The New Year is quickly approaching. If you are going through a divorce, you probably have given scant thought to the impact your divorce will have on filing taxes. For example, if you and your spouse are splitting up, but have not officially divorced before the end of the year, you may file a joint return, which may save you money. Failing that, you may choose to file under the married-filing-separately status.
If your divorce decree becomes final by December 31st, your tax filing options change. Your marital status as of the last day of the year determines your tax filing status for the entire tax year. In this case you cannot file as previously noted, but may be eligible to file as head-of-household if you have dependents under your care. If your dependents have resided with you more than half the year and you have covered more than than half of the upkeep on the home, you may be eligible. Filing as head-of-household may result in more favorable tax treatment in terms of larger standard deductions and softer tax brackets.
If you are deemed the custodial parent in the divorce decree, you can claim your child as a dependent on your tax return. If there is no designation of a custodial parent, the claim goes to the parent who lives with the children on the most frequent basis, unless you waive the right. As the parent who claims the dependent exemption, you have the right to claim the child credit. The purpose of this credit is to provide tax relief for parents, who have qualifying children under the age of 17. If you’re eligible, you may be able to take a credit on your federal income tax return
of up to $1,000 per child. The child tax credit begins to phase out if your modified adjusted gross income exceeds a certain level.
If you have custody of the children, you may still claim the ‘child and dependent care tax credit’ to cover work-related care for children under the age of 13 even if your spouse claims the dependent exemption. According to guidelines of the Internal Revenue Service, you may qualify for tax credit for a portion of your childcare expenses – in the range of 20 – 35% of $3000 for one child to $6000 for more than one.
Regardless of who claims dependency or holds custody, you are eligible to deduct medical expenses you have incurred on behalf of your child. This deduction is limited to medical expenses that exceed a certain percentage of your gross income, but is certainly helpful when out-of-pocket medical bills become excessive.
The New Year can be the beginning of a fresh start. If you are divorcing, there are many things to consider. If you would like more information, please contact the Law Office of Ronald L. Bell, LLC. We have over 30 years of experience helping people successfully resolve family law issues.
Sources: Kiplinger, “Tax Planning for Getting Divorced”, by editors of Kiplinger’s Finance, accessed November 11, 2014 & IRS.gov, “Ten Facts About Child Tax Credit”, accessed November 11, 2014.