The below information is in NOT tax advice, but simply to inform on the effects of divorce. Consult with your accountant when making all tax decisions.
When contemplating divorce it is important to acquaint yourself with the special rules in the tax code. Here are a few examples.
Dependency Exemption. The tax code provides for a special exemption for a custodial parent of a child known as the dependent exemption. This exemption entitles a custodial parent to claim an exemption of $3,950 for each child.
A noncustodial parent may claim this exemption with the consent of the custodial parent. To do so the custodial parent is to sign an IRS Form 8332 Release of Claim to Exemption for Child of Divorced or Separated Parents, which is then attached to the noncustodial parent’s income tax return. The custodial parent is still entitled to claim Head of Household and able to qualify for Child Care Credits, Exclusion for Child Care Benefits and the Earned Income Credit.
Child Support. “Child support is not deductible to the person paying it nor is it taxable income to the recipient.”
Alimony. Alimony, unlike child support, is included in the recipient’s income for tax purposes and taxed at “ordinary income tax rates.” The individual paying the alimony is entitled to take a deduction.
Source: Bonnie Lee, Taxes and Divorce, What You Need to Know (Available at http://www.foxbusiness.com/personal-finance/2014/12/01/taxes-and-divorce-what-need-to-know/)
