Child Custody Agreement And Taxes

A child custody agreement could have serious implications on your tax filing and your taxes in general. This problem should be addressed with the help of your attorney or with your accountant when you are experiencing the whole process of negotiating or litigating child custody or a divorce agreement. Waiting until after you finalize a child custody agreement to investigate the tax impact is not very advisable.

State law on child custody does not dictate who gets the tax deductions.  If your child custody agreement is completely silent on this issue, the parent with primary residence or sole custody can have all the tax benefits available from the children.  That party is going to be able to claim the children as deductions, and so on.  This can be a major issue.  There are parents who simply think that if they are paying thousands of dollars every year in child support, they should be able to use the children as deductions.  This is not the case.  This can be incredibly important when you consider that all child support payments are not taxable.  Child support is not tax deductible to the payor and is not taxable to the recipient parent either. 

Therefore, when you negotiate a child custody agreement, You have to address the issue of how custody will be structured and who will receive the tax benefits.  This negotiation should be a part of an overall financial scheme that encompasses a consideration of all issues, including child custody, child support, property, alimony, and tax impact. 

The ability to claim head of household instead of married filing separate or even just filing as single could be very important to your overall tax scheme.  If you would like to claim head of household, then you would be required to have your children for more than 50% of the time.  Thus, a head of household tax filing must take part in the entire negotiating outline in a divorce or separation situation.  A child custody agreement which is silent about this issue is really not a well negotiated or written agreement. 

Your child custody agreement can address this issue in several ways.  If your child custody agreement provides for joint shared custody, it must state who has the children for 50% of the time.  If you happen to have two children, you will be able to divide that up so that each parent has the possibility of filing for head of household.  If you simply have joint custody and the other parent has residential custody, you can still provide a head of household tax deduction to the other parent by wording the agreement in a way that allows for that filing. 

There are additional tax benefits available to parents that have to be considered when negotiating a child custody agreement.  Many or most of those tax benefits are variable depending on your income level and Regardless of whether you can claim the child or children as deductions.  If you are really thinking through your child custody agreement, you will negotiate every one of these benefits.  The objective is always to take full advantage of all available benefits for both parties, therefore providing an overall highly advantageous tax impact for your child custody agreement.