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Tax implications of a custody agreement

In a contentious divorce that involves children, it's not unusual that the parents focus their attention on the issue of custody. For most, the care of their children comes first. But Florida parents that are going through the divorce process also face serious tax implications depending on how the custody issue is decided.

There are a variety of tax benefits for claiming a child as a dependent. There are exemptions for each child, a child tax credit, a childcare credit, and the ability to file as a head of household just to name a few. While this is a straightforward issue for married parents, divorced parents face complications. The major issue is that these tax benefits cannot be split between parents or claimed by both.

To determine which parent gets the tax benefits, the IRS uses a series of tiebreakers. First, if both parents file separately and both claim the child, the IRS will award the deduction to the parent with whom the child lived for the most time during that year. Assuming the time was split evenly between the two parents, the IRS will award the deduction to the parent with the highest adjusted gross income. Ultimately, the most salient point in all of this is that when it comes to taxation issues IRS requirements will trump a custody order from a state court.

A court-ordered custody agreement doesn't merely affect how a parent cares for their child; it can also affect how that parent files his or her taxes. The tax implications of a divorce are complicated and often not the immediate concern of a parent going through a divorce. An attorney with experience in family law may be able to counsel that parent on how the custody decision could affect their tax bill.

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