It’s tax time again! As April 15th looms, it is a good time to review the tax issues which arise in families where the parents do not file a joint tax return. Instead of letting tax issues become a sticking point, plan ahead in your legal agreements to ensure peace at tax time.
Parents should decide who will claim the children as dependents for purposes of state and federal tax returns. This often depends on a number of factors. First, consult a tax professional to ensure that both parties could benefit from claiming the children. Income phase outs can sometimes make claiming the children irrelevant to one parent from a tax perspective. In addition, if a parent does not report any income for the tax year and does not plan to file a return, the right to claim a child will be of little use to that parent.
If both parents can benefit from claiming the child and both parents want to claim a child, a common method is to alternate the right to claim the child from year to year. For instance, in even-numbered tax years, perhaps the mother can claim the child. In odd-numbered tax years, the father can claim the child. If there is more than one child, it is possible to divide and conquer. When parents have two children, they can agree to each claim one. If there are three children, a common agreement is that each parent can claim one child each year and will often alternate the right to claim the third child each year.
Because the United States tax code assigns the right to claim children to the custodial parent, if parents want to do something different, it is important that they specify their agreement in writing when they write their parenting and child support plan. When tax questions arise, consult a CPA or other tax professional but always make sure to take your court order along which specifies who shall claim a child in a given year. Court orders often differ from the tax code. Always follow your court order as to what year is your year to claim a child.