Tax filing time can be a stressful time of the year, and this is especially true if you are recently separated or divorced and share custody of your children. Many people are unsure of how to handle filing taxes when they share custody of their children, and this uncertainty can add an extra layer of stress to an already complicated process. It is important to understand the ins and outs of filing taxes when you have joint custody so that both parents can get the fullest benefit from their returns.
If you are in the process of developing a parenting plan with your ex, your parenting plan should include directives regarding tax filing. A well-written parenting plan that covers issues like the child tax credit will help parents avoid unnecessary disputes in the future.
Who Gets to Claim the Child Tax Credit?
The first thing to consider is who will claim the child as a dependent on their tax return. According to IRS Publication 501, only one party can claim a minor dependent child on their taxes in any given year. Generally, the parent with whom the child spends more nights during the year should be eligible for claiming this child tax credit . If one parent claims the child tax credit for a child in any given year, then the other parent cannot do so. Some couples may choose to alternate years in which they each take turns claiming it, but this should be agreed upon prior to filing your taxes and documented in a written agreement.
According to Colorado Revised Statutes 14-10-115(12), "the court shall allocate the right to claim dependent children for income tax purposes between the parties" unless the parties have agreed otherwise. In other words, if you and your ex do not come to an agreement independently, the court will allocate the exemption for you. It is critical that you address this issue during the development of your parenting plan. An experienced family law attorney can help ensure that your interests are protected.
Unlike in some states where the child tax credit is allocated according to which parent the child spends more nights with and/or which parent has primary physical custody, Colorado courts allocate the right to claim the child tax credit "in proportion to their contributions to the costs of raising the children." This means that the court will consider the parents' respective percentages of their combined gross income when deciding how to split the right to claim the child tax credit .
For example, if each parent earns $5000 per month, the court will likely divide the right to claim the child tax exemption between them equally. This could mean that both parents would be able to claim the child tax credit in alternate years. However, the parents could have several option depending on how many children they have. For instance, if the parents have two children, then each parent could claim one child every year, or one parent could claim both children in one year and the other could claim both children in the next year. If the parents have three children, then one parent could switch off by claiming two children in, for instance, even numbered years and one child in odd numbered years.
If one parent earns more than the other, however, the court may decide that they should receive a greater proportion of the right to claim their children as dependents. Rarely do the numbers work out as cleanly as they do in the example above. Often the percentages of each parents’ financial contribution makes it difficult to divide the child tax exemption. It is usually in both parents' best interests to creatively allocate the child tax credit in a way that they feel is fair rather than leaving the decision to the court.
Whatever arrangement is made between you and your ex, make sure to document it in writing and keep copies of any relevant documents for your records. Filing taxes can be difficult enough without having to worry about disagreements with your former spouse, so make sure to keep these important considerations in mind.
How About Claiming Head of Household?
Head of household status can provide a number of tax benefits and deductions that can help reduce your overall tax burden, but it can be confusing for newly separated and divorced parents to figure out when that status can be claimed on their taxes. It is important to understand the rules surrounding head of household status so that you can take advantage of these potential savings.
In order to qualify as head of household, there are certain criteria that must be met. Generally speaking, in order to claim this filing status, the IRS requires that you be the primary custodial parent. However, Colorado law no longer requires that one parent be designated as the primary parent, which means that often parents who share equal parenting time may wish to agree that the party claiming head of household receives one more overnight than the other parent in that tax year.
How Smith Balicki Finn Laraway, LLC Can Help
At Smith Balicki Finn Laraway, LLC, we understand the importance of developing a comprehensive parenting plan that considers all the intricacies and implications of filing taxes when parents share child custody. We have extensive experience in family law and are here to help you develop an effective parenting plan that includes directives regarding tax filing so that families can minimize future disputes.
Our experienced attorneys will work with you to ensure your interests are protected during the development of your parenting plan. This includes ensuring that any agreements made regarding who gets to claim specific dependents for tax purposes are clear, fair, and legally binding.
Our lawyers will review your situation thoroughly and provide advice on how best to allocate dependent children for income tax purposes within your agreement so as to avoid unnecessary disputes in the future. And if one parent earns more than the other or for any other reason it is difficult for two parties to divide dependent children equally between them according to their contributions towards raising those children, our attorneys can help offer creative solutions.
At Smith Balicki Finn Laraway, LLC, we understand the complexities of filing taxes when you are a parent who shares child custody. Contact us online or call us at (720) 463-2232 to learn how we can help you make sure your rights are protected during this important process.
Attorney Disclaimer: Smith Balicki Finn Laraway, LLC is not a tax law firm. Tax law changes
all time. All information contained in this blog was current as of the first publication and has not been updated since creation.