One of the biggest fights between divorcing parents is about who gets custody of the kids. The second biggest fight is over who gets to claim the kids on their tax returns and the deductions and tax credits that go along with the kids.
The exemption and credits on the tax return can involve big money. And the IRS has its rules but divorcing parents can get exemptions to those rules when appropriate legal arrangements are made.
WHAT YOU NEED TO KNOW ABOUT CLAIMING THE KIDS
There are specific rules about the kids and divorcing and divorced parents so they must be followed.
1. If you don’t follow these rules it will cause havoc with your tax return.
2. Only one person may be eligible to claim a qualifying child as a dependent — and that means parents can’t share or split up the tax benefits.
3. In general, the custodial parent gets the child’s tax deduction. The custodial parent is considered to be the parent who has the child the most number of nights during the year. But this can be changed with a legal agreement.
4. If the child lived with each parent for an equal number of nights during the year, the parent with “custody” is the parent with the higher Adjusted Gross Income. But this can be changed.
So How Can These Rules Be Changed?
Often, when parents divorce, it is decided that the parent who pays child support to the custodial parent in return gets the tax write-offs. If you have a question about this ask your attorney or your tax expert. Don’t leave anything to doubt. Who gets the write offs can also apply to who pays for medical expenses and who gets to deduct those medical expenses. Remember there is no tax deduction for paying child support. So as part of this “child support deal” the custodial parent will sign IRS Form 8332 which gives the tax deduction to the non-custodial parent.
FORM 8332 IS IMPORTANT
The non-custodial parent submits Form 8332 with their tax return. This form goes to the IRS so they can verify who gets the deductions and credits if there are also credits.
Form 8332 also applies to certain tax credits but it doesn’t apply to the Earned Income Credit, the Dependent Care Credit or the Head of Household Filing Status.
Discuss these points with your tax professional and with your attorney. And while we are on the subject of divorces, remember that a few years ago there was a dramatic change made about the tax deductibility of alimony payments. New divorce agreements do not allow alimony to be tax deductible so again get professional advice about alimony.
THE KIDS AND YOUR TAX DEBTS
Your tax professional will want to know about your obligations including child support and child deductions if you have a tax debt issue that you are trying to resolve with the IRS. The size of your family and your obligations can impact your eligibility for an Offer In Compromise with the IRS or an IRS Fresh Start Initiative. So be sure your tax professional knows the facts.
OFFER IN COMPROMISE AND FRESH START OPTIONS
The IRS has formulas for who is eligible for the IRS Offer In Compromise Program and for the IRS Fresh Start Initiative Program and obviously your obligations for child support will impact your eligibility. Our tax professionals at Tax Relief Information offer a free consultation and in 15 minutes they can tell you if you are qualified for an Offer In Compromise or a Fresh Start Program with the IRS. If you don’t qualify they can discuss other options with you to resolve your tax debt. It starts with a free phone call and a free consultation so take advantage of this. Free is free.