There are several tax consequences of filing for and finalizing a divorce. Many married couples will remain together in the eyes of the law simply for the tax advantages. The Internal Revenue Service (IRS) will recognize the marital status of a taxpayer as of the last day of the fiscal year. A couple considering a divorce near the end of the year might want to hold off making the divorce final until the following year in order to file a joint return and maintain the marital tax break. If a couple is divorced as of December 31, they are required to file their tax return as single for that year, even if the former spouses lived together as a married couple more than half the year.
Another impact of divorce on taxes is who claims the children as exemptions on their income tax return. It is possible, in some circumstances, to claim the child as an exemption even if the noncustodial parent is claiming the same exemption, or when both parents share physical custody evenly. An experienced tax consultant can provide divorce advice about how the IRS will apply the “tie breaker” rule when both parents claim the same child.
One tax exemption is allowed for each qualifying child and the child must be your son, daughter, stepchild, foster child. The child must be under age 19 at the end of the year, under the age of 24 and a full time student, or any age if permanently and totally disabled. In addition, the child must live with you for more than half the year, and the child must not have provided more than half of his/her own support for the year.
Taxes and Divorce
Even if the child meets the test for qualifying as a dependent, you must still be the parent entitled to claim the child for exemption as a dependent. The parent entitled to claim the dependent is the parent who lived with the child for more than half the year. For noncustodial parents, or parents that share 50/50 joint custody, however, the can still claim the qualifying child as a dependent. For a noncustodial parent to claim the exemption, the parents must be legally divorced or legally separated, separated under a written separation agreement or have lived apart at all times during the last 6 months of the year.
It is important to repeat that the child must receive over half of his/her support from the claiming parent and be in the custody of one or both parents for more than half the year. The custodial parent must sign a written declaration that he/she will not claim the child as a dependent for the year. The noncustodial parent must attach the declaration to his/her own tax return. Only when these requirements are met can a noncustodial parent claim the qualifying child as a dependent.
Some parents agree the tax benefits obtained by the custodial parent will be split among both parents. Other parents have agreements to switch off claiming the dependency deductions every other year. Schedule an appointment today for advice specific to the tax ramifications of claiming your children as dependents. Whoever gets to claim the child will reap all the tax benefits based on the qualifying child, including the child exemption, child tax credit, head of household filing status, the credit for child and dependent care expenses, the exclusion from income for dependent care benefits and the earned income tax credit.