An employer may deduct the cost of adoption assistance that is provided to its employees. However, adoption assistance plans do not make sense for small employers, since no more than 5 percent of benefits can go to owner-employees.

Specific Details

The employer reduced his taxable income by $5,000 by deducting the cost of adoption assistance that is provided to his employees. Since the business income was taxed at the 30% tax bracket, the income reduction may decrease its income taxes by $1,500 ($5,000 x 30%).

Potential Savings

If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by deducting the cost of adoption assistance that is provided to your employees.