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Tax considerations for divorcing parents

On Behalf of | Nov 26, 2021 | Divorce

If you’re in the process of divorce, it’s wise to be giving some thought to the tax implications of the decisions you make – or at least have a tax or financial advisor who is. This can benefit you, for example, as you divide your property.

If your divorce won’t be finalized until next year, you and your spouse can’t file as “single” for 2021. You have a choice between “married filing jointly” and “married filing separately.” Although filing jointly is typically more advantageous, you’ll want to discuss that with your tax professional.

Who can claim the children as dependents?

Once the divorce is final, if you are sharing custody of minor children, you’ll need to determine who will be claiming them as dependents and filing their taxes under the “head of household” status. This status offers a larger standard deduction than filing as “single.”

You can use the head of household status if you meet specific requirements, including the following:

  • You were divorced on Dec. 31 of the prior year.
  • You paid for over half the costs of maintaining a home throughout the tax year.
  • A qualifying dependent (in this case, a child) lived with you for over half of the year.

If you have primary physical custody of your child, you have the right to claim them as your dependent. If you choose to let your co-parent claim them, you’ll need to complete an IRS form to revoke your claim.

If you and your co-parent are sharing custody equally, there are various ways you can determine who will claim them in any given year. Sometimes, divorced couples will alternate years claiming a child as a dependent. A child only has to spend 51% of the year with a parent for them to get the tax advantages that come with a dependent. Co-parents with more than one child may each claim one or more as dependents in any given year so that they’re both able to get these advantages.

Determining who will claim the children as dependents requires some level of cooperation between co-parents. Therefore, it may be best to begin discussing this and other potential tax matters while you’re still in the process of divorce and working out agreements.