Tax Dep., Filing Status, Child Care expenses, Tax Credit

[MarylandDadom]

Basic Facts:
Separated in March 2011, 2 children - 4 & 6, Children are split 50/50 in terms of nights spent with parents, no final seperation agreement has been signed yet, Dad makes about 109k per year, Mom makes about 54k a year. Dad pays for all of the childrens day care costs, but had no dep care FSA deductions for 2011....mom had 2500 in dep care FSA. Mom has kids on her medical plan.

We get along reasonably well and we are trying to work together to maximize our tax return for this year and possibly furture year (if we continue to get along).

Question(s):
I believe we both meet the qualifications to file as head of household (living apart for more than 6 months as of 12/31, both supporting a household, and shared physical custody of 2 kids 50/50) and from a preliminary run on Turbo Tax, this seems like it might be best (as opposed to filing married). With that said, if we each claim one child, we lose out on a $1000 child tax credit, as I make too much money. Im also wondering how we can work the child care credit....I paid for all of it?

Any suggestions for us to maximize our return by possibly shifting both kids to her for tax filing purposes? Any risks or liablity that I might be missing?

[Groundhogday]

There are different issues to consider for federal tax filing:
1) If you weren't legally divorced in 2011 and get along it will probably make sense to file jointly this year.
2) The parent having the kids for the majority of overnights will be the custodial parent according to the IRS, regardless of what you write in your parenting agreement. With this designation, that parent will be able to file as head of household and deduct child care expenses. Head of household filing is a huge tax advantage and will be of far more benefit for Dad than MOM given their income differential. If you have a true 50/50 plan then Dad probably wants to be designated as the custodial parent. If the divorce is amicable, Dad can calculate his tax benefits and offer to share with Mom through child support.
3) The tax exemption associated with the children are commonly split and are unrelated to the primary designation of custody. Most parents split two children and alternate from year to year when only one child can be claimed. This needs to be designed in the child support order.

[MarylandDadom]

If we both claim one child, can't we both claim head of household?

Maybe Im doing something wrong, but when i punch the basic info into turbo tax, then it appears to be a better situation to claim both as head of household then for us to file married?

[CCR]

Is your ex going to file for child support? It depends on the state, but in some, only the custodial parent can get child support. Your ex will want to claim she is the the CP of both kids then, as it makes a difference in how much money she will get.

Beyond that, if you set it up so each parent has at least 1 more overnight with one of the children (you have 183 overnights with one child and she has 183 with the other), then each of you can claim H of H with 1 child, in a 50/50 shared custody agreement.

Also, were you divorced as of December 31rst? I'm not a tax expert but if you were still legally married, then I don't think you can claim H of H. You must claim married or married filing separately.

I'll let the tax folks here confirm....or deny that. I'm not sure.

[MarylandDadom]

OK, I've done a little more digging and have come to the conclusion that only the custodial parent can be Head of Household. In order to be the Custodial Parent, you have to have the child spend more nights at your place of residence.

With that said, the wife would be willing to work out a custody arrangement so that one child spends 183 days with me and the other spends 182 with her.....thus giving us both a legitimate claim to file as head of household.

However, I am curious to know if this would raise any flags with the IRS and make us more likely to be audited (both parents filing head of household)?

[anonymous guest]

Many people put it in their decree that they split decuctions. You claim one kid, she claims another.
Once you have two seperate households and are divorced, I believe you both can claim HoH. Not sure about if you are still married.

[CCR]

OK, I've done a little more digging and have come to the conclusion that only the custodial parent can be Head of Household. In order to be the Custodial Parent, you have to have the child spend more nights at your place of residence.

With that said, the wife would be willing to work out a custody arrangement so that one child spends 183 days with me and the other spends 182 with her.....thus giving us both a legitimate claim to file as head of household.

However, I am curious to know if this would raise any flags with the IRS and make us more likely to be audited (both parents filing head of household)?

From what I've read in the past, I believe this is exactly how 2 parents can legally both claim H of H with 2 children. It shouldn't raise any flags with the IRS as long as you keep claiming the same child each year.

[kmich91262]

Grgr is the resident tax expert and she may chime in. My understanding coming from the tax field, although I work in a different tax area, is that the IRS could give three sh-ts about what is written in the order regarding HoH..I would suggest tread lightly if the intention is to write it in the order as such.

Regarding if you can file HoH, I would check with a tax expert however if you are as described in the original posting you should be able to claim HoH. Again I would check with a tax expert to verify.

[MarylandDadom]

Grgr is the resident tax expert and she may chime in. My understanding coming from the tax field, although I work in a different tax area, is that the IRS could give three sh-ts about what is written in the order regarding HoH..I would suggest tread lightly if the intention is to write it in the order as such.

Regarding if you can file HoH, I would check with a tax expert however if you are as described in the original posting you should be able to claim HoH. Again I would check with a tax expert to verify.

I'm feeling pretty confident that if each parent were to have the one child sleep overnight 183 days (on a non leap year) or more in a given year, and the other requirements are met, then yes legally the conditions for each parent to file as HoH have been met.

However, with that said....I don't want any redflags with the IRS. Additionally, I don't want the ex-wife at some point in the future to decide that she is pissed off at me and to produce a log showing that she had both kids for 183+ days in any given year.

Advice?

[Groundhogday]

OK, I've done a little more digging and have come to the conclusion that only the custodial parent can be Head of Household. In order to be the Custodial Parent, you have to have the child spend more nights at your place of residence.

With that said, the wife would be willing to work out a custody arrangement so that one child spends 183 days with me and the other spends 182 with her.....thus giving us both a legitimate claim to file as head of household.

However, I am curious to know if this would raise any flags with the IRS and make us more likely to be audited (both parents filing head of household)?

This is what as known as "split custody" as opposed to shared custody. It is perfectly legal as long as you can document that each of you had one child stay a majority of nights at your house. Writing it in the agreement doesn't really mean anything, but on the other as long as the IRS has no contrary proof I don't know how they would deny Head of Household status. Since your wife has nothing to gain by trying to claim that two children spent the majority of nights with her, I don't know why she would throw a wrench into the works.

If you can't trust your wife, then keep a detailed log of every night the kids are with you and don't claim HoH unless one of the children really was with you a majority of nights for a given tax year.