Mistake #2: You Cannot Claim Your Children
You may feel that, because you pay child support, you should be able to claim your children as dependents for tax purposes. Not so fast. Each child must be a “qualifying child” under the IRC to be a dependent. In most cases, because of residency requirements, children are “qualifying children” of their custodial parents, the parent with whom they spend more than one-half of their time. There is a special rule for divorced or separated parents. Under this rule, the non-custodial parent may claim the child if (1) they are divorced or legally separated, execute a separation agreement or have lived apart for the preceding six months, (2) the child received at least one-half of his support from the parents, (3) the child is in one parent’s or both parents’ custody for at least one-half of the year, and (4) the custodial parent signs a written declaration releasing the child for the dependency exemption, and the non-custodial parent attaches this declaration to his tax return. See IRS Publication 504. There are exceptions for pre-1984 divorces. If you want to claim your children, be sure your decree states, at a minimum, the year(s) you will claim each child, the documents you and your ex will have to execute to facilitate it, a continuing duty to cooperate and execute all reasonably necessary documents timely and in good faith, and the consequences if your ex refuses to release the exemption or is otherwise uncooperative.
To learn more, visit http://www.irs.gov/uac/Top-10-Tax-Facts-about-Exemptions-and-Dependents