As if getting a divorce isn't stressful and complicated enough. Once it's over, there's a whole new set of problems to deal with - your taxes. For divorced or separated parents, it's even more complicated, especially when it comes to figuring out which of you gets to take the income tax deductions for expenses related to your child.
These tax deductions can mean saving a lot of money at tax time, so it's best to have an idea of how the rules work.
Medical Expense Deductions
You (and any other taxpayer) can deduct medical expenses for yourself and your dependents if the expenses are more than a certain percentage of your adjusted gross income. Medical expenses include items such as doctor's visits and dental care.
A "dependent," for tax purposes, is either a "qualifying child" or a "qualifying relative." As a general rule, a child of divorced or separated parents is treated as the dependent of both parents when it comes to deducting medical expenses. So, the parent who pays the expenses is allowed to deduct them.
Dependency Exemption for Children
You're allowed a personal exemption for each individual who's your dependent. The amount of the personal exemption varies each year, but for 2011 it's $3,700 and for 2012 it's $3,800.
Exemption for Children of Divorced or Separated Parents
As a general rule, the custodial parent is entitled to take the dependency exemption for their child. The custodial parent is the parent having custody for the greater part of the calendar year and the one who provides more than half of the child's support.
However, the noncustodial parent may be entitled to the deduction in certain circumstances, such as when:
- The custodial parent releases or gives the exemption to the noncustodial parent for the year
- Both parents, combined, provided more than half of the child's support
- The child lives with the noncustodial parent for more than half the year
Protect Your Exemption! Where parents have joint physical custody of their child, it may not be clear which parent is the custodial parent and is entitled to the exemption. This can be avoided by:
- Keeping a date and time log of exactly where the child lives during the year, or
- Agreeing in advance on who will take the exemption and having the other spouse sign a release of the exemption
Be Careful When Waiving the Exemption! As the custodial parent, you can let your ex-spouse take the deduction by signing a release. You can also revoke or cancel that release later, but you need to follow the rules. You both may face a tax audit if you both claim the dependent exemption for the same child in the same year.
Exception In Some Divorces
Were you divorced or legally separated before 1985? If so, the noncustodial parent may claim the dependency exemption if:
- Your divorce decree or separation agreement states that the non-custodial parent may claim the child as a dependent
- The decree or agreement wasn't changed after 1984 to take the exemption away from the noncustodial parent, and
- The noncustodial parent provides at least $600 for the child's support during the calendar year
Be Sure to Get It Right
This is only a brief overview of some of the child-related tax deductions you may take and only a few of the legal pitfalls you need to avoid. Getting the deductions right can save you money; getting them wrong can cost you much more in fines, penalties and stress. Before you file your taxes this year, be sure to look over the IRS materials for parents just like you, or talk to an experienced tax attorney.
Questions for Your Attorney
- Who can deduct medical expenses if both parents helped pay for their child's medical operation?
- What happens if our child custody arrangement changes a few times throughout the year?
- How will my remarriage affect my dependency exemption? Will just living with someone else have any effect?