Divorce usually brings a lot of changes to people’s lives, not the least of which are differences in people’s financial situations after divorce. For instance, parents who became used to taking certain deductions on their taxes while married may no longer be able to do so after the divorce, depending on the custody arrangements. Divorced parents in Idaho need to be aware that a change in marital status will affect how they prepare their taxes, and should take steps to avoid making costly errors when filing taxes.
Custodial and Non-Custodial Parents
Many of the exemptions available to parents depend on the distinction between the custodial and non-custodial parent. The I.R.S. considers the parent who has custody for the majority of the year the custodial parent. If parents have a qualifying child, the custodial parent generally gets to take the dependency exemption. The I.R.S. considers the child a “qualifying child” if:
- The parents are divorced
- The parents provide a combined total of at least 50 percent of the child’s support
- The parents have custody of the child at least 50 percent of the years
Parents can negotiate this exemption between themselves as part of the divorce settlement. They may arrange to alternate taking the exemption each year, for example. If the custodial parent is allowing the non-custodial parent to take the exemption, he or she must fill out IRS Form 8332 so the non-custodial parent can attach it to his or her taxes.
Tax Breaks Available With the Exemption
Whichever parent gets to declare the child as a dependant for the tax year also has the ability to declare a number of other deductions, if they apply:
- Child tax credit
- Higher education tax credit
- Student loan interest deduction
- Tuition deduction
Tax Exemptions for Custodial Parents
Some tax deductions are only available to custodial parents, even if the custodial parent signs Form 8332:
- Head of Household filing status
- Earned Income Tax credits
- Child care credit
- Tax-free childcare assistance
Tax Exemptions Open to Both Parents
There are some tax deductions available to both parents, no matter which one is claiming the dependency deduction for the year:
- Itemized medical expenses the parent paid for out of pocket
- Tax-free Health Savings Account distributions for the child’s medical expenses
Divorce and tax issues can be complex, and those considering divorce should seek the assistance of an experienced attorney.