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How divorce can affect tax filings

On Behalf of | Mar 12, 2019 | Divorce |

When parents in Virginia make the decision to divorce, they may be very concerned about how the separation will affect their children and the parenting relationship. Exes often think about co-parenting strategies, custody/visitation schedules and how to stay close to their children. However, they may forget to consider how divorce could affect their tax returns.

A child can be claimed as a dependent on only one tax return each year. When a married couple files taxes jointly, there is no concern. After a divorce, however, each parent will file their taxes as a single person. This means that only one parent can claim each child as a dependent. The advantages to claiming a child include access to the Child Tax Credit, the Child and Dependent Care Tax Credit and the Earned Income Tax Credit. With the changes in tax law inaugurated by the Tax Cuts and Jobs Act, these kinds of credits are more important than ever to achieve tax savings.

Many parents resolve this issue by designating in their divorce agreement how the children will be considered for tax purposes. In some cases, the parent with more physical custody will claim the children. Other times, the parent who provides more financial support will claim them. Parents may even divide the children for tax purposes.

When both parents attempt to claim the same kid on their tax returns, the IRS process for mediating these disputes can be complicated and requires one tax return to be initially rejected. It can be important to work with a family law attorney to reach an agreement on this and other key matters, like property division and child custody.