Q: Can you claim any surrogacy related expenses on your taxes and if so which ones? P.P.
A: The short answer is yes, you can deduct certain surrogacy expenses on your taxes. The long answer is, the majority of the expenses will not be tax deductible. The tax courts have ruled against the taxpayers who are trying to deduct medical expenses related to their surrogate. See our previous post on what same-sex couples can deduct from their taxes.
Here is What Can Be Deducted
- Any medical expense directly attributed to you and your spouse.
- Egg Retrieval
- Sperm donation
- Sperm Freezing
- IVF Costs
Here is What Cannot Be Deducted
- Surrogate Compensation
- Surrogate Medical Bills
- Surrogate Medical Insurance
- Agency Fees
- Anything not directly related to your family
Your Goal Should Be to Use Your Tax Saving Accounts to Pay for the Expenses
The reason is, deducting medical expenses on your tax return is difficult as the barriers are difficult. Most employers offer Health Savings Accounts or Flexible Spending Accounts. They are used only for medical expenses. The money is taken pre-tax so you do not have to pay the government any taxes on the money that goes into those accounts. That can be worth up to a 40% savings, depending on your tax rate. See our previous article on FSAs & HSAs
The best way to plan for the expenses is to start the process in the latter part of the year so you span two calendar years. This gives you the ability to double the max limits of the health savings accounts. There are limits to contributions every calendar year to those accounts and they are fairly low. Combining both calendar year savings should give you enough money to pay for the expensive personal treatments.
There is One More Option You Can Pursue
It is called a Private Letter Ruling from the IRS. This is a lengthy process and most likely won’t work if you are already in the process. The private letter ruling is a private decision from the IRS to give you the ability to deduct the expenses on your tax return only. It does not mean anything to any other taxpayer.
Unfortunately, the deductions most are limited, but now you have some great tools to save a substantial amount of money on the expenses that can be deducted.
—Edward Brockschmidt, CPA & Co-Founder of SeedTrust Escrow
Every Friday, CPA and Co-Founder of SeedTrust, Edward Brockschimdt, will focus on “financial fitness” by answering the most commonly asked financial and tax questions relating to surrogacy and egg-donation.
If you have a question that you would like answered, please comment or drop us a line at [email protected] and we may answer your question in the upcoming weeks.
For additional answers to tax related questions please see Brock’s profile on JustAnswer.com by clicking here.