There are important tax considerations for parents who have recently gone through a divorce. They will need to decide who will be able to claim deductions for the children, as deductions cannot be split. Some alternate the deductions every year, while in other cases, one parent may choose to claim one child while the other parent claims another.
No matter how the parents may agree, the IRS will consider the parent who has the child for six months or longer as the parent who can claim deductions. Such a parent can claim head of household filing status if his or her income represents at least 50 percent of the household income, as doing so may be more beneficial than single filing status.
Some of the deductions begin phasing out above $75,000, making them much more beneficial to parents making less than that threshold amount every year. Since the deductions may benefit one parent more than the other, some parents may choose to use the ability to claim the child more than on alternate years as a negotiating point during the divorce negotiations.
The availability of tax deductions and credits can significantly help the lower-earning parent. Knowing this, a higher-earning parent may want to consider offering the lower-earning one the ability to claim the child for more years in exchange for a higher percentage of a wanted asset than he or she might otherwise be able to get. People may want to talk about their taxes and deductions with their family law attorneys prior to negotiating so they have a clear idea of what to expect. In the event an agreement cannot be reached through negotiation, a family law attorney may be able to help litigate this issue as part of the divorce hearing.
Source: Forbes Magazine, "8 Things Single Moms And Dads Need To Know About Taxes", Emma Johnson, Jan. 26, 2015