Whether you are divorced, sharing parenting after a breakup, or going through the breakup process, you need to know your tax filing rights regarding your minor children and dependents. Unfortunately, If both parties do not come to an agreement, you could end up in expensive litigation on the issue, not to mention possible tax penalties.
In order to protect yourself, keep the following 10 tax tips for joint custody in mind:
1. FOLLOW ALL AGREEMENTS AND ORDERS. Check your Parenting Plan, Separation Agreement (also known as a Property and Financial Agreement), and any court orders on child tax credits. This is a great place to start because no matter what the law allows in general, you are still held to these things in your own personal filing. For example, the law may allow you to claim your children BUT if your Parenting Plan or court orders say your former partner can claim one or all of your children, then you MUST follow those agreements and orders or face a contempt proceeding. Remember that once your Parenting Plan and Separation Agreement are “so ordered” by the court, they are as powerful as any other court order so violating their provisions may mean you are in contempt of court.
2. READ THE FINE PRINT IN YOUR AGREEMENTS AND ORDERS. Often a court order or agreement says that a party can only claim a child IF they will receive a tax benefit by claiming them. This may mean you need to check with a tax accountant or tax attorney in advance of filing to see if the other parent or you are going to get that benefit. You may also need to check with a family law attorney to understand how your agreement technically works. If so, feel free to call or text me at 303-808-4794 for a free consultation on how the law applies to you. I am happy to look over your agreements and orders and let you know my initial thoughts to get you in the right direction.
3. EXCHANGE FINANCIAL AND TAX INFORMATION WITH THE OTHER PARENT EVERY YEAR. Colorado law requires parents to exchange financial and tax information even after their divorce or Allocation of Parental Responsibilities (APR) proceeding (court for parents who break up but still share parenting of a minor child). You will need this information in order to know your rights about tax filing, so try to get it as early as possible. You may need to consider getting an extension on filing or amending your return if you do not have the information needed for timely filing. See C.R.C.P. 16.2; C.R.S. Section 14-10-115(14)(a.)
4. KEEP UP ON CHILD SUPPORT. Under Colorado law, a party who is behind on child support at the end of the year cannot claim the child income tax credit for that year. If you are paying, document that you are up to date. If the other parent is paying and falls behind, document this so you can enforce your right to claim the child(ren.) Communicate clearly and keep a paper trail of all communication so you can prove your case to the other party, your accountant, your attorney, IRS and tax entities and family court as needed. See C.R.S. Section 14-10-115(14)(b.)
5. CHECK STATE AND FEDERAL LAW ON CHILD TAX CREDIT. Knowing you are allowed to claim the child tax credit under your family law orders and agreements is not enough; you also need to be sure state and federal law allows you to claim the child(ren). Some of my clients have been misled by trying to figure this out by themselves by reading the law, puzzling through IRS.gov and state tax websites, or clicking boxes on self-filing sites like TurboTax. Tax law is complicated, and Colorado law differs from federal law. For example, you may not need a social security number to claim a child in Colorado but do need it federally. And while federal law may allow you to claim a child, Colorado family law has a tie-breaker provision that decides who can file for a child if you both qualify to file — essentially requiring the parents to share the tax credit. See C.R.S. Section 14-10-115(12.) The best way to know for sure is by consulting a tax attorney, CPA or accountant.
6. COMMUNICATE CLEARLY WITH THE OTHER PARENT. Of course it is tempting to just go for claiming the child and hoping it works out; however, this is risky and almost always will cost you more in the long run. Not only could you end up in family court or tax court proceedings if you both claim the children, but it may even trigger you both for an audit. Better to bite the bullet and let the other party know your intentions and then sort things out in advance.
7. DOCUMENT YOUR TAX FILING. If you are filing through TurboTax or mailing in a return, make sure to keep copies of EVERYTHING. Make photocopies of the checks and envelopes, and download online filings to prove your filed properly. Once a tax payment goes through, keep the bank record that the payment was made. Document that your child support was up to date or that the other parent’s child support was not up to date as the case may be. If the other parent contests your filing, you will need this paperwork.
8. DO NOT OVERLOOK THE MORE NUANCED TAX PROVISIONS FOR CHILDREN. If you are contributing to a child’s educational account like a 529 College Saving Plan, you may qualify for more of a deduction. You will need to work this out with your former partner if one of you is maintaining those accounts but both have contributed or are continuing to contribute. So too, a parent may qualify for a Childcare Deduction or even medical expense deductions for their children. A party may be low income and yet still qualify for the Earned Income Tax Credit (EITC), allowing them to receive a reimbursement even if they do not owe taxes. These rights are frequently changing and you need to know what they are.
9. MAKE SURE THE CHILDREN QUALIFY AS DEPENDENTS. In one of my cases, the children’s stepmother filed for all three children as independent, rushing to file before the mother, then handing out the refunds which were pennies on the dollar to what the mother would have received if she had claimed them as she was entitled to do under court orders. This put the mother in the awkward position of either asking her adult children to forego their refunds or giving up her more substantial refund. In another case, an attorney sent a letter to a university falsely claiming the father was behind on child support when he was not, leading to incorrect tax filings AND university grant money that later had to be refunded. First of all, do not pull shady tricks like this as they will usually blow up in your face. But also, talk to your own adult children so you are all on the same page as to whether they are dependents and how the child tax exemptions will work. In both cases, if the children had been informed beforehand, I am sure they would have preferred to get a share of the more substantial tax refunds or to apply for aid actually warranted that did not need to be refunded later. NEVER put minor children in the middle of financial issues. But with adult children who still qualify as dependents, make sure you are all on the same page before filing in order to prevent this type of manipulative (not to mention fraudulent and possibly illegal) gamesmanship.
10. DO NOT PROCRASTINATE, AND GET EXTENSIONS AS NEEDED. Unless your agreements or court orders say otherwise, you are allowed to get an extension and file in the fall if you do not know your rights. Better yet, queue up all your tax information and communicate with the other parent well in advance you know your rights, agree on filing status, file on time, avoid court if possible and be prepared for court or mediation if necessary.
As always, a good family law attorney can get you on the right track. Do not hesitate to call or text me at 303-808-4794, call my firm at 720-922-3880 or email me at beth@andersenlawpc.com for a free consultation on your tax filing issues.
