Can divorced parents of two kids both file head of household?

Can divorced parents of two kids both file head of household? 

Yes as long as they each have a kid and pass the base requirements for supporting them/% time, etc. 

This means that: You file your own separate return;  You paid more than half the cost of keeping up your home for the year; Your spouse cannot have lived in your home the last 6 months of the year; Your home was the main home of your child, stepchild or foster child for more than half the year;  You must be able to claim an exemption for the child, though there is an exception if you cannot claim the child because the noncustodial parent claims the child using special rules for this situation.  

A second important tax consideration is that a parent may wish to qualify for head-of-household filing status to potentially lower his or her overall income tax liability. Unlike the federal income tax child dependency exemption, the parties are not permitted to allocate the head-of-household status by means of an agreement. Head-of-household status is only available to the parent who has the child at least 51 percent of the time during the year. See IRC §2(b).

You can contact me at Amanda@gordonfamilylaw.com for more information.

Should we file for divorce before June 29th?

Getting married in 2016? Or considering finalizing your divorce in 2016? Your status makes a difference for your taxes.

The most important thing to remember is that your marital status on the last day of the year (December 31, 2016) determines your marital status for the entire year for the purposes of income tax filing.

Married in 2016?

First, let’s go over some of the IRS rules and benefits for all of those couples getting married this year.  

If you get married at any point in 2016, you are now required to file taxes either as married filing separately (MFS) or married filing jointly (MFJ) for any income you earn in 2016. What this means is that when you go to file taxes next April, you no longer have the option of filing as a single person.

For most couples filing a tax return as married filing jointly provides a beneficial tax outcome. Married couples filing a joint return can claim two personal exemptions instead of one and can use a standard deduction of $12,400 verses the single taxpayer deduction of $6,200. You can also choose to itemize your deductions for benefits like mortgage interest payments.

Another benefit of getting married this year is that spouses can give each other unlimited gifts without the gift tax limits.

All being said, the change in status is not necessarily a win for many professionals as the marriage penalty can start to impact your tax rate. You can determine if you are going to be impacted by the marriage penalty.  

Divorced in 2016

Under the IRS rules, your marital status on the last day of the year or December 31, 2016 determines your marital status for the entire year.

In California, the Court will not issue an official decree of divorce before 6 months from the date of filing and serving of the Petition for dissolution (California Family Code 2339). This means you need to start the process (file) before July 1st.

It is important to remember that most of the biggest taxable events are not necessarily part of the divorce process itself, but actually occur in the years that follow as a result of the divorce settlement, like the sale of a home, capital gains, and who will be able to claim the children as dependents. These won’t really be affected by whether you get divorced in 2016 or 2017.

Here are some common tax credits and exemptions that could impact your decision to file before June 30th, 2016, though:

Children

If you have children, one important tax issue to determine who will take the deductions for a dependent child. This is because the tax implications are important. For each dependent a parent can deduct $3,900 from their federal taxable income.  In order to qualify, the child must live with the parent claiming the exemption more than half of the year and be under the age of 19 at the end of the year. Often parents will alternate who gets to claim the exemption from year to year.

If you are able to get a final divorce decree by December 31, 2015 and file as single another benefit may be that one spouse can claim Head of Household. In order to qualify for this status, you and your ex must have lived apart for the last six months and the claiming parent also has to pay more than half of household costs. In this case, the other spouse files his/her return as single.

Mortgages

Another tax benefit to be aware of is the payment of mortgages.  The person who stays in the marital home may be able to take advantage of one of the most popular tax credits which is the mortgage interest deduction. The mortgage interest deduction is the part of your monthly payment that covers the interest you pay on the mortgage.

Property Taxes

The last issue to be aware of is property taxes. If both parties have made any estimated property tax payments this year, then you have two options. First, one party can claim all of the payments or second the payments can be divided between the parties pursuant to an agreement. These payments should be reflected on your tax return.

Tax issues can be complicated, especially when you are changing your filing status from married to single. Consult with a family law attorney and tax professional to make sure you are aware of the risks and benefits associated with changing your tax status.

You can contact me at Amanda@gordonfamilylaw.com for more information.. 

IRS More Aggressive in Divorce Support Agreements Reviews

Bay Area Family Law attorneys should advise all clients that the IRS is getting more aggressive in reviewing support agreements—and this could have tax implications.

In a recent case, a couple divorced over a decade received an IRS notice regarding their support payments and an assertion that part of the support was actually child support over all those years. The implication was that the person paying the support would have to claim income from payments that the IRS deemed should have been child support.  

Speak to a family lawyer if there are complicated tax and divorce planning aspects for your case. You can contact me at Amanda@gordonfamilylaw.com for more information.

Can I deduct my legal fees?

In general, no, legal fees incident to divorce are not deductible. However, fees and costs for attorneys are deductible if they are related to collection of spousal support or alimony or tax advice.  IRC Section 212. You can contact me at Amanda@gordonfamilylaw.com for more information.

Dependency Exemption

Who gets the dependency exemption in the divorce?

Generally the custodial parent claims the dependency exemption in a divorce. Custody is defined as caring for a child for a greater portion of the year.  If the number of nights your child spends with each parents is substantially the same, the parent with the high adjusted gross income should take the exemption.  

Remember that you can trade exemptions each year with IRS form 8332.  And if there is more than one child, then spouses can split the dependency exemption between the parents. You can contact me at Amanda@gordonfamilylaw.com for more information.