Believe it or not, many unhappily married couples remain together simply for the tax advantage. Spouses seeking divorce advice are often unpleasantly surprised that after a divorce is finalized, the marriage tax break goes away. The IRS recognizes the marital status of the parties for purposes of their tax return as of the last day of the fiscal year, so 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. An attorney or tax specialist can offer divorce advice that includes the pros and cons of filing as an individual or as a married couple filing jointly.
If a couple is divorced as of December 31, they are required to file their tax return as single taxpayers for that year, even if the former spouses lived together as a married couple more than half the year. Another impact on taxes after a divorce 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. 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.
As a piece of divorce advice, note that 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.
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. An attorney providing divorce advice will explain that the residency requirement (living with the parent more than half the year) means the custodial parent usually has the right to claim the exemptions. Under certain circumstances, however, the noncustodial parent can 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.
Divorce advice pertaining to claiming children as exemptions can be complicated. The child must receive over half of his/her support from the parents and be in the custody of one or both parents for more than half the year. The custodial parent must sign a written declaration (Tax Form 8332) 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 ca a noncustodial parent claim the qualifying child as a dependent.
Ask your attorney for divorce advice specific to the tax ramifications of claiming your children as dependents, because 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.