In a previous blog post, we discussed tax implications that come with dividing property in a divorce. As shared in that post, sometimes property division of retirement accounts can trigger tax consequences. Beyond the potential tax impact of asset divisions, there are some additional factors that come into play for each party in a divorce when minor children are involved, when it comes time to file income tax returns during or after a divorce. One of those determinations is which parent can "claim" the child on their taxes.
Claiming the "Personal Exemption" for a Child
For the 2015 tax year, the IRS "Personal Exemption" amount is $4,000, an increase of $50 over the 2014 exemption amount. The rules for claiming an exemption for a child are fairly straightforward. Essentially, only one parent can claim the exemption for each child in given year. Most of the time, the custodial parent will be the one able to claim the exemption, however the IRS provides that the non-custodial parent may be able to claim the exemption if all of the following are true:
1. The parents are divorced or legally separated under a written decree or agreement or lived apart at all times during the last six months of the tax year;
2. The child did not provide more than 1/2 of his or her own support during the year, and instead received such support from his or her parents;
3. One or both parents have custody of the child for more than half of the year; and
4. The custodial parent agrees in writing to not claim the child on their taxes and the other parent attaches this writing to their own tax return.
If all of those statements are true, the non-custodial parent can claim the child both as a dependent and as a qualifying child for the child tax credit.
Sometimes, the number of nights a child spends with each parent is the same; in other words, there is no clear-cut "custodial" and "non-custodial" parent. In those scenarios, the IRS says that the parent with the higher adjusted gross income (AGI) is the custodial parent for tax purposes.
Of course, decisions about custody of minor children during and after a divorce in Nevada come with emotional considerations, and must first and foremost be made with each child's best interest in mind. As discussed here, those decisions also come with important tax implications that must be handled appropriately come tax time. To protect both your child's best interests and your own interests in a divorce, it is important to get legal representation as early as possible, to engage an attorney who can advocate for you throughout the proceedings.
Sources: https://www.irs.com/articles/2015-federal-tax-rates-personal-exemptions-and-standard-deductions, https://www.irs.gov/publications/p17/ch03.html#en_US_2015_publink1000170857