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FS-Figuring Child Dependency Deductions In Divorce
Jan L. Warner & Jan Collins

Question: My wife and I have one child who is 12 years old. We have been separated for nearly a year. We have worked out almost everything except who gets to claim our son as an exemption for income tax purposes. My wife's income from a part-time job is less than $10,000 per year, and I earn nearly $35,000. She will be getting a small amount of alimony from me that she will use to pay our debts over the next two years, and then the alimony stops. I am paying child support and providing health insurance for our son, and we have shared custody although he stays with my wife most of the year. They are living in a house on property that belongs to her parents.

I can't understand it, but she has some idea that if she does not get to claim the child for tax purposes, people will think she does not have custody. Do you have any suggestions? My patience is running very thin, and I'm afraid it will be expensive to go to court about this, but the tax deduction may be worth it.

Answer: As you can see, dealing with the exemption for children for tax purposes can be a frustrating exercise because the issue often tends to stray into the emotional realm and out of the financial.

In fact, we believe the value of getting the dependency exemption for a child is overrated. It can be wasted if it goes to a parent with either not enough income or too much income. Here, given your wife's income, her having the exemption won't mean much in real dollars. On the other hand, it appears that the exemption could benefit you economically because your income isn't close to the "phase out" provisions for higher wage earners.

Remember that exemptions do not reduce your tax bill directly but, instead, reduce the amount of your income that is subject to taxes.

Based on what you tell us, your wife would receive the exemption of what is now referred to as the "qualifying child" since the custodial parent (your wife) is defined for income tax purposes as the parent having physical possession of the qualifying child for the largest percentage of the calendar year.

If there is joint physical custody of a child, it is important to keep records of how much of the year the child lives with each parent. In addition, the issue of which parent will claim the dependency exemption should be addressed with the parent who is not claiming the exemption signing an IRS approved release -- that is, an Internal Revenue Service Form 8332 (which can be found on http://www.irs.gov/formspubs/).

The declaration releasing a dependency exemption may be made for a single year or for specified years, such as alternate years, or for all future years. If a release applies for more than one year, the original release must be attached to the tax return of the non-custodial parent for the first year, and a copy must be attached to the tax return for each subsequent year.

Suggestion: Contact your certified public accountant and see how much you would save in state and federal income taxes if you get the exemption. Once you get this figure, you could offer to pay your wife an amount equal to one-half of the tax savings each year as additional child support.



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Suggested Reading:
Separation and Divorce Guidebook
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FS-Be Wary of Credit Issues with Ex
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FS-Becareful of Bargaining Away Alimony As Child Support
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FS-Lawyer Tells Me to Lie & Pension Double Dipped
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FS-On and Off Again Reconciles Can Create Agreement Disasters
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FS-The Dangers of Family Loans
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FS-Transference of Affection & 10 Tips of Divorce
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