschmidt can help clarify deductibility.
Understanding Tax Deductions for Surrogacy: The Basics
Figuring out tax deductions for surrogacy can feel like navigating a maze. It’s important to know if surrogacy financial reimbursement could be part of your tax strategy. Let’s look into what surrogacy-related costs might be deductible and how IRS rules apply.
What Are Typical Surrogacy Expenses?
Surrogacy expenses include both medical and non-medical costs. Medical costs cover things like IVF, egg retrieval, sperm donation, and pregnancy-related costs for the surrogate. Non-medical costs are for legal fees, agency fees, and managing the money in escrow. Surrogates usually get around $30,000 plus extra benefits of $10,000–$20,000.
Intended parents pay for the legal fees. These costs can be high, but knowing what might be tax-deductible could help ease the financial burden.
Medical Expense Deductions under Section 213
Section 213 of the IRS code talks about medical deductions. You can deduct medical expenses if they are more than 7.5% of your adjusted gross income (AGI). The IRS says some costs like donor egg IVF might be deductible if they are needed and a doctor recommends them.
But, deductions under Section 213 have strict rules. Costs for egg donation, IVF, and surrogacy for others usually don’t qualify. You need detailed records to prove your expenses follow IRS rules on surrogacy.
The Role of Private Letter Rulings (PLR)
If you’re unsure if certain surrogacy expenses are deductible, a Private Letter Ruling (PLR) might help. PLRs are requests to the IRS for tax advice on unique situations. Recent PLRs have covered surrogacy costs like egg retrieval and sperm donation. The IRS checks if deductions meet Section 213 criteria, focusing on costs that affect the body’s structure or function.
Knowing these details is crucial, especially when thinking about surrogacy tax credits or deductions. Whether you’re working with a tax expert or keeping up with law changes like the proposed Equal Access to Reproductive Care Act, staying informed is important.
Are Surrogacy Expenses Tax Deductible? Navigating IRS Guidelines
Exploring whether are surrogacy expenses tax deductible can feel like a complex journey. The IRS has strict rules on what you can deduct, making it hard to understand. These rules are full of guidelines and interpretations that can confuse people.
First, you might deduct medical expenses that are more than 7.5 percent of your income. But, surrogacy costs don’t always fit into this rule. The IRS says you can deduct some costs like vasectomies and certain infertility treatments. But, most surrogacy costs aren’t deductible.
But, there’s hope. Since 2003, there have been efforts to make more expenses deductible. CPA Sonia Stewart says IRS changes have helped with IVF costs. This has opened up more deductions, but there are still challenges, especially for same-sex couples.
Getting deductions can also involve Private Letter Rulings (PLRs). Getting a PLR can take 60 to 90 days, and complex cases can take longer. The IRS has allowed some surrogacy costs to be deductible in PLRs, especially if you’ve tried to have a child before.
So, what can you deduct?
- Medical expenses related to the parents
- Egg retrieval
- Sperm donation and freezing
- IVF costs
And what can’t you deduct?
- Payment to the surrogate
- Surrogate’s medical bills
- Surrogate’s medical insurance
- Any other costs not related to your family
It’s important to work with a tax expert. They can help you understand the complex rules of surrogacy and help you get the most deductions you can.
Conclusion
Surrogacy tax deductions are complex and changing. The IRS mainly allows deductions for medical costs for the taxpayer, spouse, or dependents. Surrogacy costs don’t qualify. So, planning your finances carefully is key.
Some parents have struggled to get deductions for surrogacy costs under current rules. This makes understanding the rules very important.
IVF and some infertility treatments might be deductible, but not surrogacy costs. Private Letter Rulings often say surrogacy costs aren’t deductible. A 2021 ruling said costs for gestational surrogacy and ARTs for same-sex couples weren’t deductible.
Getting advice from a surrogacy lawyer, like those at Tsong Law Group, is smart. They can help with financial planning. Laws like the Equal Access to Reproductive Care Act might help make tax rules more inclusive. Until then, parents should plan carefully and consider getting a Private Letter Ruling for financial help. As surrogacy becomes more common, we need clear tax rules for its costs.
