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Do you understand how child custody can affect taxes?

Child custody should, of course, always be determined based on whatever is in a child's best interest. However, it is still important for Oregon parents to understand the financial implications of various arrangements. Previously, married parents who filed joint taxes should be sure to consider how taxes -- specifically the child tax credit -- will be handled following the finalization of the divorce and child custody agreement.

An increasing number of parents are choosing to share joint custody in order to more closely follow the best interests of their child. While this is widely viewed as a positive move for a wide number of families, it can make tax time somewhat confusing. Historically, unless otherwise stated, the custodial parent was the one to claim the child as a dependent on their taxes, but with joint custody, that play is hard to call.

The IRS typically defines a custodial parent as the parent who has custody of a child for the greatest number of days in a year. Since joint custody typically means that a child spends roughly the same amount of time with each parent, the IRS then looks at the income of both parents. Whichever parent has the highest adjusted gross income in the past year can then act as custodial parent for tax purposes, and claim the child as a dependent.

Some parents choose to sidestep the IRS standard and instead agree to alternate years, with one parent using the child tax deduction one year, and then the other parent the next. However, even if this is clearly outlined in a child custody agreement or divorce settlement, a non-custodial parent cannot actually claim the child unless the other parent signs over his or her right to do so for that year. No matter how divorcing parents in Oregon choose to handle the tax situation, understanding exactly how it works can help ensure that everyone involved is pleased with the outcome.

Source: businessmanagementdaily.com, "Stake claim to dependents in divorce", Oct. 7, 2015

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