If you anticipate that your divorce will be final during the 2016 calendar year, you need to start thinking about changes in your federal tax status. Of course, one of the most obvious changes is that you will no longer be eligible to file as “married,” either jointly or separately. Your filing status can significantly impact your tax liabilities. However, child dependency exemptions also affect your taxable bottom line.
The Internal Revenue Service (IRS) only allows one parent to claim an exemption for each child during each tax year. Most of the time, the custodial parent has the right to claim the child dependency exemption. That is because one of the requirements for the exemption, known as the “residency requirement,” mandates that the child live with the taxpayer for more than half of the year.
Here are the other requirements:
- The child must meet a relationship test. Sons, daughters, and stepchildren all meet this requirement.
- The child must meet an age test. This generally means that the child must be either under the age of 19 and younger than you are, under the age of 24 and a student, or permanently and totally disabled.
- The child cannot have provided more than half of his or her annual needs for support.
- The child must not be filing a joint return.
Special rules apply that may allow a noncustodial parent to claim a child dependency exemption. From a very basic standpoint, this exception applies when the parents are divorced or legally separated and formally agree to the change. However, there are other requirements before this shift may be made, and it is wise to consult with your accountant or tax lawyer to protect yourself if you decide to do this.
If you anticipate losing the dependency exemption for the 2016 tax year, you can be proactive by electing to have more money withheld from your paycheck. This can reduce shocking surprises when filing time rolls around.
With a divorce come many changes, including tax options that can affect you and your children financially. If you need legal assistance in a California divorce, the attorneys at the Law Offices of Judy L. Burger can help. Make the call today to learn how our attorneys can work for you and your children: (415) 293-8314.