My last post shed some light on possible tax deductions that your spouse may not have considered in the divorce, and the importance of coming to an arrangement that would prevent the reopening of the divorce.
Today, I want to talk about dependent child deductions. (Well, I don’t really want to talk about tax deductions. What I want is a massage and a night out with the girls, but someone has to tell you how it is!)
The ability to declare the children as dependents on your tax return entitles you to a reduction in income tax due. If the parent who makes the claim is low-income, she or he could be eligible for the
Earned Income Tax Credit (EITC), which can add up to more than $4,500 (for two children).
Some divorce settlements allow for switching the dependent deduction from year to year, so that one parent claims the child the first year after the divorce, and then the other parent claims the child in the second year, and so on.
On paper, this sounds like a fair method of handling the tax deduction issue, but before you go bouncing tax deductions back and forth like a game of tag (I’m it, you’re it, I’m it, you’re it), keep in mind that the IRS has a habit of flagging tax returns for audit that go back and forth like this. Inconsistency is always a red flag, so weigh the risks and make an informed choice.
Another factor to consider with regard to kids and tax deductions is education expense. Here’s a
recent article that may be of interest to you, from the Daily-Chronicle.com. The article discusses the various types of tax breaks for college expenses, such as tuition and fees, and student loan interest.
Take a look at all of the tax breaks available to you and your spouse, and remember to make sure that his ex isn’t declaring them out of hand. Consult with your attorney about the best course of action - before tax time.
Gone are the days when you could start your taxes on April 15th – marriage and divorce brings new challenges, and both short and long-term considerations that take time to review. So get on it! Then you can have the massage. (Me first.)
