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Let’s work it out!

As a tax professional, I have seen the fallout between unmarried or divorced couples battle over who is claiming the child or children at tax time. With a little cooperation, most situations can be worked out without all the arguing.

What the IRS says. The custodial parent has the right to claim the child and any tax benefits. Custodial parent is defined by the IRS as follows: “the parent with whom the child has spent the greater number of nights with during the year. The other parent is the non-custodial parent.” Per IRS form 8332

However, if both parties agree the custodial parent can complete form 8332 Release/Revocation of Release of Claim to Exemption by Custodial Parent. This form can be used just for the current year or futures years. The best thing about this form is that it formalizes the agreement between both parties. The form can also be used to Revoke the agreement whenever the custodial parent wants.

What if the couple is still together?

This advice applies to unmarried couples, married filing separate and divorce couples. The question that must be answered is who would benefit the most either in terms of maximizing tax refund or reducing tax liability.

As an example, a married couple chose to file married filing separately to save on student loan payments. They both were on income-based repayment plans that were recalculated each year. Filing separately help reduced the payments. In this case, the higher income spouse claimed the child and used the refund to pay the small tax liability for the other spouse. In other cases, the decision may be made on who will qualify for the maximum refund. Parties can agree to split that tax return and make it a win/win for everyone.

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