Tax season is around the corner again. If you recently dissolved your marriage, you will need to update your status when you file taxes this year. This change will affect how much you’ll pay the IRS. If you are a parent, you’ll see some other changes, too.
Americans with children have several tax breaks, which may include:
- A higher standard deduction
- An exemption for each dependent child
- A deduction for child care costs
- A deduction for educational expenses
- A child tax credit
Even if you have joint physical custody of your kids, you and your ex can no longer share these tax breaks. The Internal Revenue Service (IRS) requires only one tax return to claim a child, which means only one parent will get the deduction.
When parents share custody, the custodial parent (meaning the parent who spends more nights with the child) usually gets the tax deductions. However, parents can come up with a different arrangement that benefits everyone more.
Families may instead do one of the following:
- Allow the higher income spouse to claim the children on taxes in exchange for more child support (which is tax-neutral)
- Alternate taking the child-related deductions
- If there is more than one child, parents may split the deductions
The non-custodial parent may only claim the child if the custodial parent fills out the correct form to allow it. The ex-spouse must then attach the form to his or her income tax return. In addition, if you and your ex-spouse decide a different solution is better than giving the custodial parent the tax deductions, your divorce agreement must properly note that decision.
If you have questions about putting tax-related decisions in your divorce agreement, we can help. Feel free to contact our firm.
Divorce has many tax-related implications. Before you file taxes for the first time after divorce, it’s a good idea to speak with an experienced financial planner to get the right information and avoid mistakes.