Managing Taxes While Sharing Custody in New Jersey
If you share custody with your ex, you should be aware of all of the ways this can change your tax status and make sure to reach an agreement with the financial implications in mind.
Filing your taxes is stressful enough under normal circumstances, but after a divorce, when child custody is involved, it can be even more difficult. There are specific guidelines and rules that the IRS has for divorced families. Some exemptions and tax credits can help you financially, but if you don’t file your taxes correctly, there could be trouble. To avoid fines and possible seizures of your property, it is imperative that you be aware of the changes you need to make in how you file your taxes and whether you can include your children as dependents to receive tax benefits.
Important Factors to Consider When Filing Your Taxes If You Share Custody in Monmouth County
Even when parents have a 50/50 split in custody, one will have at least one night more a year than the other. Whoever has custody of the child for more nights throughout the year is considered the custodial parent and can, therefore, claim the child as a dependent. Some couples trade dependency each year to share the tax credit, while others include it in the divorce settlement and consider it a form of support. If by chance, both parents have an equal number of nights with their child, the IRS will determine the parent with the highest AGI (Adjusted Gross Income) as the one with the right to claim a dependent.
Let’s look at some examples to make the concept clear. You are divorced, and your child spent 205 nights with you this past year. You are the custodial parent. Your child went to Spain with your parents for eight weeks. You and your ex trade custody every other week. This would be treated as if she had been with each of you for four weeks. Your child lived with you and your ex an exact number of nights in the tax year. Your AGI is $70,000, and your ex’s AGI is $55,000. You are the custodial parent because your adjusted income is greater. Lastly, your child goes to a friend’s house or on an overnight trip. Usually, that would be treated as a night with the parent whose turn was for custody. If an agreement cannot be reached for some reason, the absence is seen as the child not living with either parent on that date.
Credits and Deductions When Claiming Dependents in NJ
Before talking about credits and deductions, it is valuable to know that they are different terms. A tax credit reduces the amount you owe. For example, if your tax bill is $2,500, but you have a tax credit for $2,000, that would lower your payment to $500. A tax deduction reduces what percentage of your income will be taxed. The child tax credit of $2,000 per child is for parents or guardians with children under 18. It is available for those filing alone or parents living together.
Another tax credit is for expenditures related to childcare. The Child and Dependent Care Tax Credit includes a child or dependent who receives care from a daycare center, vacation day camps, and babysitting provided by a neighbor or relative. The credit cannot be used if the family qualifies for free childcare. The maximum amount available for this credit is $3,000 to $6,000, depending on the number of dependents and the household income.
Head of Household is a special credit that gives you a lower tax rate, and the requirements are straightforward. You must file on your own; you have paid for more than half of the household expenses for the fiscal year, your children live with you at least six months out of the year, and you can claim at least one dependent.
Is It Possible to File A Joint Tax Return and Claim the Same Child in Freehold NJ?
You are not allowed to file jointly if your divorce is completed by Dec 31st (the last day of the tax year). If the new year comes and your divorce is still in the works, until Dec. 31st, in the eyes of the IRS, you are still legally married, which allows you to file a joint tax return and include your dependents on one return.
Primary Custody and the Right To Deduct the Child From Taxes in Toms River
The parent with primary custody can claim dependents on their tax report. Some spouses trade off filing their taxes with a dependent every other year to share the benefits. Others have it stipulated in their marital settlement agreement. In this case, the custodial parent would give the other parent their right to claim the dependent by signing an IRS Form 8332, which transfers the dependent to the other parent’s filing. This in no way affects custody or parenting time. It is a mere bookkeeping strategy to balance the tax credits and deductions available.
Some parents with more than one child will agree to divide the number of dependents in order to balance the benefits. If the number of children is uneven, such as five, for example, one parent would claim two one year and three the next.
Guidelines on Paying Taxes on Child Support in Middletown
The person making the payments does not receive a tax deduction for them, and the person receiving them should not count them as reported income.
Interested in Devising an Agreement that Works for You? Contact our Experienced Custody and Support Lawyers at our Brick or Sea Girt Offices
Filing your taxes can be confusing. You want to do what is in your household’s and your dependents’ best interest. Maybe this is the first time you have filed on your own. You may be considering a divorce or child custody modification and need to know how that would affect your bottom line regarding taxes. It is always a good idea to seek assistance from a financial advisor when you need to sort through the changes in your filing status, credits, deductions, and other factors impacting your tax returns.
If you have questions about how our lawyers can help you with reaching a custody arrangement that considers everything in your life, including your financial situation and tax implications, call our offices in Brick or Sea Girt for a free consultation. At the Bronzino Law Firm, our family law, custody, and support lawyers can explain your options for custody and explain what could work for you in Lakewood, Holmdel, Sea Bright, Toms River, Manchester, Neptune, Lavallette, and neighboring towns. You need to see the big picture in order to make the decisions that will most benefit you and your family when it comes to child custody and visitation plans.