Academic journal article Journal of Accountancy

Poor Divorce Planning Can Be Costly

Academic journal article Journal of Accountancy

Poor Divorce Planning Can Be Costly

Article excerpt

A taxpayer who fails to provide for a prior year's dependency exemptions in his or her divorce decree may find the omission costly. Although the tax law allows a custodial parent the dependency exemption after a divorce, it is silent on the issue of who gets the exemption before the divorce. Proper planning could have prevented the following situation.

A couple and their child lived together for the entire 1996 tax year. Both taxpayers worked outside the home, with the husband earning slightly more than the wife. In January 1997, the husband moved out of the home and quickly filed for divorce. The divorce was granted in April 1997 and the decree granted custody of the child to the wife, thus settling the dependency exemption issue for 1997 and beyond, However, the decree did not address the dependency exemption for 1996. Because the couple was married and living together that year, they had to file their 1996 returns either jointly or as married filing separately. They elected to file separately for that year, but both wanted to claim the child as a dependent.

Which parent was entitled to claim the child as a dependent for 1996? The IRS provides an abundance of guidance on dependency exemptions for divorced or separated parents but does not specifically address the issue of dependency exemptions for married taxpayers who reside in the same household. …

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