Bad Adoption Fundraising Ideas And Taxes

It’s tax time, and I’m worried. Not for me, but for some of you.

I’ve been trying to find a nice way of putting this, but I’m afraid I have to be blunt: Some of you are not thinking smart about the tax implications of financing your Russian adoption.

I am not an accountant, but I have labored in and around financial journalism for 20 years, and I have written and edited a fair amount of personal finance stories. And having done two adoptions, I know just how much their cost can weigh on a family budget. But there are good ways to blunt that cost, and there are bad.

Let’s start with the potentially bad. Some of you are talking about things that you are selling to raise funds for your adoption. To you, this is a fundraising effort for the noblest purpose in the world. To the U.S. Internal Revenue Service, however, it is just extra income, and it needs to be reported–and taxed–just like any other source of income. And right now, the IRS is being urged to take a harder look at unreported, and under-reported, income earned by sellers on eBay, Yahoo!, Amazon.com and the like.

Ah, but the IRS doesn’t know how much I’m making, you say. Well, some of you are selling online, which creates an electronic transaction trail. And the money you earn is likely going into a bank account so you can pay your adoption fees, which means the bank is going to be reporting to the government how much interest you earned. The IRS can extrapolate the rest of your income from there.

Significant earnings from adoption fundraisers could also throw you from one tax bracket into another that will cost you significantly more. Let’s say you and your spouse, a married couple filing jointly, make the median household income in the U.S., which is $46,242 according to the most recent data from the U.S. Census Bureau. If you raised $15,059 from adoption fundraisers last year, boosting your income to $61,301, your tax bill would jump from $1,510 plus 15% of the amount over $15,100 in income to $8,440. That puts a pretty nasty dent in your fundraising, doesn’t it? If you raised a little bit more and boosted your income to $62,551, the dreaded Alternative Minimum Tax kicked in. The AMT threshold is likely to be even lower for 2007, so watch out.

I don’t know how many adoptive families have been audited for these kind of issues, but why be a test case? I’m going to also extend that caveat to programs that create a non-profit entity that you can use to collect funds for your adoption.

In my next post, some thoughts on ways to raise funds for an adoption and keep the tax man at bay. And in any case, bring your accountant into the loop on your adoption plans early on.

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