Montana Divorce Tax Issues

With the deadline to file 2009 taxes looming, many divorced and separated couples are in the process of determining how they will file their taxes and which parent will claim the children for tax purposes.  Though I am not an accountant and I highly encourage everyone with tax questions to discuss them with a tax professional, here is some basic tax information to keep in mind this tax season.

First, your marital status for tax purposes is set as of the last day of the calendar year.  If you are legally married as of December 31st of a given year, you must file as “married.”  If your marriage has been dissolved or invalidated as of December 31st of a given year, you must file as “single.”  

If you are filing as married, you must make the decision whether to file “married, filing jointly,” or “married, filing separately.”  Many couples will see a tax benefit by filing jointly, even if they are living separately.  As such, I always encourage my clients to explore both options with an accountant before making the decision how to file. 

Another major issue for separated or divorced couples is determining which parent is entitled to claim the exemptions for the minor children.  Dependency exemptions and the corresponding child tax credit can be traded back and forth.  However, the IRS assumes that the parent who has the children the majority of the time is entitled to the exemptions, so parties must use IRS tax form 8332 if they will be trading the exemptions back and forth.  

Unlike the dependency exemption and child tax credit, the Earned Income Credit and day care credit go to the parent who has the children in their care more than half the time.  The Earned Income Credit is also only available if the parent claiming the credit has an income of under a certain amount.  Check with a tax professional if you are unsure if you qualify.  

Tax exemptions can be a major issue in divorce cases, as claiming minor children can provide a huge tax benefit to one or both parents.  Because tax exemptions can also affect child support, I encourage clients to discuss all the options with an accountant.