Quote of the Day

“Whoever is trying to bring you down is already below you” -Uknown

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Quote of the Day

“In three words I can sum up everything I’ve learned about life: it goes on.”
― Robert Frost

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Quote of the Day

” You don’t always need a plan. Sometimes you just need to breathe, trust, let go and see what happens.” -Mandy Hale

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Which Parent Gets Child-Related Tax Breaks After Divorce?

Divorce causes tax issues; it’s as simple as that.

Are you the custodial parent?

For tax purposes, a child is usually treated as a “belonging” to the parent who has custody for the greater part of the year. That parent is considered to be the “custodial parent” and the other the “non-custodial parent.”

The general rule says that only the custodial parent can claim the dependent exemption deduction for the child. However, an exception to the general rule allows the custodial parent to release to the non-custodial parent the right to claim the designated child as a dependent. Making this concession doesn’t help the custodial parent’s tax situation, but it is often a necessary part of settling a divorce.

The Non-Custodial Parent Rule Can Mean Big Tax Savings

Under the non-custodial parent rule, the designated child is treated as a qualifying child of the non-custodial parent if all the following requirements are met.

  1. Support Requirement: Over half the child’s support for the year must be provided by one or both parents.
  2. Divorced or Separated Requirement: The parents must be divorced or separated under a written agreement at the end of the year or have lived apart duirng the last six months of the year.
  3. Custody Requirement: The child must be in the custody of one or both parents for over half the year.
  4. Written Declaration Requirement: The custodial parent must sign a written declaration releasing to the non-custodial parent the right to claim the designated child as a dependent for the year. The easiest way to meet this requirement is to have the custodial parent sign IRS From 8332 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent). The non-custodial parent must attach a copy of Form 9332 to his or her Form 104.

Dependency Exemption Deduction: This deduction is $4,150 for 2018 (up from $4,050 in 2017).

Child Tax Credit: This credit is $1,000 for each eligible child (subject to phase-out for higher-income parents).

Higher Education Tax Credits: The American Opportunity Credit can be worth up to $2,500 during the first four years of a child’s college education. The Lifetime Learning Credit can be worth up to $2,000, and it covers just about any higher education tuition costs (Both credits are phased out as the parent’s income goes up, but Lifetime credit is phased out earlier.)

Student Loan Interest Deduction: This deduction can be for up to $2,500 of qualified student loan interest expense paid by the parent (subject to phase-out for higher-income parents).

Tuition Deduction: This deduction can be as much as $4,000 for higher education tuition and mandatory enrollment fees. (At higher income levels, the maximum deduction drops to $2,000 before being completely disallowed at still-higher levels).

Some Breaks Are Available to Both Parents

Whether the non-custodial parent rule applies or not, the non-custodial parent can usually claim the tax breaks listed below as long as the first three noncustodial parent rule requirements are met (the support requirement, the divorced or separated requirement, and the custody requirement). The custodial parent can also usually claim these breaks:

  • Itemized deductions for the child’s medical expenses paid by the parent.
  • Tax-free employer-provided health care benefits for the child.
  • Tax-free health savings account (HSA) distributions to cover the child’s medical expenses.

Some Breaks Are Available to Both Parents

The non-custodial parent cannot claim the following based on a child to whom the non-custodial parent rule applies. The custodial parent can if he or she meets the applicable tax-law requirements.

Head of Household Filing Statue: Filing as a head of household is better than filing as a single taxpayer, because the standard deduction is bigger and the tax brackets are looser. A non-custodial parent cannot claim head of household filing status based on a child who falls under the non-custodial parent rule.

Earned Income Tax Credit: In 2018 this credit can be worth up to $3,468 for one qualifying child and up to $6,444 for three or more qualifying children (up to $3,400 and $6,318 respectively in 2017). It is phased out as the parent’s income goes up. A non-custodial parent cannot claim the credit for a child who falls under the non-custodial parent rule.

Child Care Tax Credit: This credit can range from $600 to $1,050 for one qualifying child ($1,200 to $2,100 for two or more), based on the parent’s income. A non-custodial parent cannot claim the credit for a child who falls under the non-custodial parent rule.

Tax-Free Childcare Assistance: This break allows up to $5,000 in federal income-tax-free reimbursements for qualified childcare expenses under an employer plan. A non-custodial parent cannot receive tax-free reimbursements for a child who falls under the non-custodial parent rule.

(QRGA, LLP Nov. 16th 2017)

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New Years

“Be at war with you vices, at peace with your neighbors, and let every new year find you a better man.” -Benjamin Franklin

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Quote of the Day

“Christmas is not a time nor a season, but a state of mind. To cherish peace and goodwill, to be plenteous in mercy, is to have the real spirit of Christmas.” -Calvin Coolidge

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Quote of the Day

Your life is right now.
It’s not later.
It’s not in that time of retirement.
It’s not when the lover gets here.
It’s not when you’ve moved into the new house.
It’s not when you get the better job.
Your life is right now.
It will always be right now.
You might as well decide to start enjoying your life right now,
because it’s not ever going to get better than right now –
until it gets better right now.

– Abraham-Hick

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Divorce Do’s and Don’ts

People tend to say or do things they later regret in the heat of the moment and during the divorce process there is no shortage of those moments. However, what you say and do can have large consequences on you later and specifically the outcome of your divorce. Here is a simple list of some of the major Divorce Do’s that can help you out through the process and alleviate some stress, along with a sample of some important Dont’s

  • DO try to cooperate with your ex. It makes the process not only quicker, but much smoother as well.
  • DO fully disclose all your assets. The worst thing you can do is try to hide something and have it come out later.
  • DO consult a attorney. You should make arrangements for consultations with a few different attorneys. Make sure you do your research and don’t just pick the first one!
  • DO your own research on the divorce process
  • DO collect your own financial documents. Your legal fees won’t be as high if you collect and organize your own financial documents (bank statements, tax information etc.)
  • DO what your attorney asks of you as quickly as possible! Taking a long time to comply with your attorney (or not complying at all) will not only drag out the process taking more time and money, it could harm your chances of a divorce settlement in your favor or even result in your attorney no longer working with you.

 Don’ts

  • DON’T lash out at your ex or your children. I know it can be hard, but keeping your cool is very important. This includes on social media!
  • DON’T violate any custody/visitation arrangements with your children because it will make it much harder in court for you to get the arrangements you would like.
  • DON’T hide your money or property. This will drag out the process and may even lead to your ex taking you back to court.
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Food for thought

“Learn to enjoy every minute of your life. Be happy now. Don’t wait for something outside of yourself to make you happy in the future. Think how really precious is the time you have to spend, whether it’s at work or with your family. Every minute should be enjoyed and savored.”- Earl Nightingale

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Quote of the Day

“A Plan B life can be just as good or better than a Plan A life. You just have to let go of that first dream and realize that God has already written the first chapter of the new life that awaits you. All you have to do is start reading!” -Shannon L. Alder

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