Claiming 2 children of divorce, how to best structure years I will claim them.

[dhighone]

I have two children, each from a separate marriage.  Child A is 13, I claim him on odd tax years, child B is 8, is claimed on even years.  Child B's mother would like to swap her so I would have her on odd years.  This would mean on even years in the future I will claim no dependants, odd years Id claim 2 in upcoming 2017, 2019, and 2021.  I do have "custody" of both children and file as head of household. (If im correct, having no dependants will bar me from this filing status for even years?). I need to know if changing my current set up will hurt me financially or if it would wash out over each two year period. Other back ground info, income 75-80k claiming around 17k in deductions. Thanks in advance for your assistance.

[Hal_Al]

It depends on what "I do have 'custody' of both children" really means.

The IRS goes by physical custody, not legal custody. Furthermore, For tax purposes, there is no such thing as joint custody, regardless of what your legal agreement says. The requirement, to be custodial parent, is that the child live with you MORE than 50% of the time. One of you has to be the custodial parent and the other the non-custodial parent.

if you really are the custodial parent, you may claim Head of Household (HoH) in the years you are claiming no dependents. This is because there is a special rule in the case of divorced & separated (including never married) parents. When the non-custodial parent is claiming the child as a dependent/exemption/child tax credit; the custodial parent is still allowed to claim the same child for Earned Income Credit, Head of Household filing status, and day care credit. This "splitting of the child" is not available to parents who lived together at any time during the last 6 months of the year; then only one of you can claim the child for any tax reasons. The tax benefits may not be split in any other manner.

Note in particular that the non-custodial parent can never claim the Earned Income Credit, Head of Household filing status or the day care credit, based on that child, even when the custodial parent has released the exemption to him.
 So, it's good idea to let the other parent know that you will be claiming those items, as many first time divorced parents are not aware of this rule and may try to claim those items, which will cause the IRS to send out letters.
Ref: <a rel="nofollow" target="_blank" href="http://www.irs.gov/publications/p17/ch03.html#en_US_2014_publink1000170897">http://www.irs.gov/publi...> Scroll down to "Children of divorced or separated parents (or parents who live apart)"

[dhighone]

Well that got complicated rather quickly.  In our state, TN the legal system describes me as the primary residential parent, they no longer use the term custodial. We share physical custody at 182.5 days each, or 50/50. If i understand correctly, I should then still be able to file as hoh and claim child care expenses. In conclusion, in general will it hurt me financially to change our plan as child B's mother has asked?

[Hal_Al]

No,  The IRS doesn't care about the "TN legal system". They go by physical custody and there are no half days allowed. Yes, they expect you to count the number of nights the sleeps at each home. And yes you may arrange your schedule so they you can meet the technicality on alternating years. Remember, you have to coordinate with the other parent. You can't be claiming HoH if she thinks she gets to claim HoH.

You are correct, it's complicated. There is no simple answer to "will it hurt me financially to change our plan" . Probably yes. But the only way to know for sure is to do test returns. This is more easily done with desktop TurboTax (TT) rather than online. Or you can use this tool: <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tools/calculators/taxcaster/?s=1">https://turbotax.intuit.com/tax-to...>.

Be careful about insisting that you have joint custody. In the rare case (could probably only happen in a leap year like 2016), where the time that  each parent has the child is exactly equal, then the parent with the higher income (AGI) is the custodial parent, for the purpose of determining who has first priority on claiming the child as a dependent. But then neither parent can claim a Qualifying Child dependent, for some tax benefits because neither parent had the child the required MORE than half the year. (no earned income credit,  based on that child, and the child would not qualify the parent for Head of Household filing status).

[dhighone]

Thanks very much for your advice Hal_Al.  Judging from all of the variables, I think it would be best to leave well enough alone.  No need to rock the the boat!

[Hal_Al · Accepted solution]

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