What Tax Questions Need To Be Asked Before The Divorce Decree Is Finalized?
One of the biggest mistakes you and your spouse could make during negotiations to end your marriage is to forget to consider the implications of your split on your taxes. If you and your spouse do not properly handle your financial matters, both of you could face serious issues when it is time to file. Before agreeing on a final settlement, here are some questions you and your spouse need to ask.
Who Claims the Children?
Earned income and child care credit can add thousands of dollars to a tax refund. It could make the difference between owing the government and receiving a refund. Therefore, it is important to determine who will claim the children.
In some instances, the non-custodial parent who pays child support claims the children. However, the custodial parent might feel that he or she should claim them. Some parents choose to take turns claiming the children. Regardless of what you and your spouse decide, there needs to be a written agreement that can be referred to each year, if necessary.
If you and your spouse fail to answer this question and both of you claim the children on your next tax returns, someone could be faced with having to pay back any refund that was paid out.
Who Will Claim Head of Household?
If you and your spouse are splitting custody of the children, who gets to claim head of household needs to be decided. Filing head of household has various benefits, including a higher standard deduction and a more favorable tax bracket. Filing with this status could lead to a refund instead of a tax bill.
In order to file for head of household, the qualifying child has to live with the parent at least six months during the year. It is important to note that the parent claiming the child for the earned income credit does not automatically get the right to file head of household.
It is possible for the parent to claim the credit while allowing the other parent to use the child to get the head of household filing status. As with the earned income credit, ensure that the agreement is in writing for future reference.
There are other tax questions that need to be resolved before you and your spouse accept the final divorce decree. Work with a divorce attorney from a firm like Legal Action Workshop to determine what those questions are and to find acceptable solutions to those issues.