Virtually all divorces have financial conflicts that are difficult to resolve. These situations are only made more challenging when there are children involved. If you’re going through this tumultuous process, you can avoid making expensive errors on your taxes by making sure you understand who is eligible for which credits and deductions.
Since parents are already dealing with the financial burden of raising children, there are several tax breaks meant to lower parents’ tax liability. In cases of shared custody, it becomes unclear who gets the tax breaks and when they can claim them. In many cases, the deduction and credit situation is detailed within a separation agreement or divorce decree.
Who can claim what and when?
The IRS is specific about its rules on which parent is able to claim dependent children for tax purposes. The claim must be taken by a custodial parent, meaning they have physical custody and the child is in this parent’s care most often.
Parents should be aware of the difference between child tax credits and deductions. Child tax credits are a way of lowering your owed taxes dollar-per-dollar. With tax deductions, on the other hand, your annual taxable income is reduced. When used strategically, divorced parents can maximize their savings when it comes tax time.
The most difficult credit and deduction situations come with joint custody. With these cases, parents are usually best off if they can work together and decide on alternating years when they’ll claim the tax benefits.
It’s not always easy to understand who gets the credits and deductions for divorced parents in shared custody situations. As long as you take the time to understand who can claim what and when they can claim it, you and your ex-partner can save as much money as possible on taxes and put it right back into parenting.