Tax season can get complicated by divorce and custody: Part I

With January coming to a close, we are now entering tax season (although most Americans will inevitably procrastinate for at least a couple more months). If you have experienced a major change in job or family circumstances in the past year, your tax return may be more complicated than it has been in the past.

This is the experience many Americans have after going through a divorce and child custody dispute. Which parent claims head of household if child custody is shared? Which divorce-related benefits are tax-deductible and which are not? These are some of the many questions you may be facing this year.

As usual, the answers to these questions will depend on your unique circumstances. For head of household, the formula is pretty simple. Do all of these apply to you?

  • You were unmarried as of December 31 of last year
  • Your kids live with you at least six months out of the year (total, not consecutive)
  • You earn at least half of the total household income

If all three of these criteria apply to you, you can file as head of household and take advantage of the higher deductions and lower tax rates that usually accompany it.

Claiming dependents is a little trickier when you share custody with your ex-spouse. As with head of household, your child or children need to live with you and be financially supported by you for at least six months out of the year. Assuming that both you and your ex-spouse meet these criteria, some decisions will need to be made.

Many co-parents stipulate dependent claims in their divorce or child custody agreement. In some cases when there is only one child, parents will take turns claiming the child as dependent (on alternate years). If there are two children or more, co-parents can work out an arrangement where the children are split among both parents for tax purposes. This obviously works best with an even number of kids.

Please check back next week as we continue our discussion about tax complications as they relate to family law.

Source: Forbes, “8 Things Single Moms And Dads Need To Know About Taxes,” Emma Johnson, Jan. 26, 2015

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