A child custody agreement can have serious implications on your tax
filing and your taxes overall. This issue should be addressed with your
attorney or with your accountant while you are going through the
process of negotiating or litigating child custody or a divorce
agreement. Waiting until after you have finalized a child custody
agreement to investigate the tax impact is not adviseable.
State law on child custody does not dictate who gets the tax
deductions. If your child custody agreement is entirely silent on this
issue, the parent with primary residential or sole custody will have
all of the tax benefits available through the children. That party will
be able to claim the children as deductions, and so forth. This can be
a significant issue. There are parents who simply assume that if they
are paying thousands of dollars per year in support, they will be able
to take the children as deductions. Not so. This is incredibly
important when you consider that all child support payments are not tax
deductible to the payor and they are not taxable to the recipient
parent.
Thus, when negotiating your child cusody agreement, you must address
the issue of how custody will be structured and who will recieve the
tax benefits. This negotiation should be a part of an overall financial
scheme that encompasses a consideration of all issues, including child
custody, child support, property, alimony, and tax impact.
The ability to claim head of household instead of married filing
separate or even filing single can be incredibly important to your
overall tax scheme. You can claim head of household if you have your
children for more than 50% of the time. Thus, a head of household tax
filing should be a part of the overall negiating outline in a divorce
or separation situation. A child custody agreement that is silent on
this issue is really not a well negotiated or written agreement.
Your child custody agreement can address this issue in a number of
ways. If your child custody agreement provides for joint shared
custody, it must state who has the children for 50% of the time. If you
have two children, you can divide that up so that each parent has the
possibility of fiing for head of household. If you simply have joint
custody and one parent has residential custody, you can still provide a
head of household deduction to the other parent by wording the
agreement in a way that allows for that filing.
There are other tax benefits available to parents that have to be
considered when negotiating a child custody agreement. Many or most of
those tax benefits are variable depending upon your income level ad
whether or not you can claim the child or children as deductions. If
you are really thinking through your child custody agreement, you will
negotiate all of these benefits. The objective should be to maximize
all available benefits for both parties, thereby providing an overall
highly advantageous tax impact for your
child custody agreement.
