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Divorce and Family Law
Business and Real Estate
Personal Injury and Accidents
Robert S. Duxstad
Daniel P. Bestul
Lance A. McNaughton

Don't Leave Money on the Table at Tax Time

Posted: 3.10.2014  |  Author: 

Tax rules and regulations can be a confusing maze, but for divorced or never-married parents, a little effort and cooperation can pay big dividends at tax time. Knowing your way around the tax breaks for parents – or using a tax advisor who understands them – can mean hundreds, or even thousands, of dollars more in your pocket.


The most common tax break available to parents is the dependency exemption. Ordinarily, the exemption belongs to the custodial parent (as defined by the IRS) but state and federal taxing authorities allow parents to vary from this general rule, provided they meet certain criteria and the agreement to vary from the rule is properly documented.


The value of an exemption can vary between the two parents based on several factors, including the earning level of each parent. The exemption reduces the income that is subject to taxation, so if one parent pays taxes at a higher rate than the other, letting the higher rate taxpayer claim the exemption means lower taxes overall for the parents.


The rules for other tax breaks – like being able to file as head of household or claiming a dependent care or earned income credit – are more restrictive. For example, the right to file as head of household – which can result in a much lower tax bill than filing as a single person – belongs to the parent who has a child more than 50% of the time. However, parents with two or more children can be creative in allocating their time, which would allow both of them to take advantage of this benefit.


Because the rules for claiming tax breaks vary from break to break, a child can wind up being claimed on one parent’s return for one break, and on the other parent’s return for other breaks. This is where a knowledgeable tax advisor can really pay off. Many parents use the same tax preparer, who can analyze the many options and come up with a plan that gets the most mileage out of all of the available tax benefits.


Children do best when their parents work together. Working together at tax time can mean their parents have more money to provide for them.


Your Tax Dollars At Work


The IRS has many resources that provide more information on these topics, including Publication 501 Exemptions, Standard Deductions and Filing Information, Publication 504, Divorced or Separated Individuals and Publication 596, Earned Income Credit (EIC). Links to the full library of IRS publications can be found at http://www.irs.gov/Forms-&-Pubs


Dan Bestul is a Wisconsin divorce and family law attorney practicing primarily in Green and Lafayette Counties. He can be reached by e-mail at bestul@duxstadlaw.com.


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