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How to take advantage of tax deductions for divorced parents

When a California couple divorces, there are a great many changes in their lives. One of them is their annual tax return. Depending upon who has primary physical custody of the child or children, the tax deductions will vary.

For those taxpayers who prepare their own taxes, the first year after a divorce may be a good time to consult with a tax professional. There are several red flags that can trigger an IRS audit, and high-income individuals claiming tax deductions that they are not due, is probably one of them.

So, how do the deductions change? The main change depends upon who is the parent with the most parenting time or physical child custody. There are deductions that only the custodial parent may claim.

  • Head of Household (HOH) filing status is offered to the custodial parent and provides a larger standard deduction compared to filing as a single person.
  • Earned income tax credit can be worth almost $6,000 for a household with three or more qualifying children.
  • The child care tax credit can be worth $600 to $2,100 depending on the number of children and the custodial parent's income.
  • Tax-free childcare assistance provides reimbursements for childcare expenses.

The remaining deductions are available for either parent and include the dependency exemption deduction, child tax credit, higher education tax credits, student loan interest deduction and tuition deduction. The combined effect of these tax deductions and tax credits can be significant.

There is a noncustodial parent rule under which the noncustodial parent can take advantage of the deductions and credits available to the custodial parent. It may be a good idea to consult with a qualified professional for those who want to pursue this option. In the unlikely event of an audit, your representative could discuss any issues with the IRS.

Source: Smart Money, "Child-Related Tax Breaks After Divorce," Bill Bischoff, March 28, 2012

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