Parents can claim their children as dependency exemptions on their income taxes. When you get a divorce, you both cannot claim the same exemption. Your Divorce Decree may state how you will split these exemptions. If it does not, the IRS rules state that the parent with whom the child spent the most nights with that calendar year is entitled to the exemption. It should be noted that the terms of the Decree as to the division of the tax exemption will be recognized by IRS regardless of the IRS Regulations.
Your Decree may determine which parent may take the exemption each year, but you are allowed to make changes to this if you both agree. However, you should memorialize the agreement in writing, signed by both of you. The failure to allow a parent to take the exemption ordered in the Divorce Decree (by the other parent wrongfully taking it) may subject the wrongful parent to a finding of Contempt by the Court resulting in monetary penalties and other remedies. It’s a good idea to talk to your tax preparer to determine which parent will benefit the most from the exemption. If a parent will not get any benefit from it, then it makes sense to allow the other parent to take it.
Head of Household
Another issue to work through when it comes to taxes is what is called head of household status. You are permitted to file as head of household if your child spends more than half the year with you, you pay more than half of your own household expenses, and you are single. However these requirements may be affected by the terms of the Divorce Decree awarding the tax exemption. Filing as head of household may affect how much you pay in taxes. Discuss this with your tax preparer.
Child support is not a deducible expense for the parent paying it, nor is it considered income for the parent who receives it. On the other hand, spousal support (alimony) is treated in the opposite manner. The person paying spousal support is entitled to deduct the payments and the person receiving spousal support must report amounts received as income. Note that non-taxable lump sum spousal support payments must be created according to rules set up by the IRS to qualify. Your attorney should be familiar with these IRS rules.
Deducting Divorce Costs
You are entitled to deduct the part of your divorce costs (attorney fees as well as fees for other financial professionals utilized in your case) that are related to taxes or tax planning.
The Sampair Group offers clear and honest advice for all family law cases. Call us for an appointment with one of our knowledgeable attorneys in Maricopa County today.