Imagine how a CPA and tax expert, like me, cringes when she hears people who are not tax experts, casually tossing around tax “advice.”
Yup. I’m talking about family law attorneys. Let me count the ways…
• “Oh, sure, you can claim that child tax credit—or, rather, child-care tax credit. Same thing.” (No. They’re not.)
• “That home equity with the same dollar-amount as the 401(k) is a fair trade.” (Nope. Among many other things,
they’ll be taxed differently.)
• “Claiming a child as a dependent is the same thing as claiming them for ‘head of household’ purposes.” (Not
It’s a veritable litany of bad advice. My advice to you: Don’t go there. You know how careful you are with legal verbiage? How a single “and” or “or” or the placement of a comma can change the whole meaning of a passage and its effect? Same thing here.
And this is just the direct advice. More insidious is the indirect advice I see all too often among my clients: women facing the financial (and tax)
challenges of divorce.
Let’s talk about that whole head-of-the-household issue. A “qualifying child” for head-of-household purposes, as defined by the IRS, means where
the child spends the majority of the year, measured in actual overnights stayed. That should make you sit up and take notice. The IRS couldn’t care
less how that divorce decree is worded.
Speaking of wording, using “50/50” is really pointless in this regard, because if it were true, then neither parent could claim head-of-household
status in terms of “qualifying child.” And breaking news: It’s impossible to divide a calendar year evenly, unless it’s a leap year, since only a leap year
has an even number of days anyway. With some smart planning, however, both parents may be able to file as head of household and take advantage
of the more favorable tax rates.
And here’s a myth you may have heard—and hopefully don’t believe: It says that “whoever files first, wins.” Not true. Now, if both parties try and
claim the same child (defined by their Social Security number, for IRS purposes), the first return will sail through an e-file, while the second one will
automatically get bounced, even if its information is correct. Then the IRS gives the taxpayer only five calendar days (not business days), including
the day of the bounce, to mail the return—extra tricky when Easter and/or Good Friday fall near April 15th. Then there’s the letter that will come from
the IRS regarding the qualifying child or dependency discrepancy; just imagine how your client will react. Then there’s the state’s response, which
inevitably follows, but they take a little longer.
Bottom line: Do you want all of this to hit the fan, typically months after this case was supposedly closed out of your books and definitely off your
radar? Do you want a frantic, seething client waiting on hold to tell you what they think in a situation like this?
Trust me, I’m only scratching the surface here. You definitely want to entrust any tax-related advice to a team member like me. I’d be happy to help.