As New Jersey residents may know, there are many things to consider when contemplating divorce. One of those considerations is who may take the income tax exemption for the children when filing returns.
A newly divorce parent may legally be allowed to claim a deduction for a child on their federal income tax form if the child lives with them for a minimum of six months that year. Parents with shared custody may choose to resolve the issue by allowing one parent to take the deduction on alternate years as head of the household.
After school child care deductions may also be allowed for the person claiming the child as a dependent. This includes after-school care and day camps for when school is not in session. Another deduction is the Earned Income Tax Credit. This deduction is available for single parents who support at least three children if the parent earns less than $49,997. Deductions may also be available under a credit if the single parent earns less. Children whose adoption was finalized during the taxable year may provide a large tax deduction when income tax time rolls around. Custodial parents earning less than $75,000 may take an additional $1,000 deduction per child under 16 based on adjusted income.
Parents contemplating divorce may wish to address the issue of tax deductions in their divorce agreement to avoid problems later on. Additionally, a preset arrangement may allow the parent to understand how his or her financial situation might be affected by such income tax deductions.
When structuring a divorce agreement it may be beneficial to seek the guidance of an attorney. The attorney might offer insight into the way child custody affects taxes and offer advice concerning options that parents may have.