It’s typical for multiple financial considerations to factor into divorce. Conversations often relate to property division, alimony and child support as individuals strive to protect their personal interests.
Calculating the likely tax ramifications of parting ways is important for planning, and establishing an adequate financial future is imperative – especially if you have kids.
Qualifying dependents
If you finalized your divorce in 2021, this tax season could be a bit of a challenge. Understanding IRS guidelines for deductions could minimize questions and potential penalties.
As the custodial parent, you can typically claim qualifying dependents. As such, you may be able to claim the earned income tax credit (EITC).
What does that mean? The specifications required to qualify a child for a write-off typically include:
- Family. Biological, step and foster children may be dependents. The IRS may provide an allowance for adopted children as well.
- Age. The child is younger than 19 (or under 24 if they’re a student). There are no age limits for children with a permanent disability.
- Time. A child must have stayed with you more than half of the nights throughout the year.
- Finances. You must have provided more than half of the child’s annual support.
- Independence. In most situations, a parent cannot claim a married child who is filing a joint tax return.
There are often exceptions to the rules, so you might want to calculate your possible tax deductions before signing divorce documents. Although much of the future is uncertain, you should avoid as many surprises as possible while you dissolve your marriage.