Going through a divorce can be financially draining. From attorney fees and court costs to potential property division and alimony payments, the expenses can add up quickly.
Amidst these financial complexities, a potential avenue for tax savings exists that divorcing couples can explore – through child-related expenses and tax credits.
Exploring child-related tax benefits
Divorcing partners can proactively seek ways to save on taxes by familiarizing themselves with the available tax benefits related to children. These include the Child Tax Credit and the Child and Dependent Care Credit.
The Child Tax Credit is a benefit that provides eligible parents or guardians with a credit for each qualifying child. If you qualify, you may be able to get a tax break even if you don’t normally file a tax return.
On the other hand, you may use the Child and Dependent Care Credit to pay for the care of eligible children and other dependents (qualifying persons). For example, if you incur child care expenses while working or seeking employment, your federal income tax may be reduced on your tax return. This credit can help offset expenses incurred for qualified child care services, reducing your tax liability.
How does this work for divorced parents?
For divorced parents, it is important to collaborate with each other to determine who will claim the child tax credit. They also need to discuss the responsibility for childcare expenses, especially for the parent who can’t claim the child as a dependent. He or she can have the child as treated as a qualifying person if he or she meets the requirements.
Documenting child care expenses
Accurate documentation of child care expenses is crucial for claiming tax credits. Maintaining organized records, including receipts, invoices and child care provider statements will be essential supporting evidence during tax filing. By diligently documenting expenses, divorcing partners can ensure they receive the full benefit of the available tax credits.
Divorcing partners can significantly benefit from exploring tax-saving strategies related to child-related expenses. However, understanding the available tax credits is not enough. Open communication between parents is crucial to developing strategic financial planning to maximize their savings through child-related tax credits.