Divorced parents: Obey new regulations for dependents

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in Small Business Tax,Small Business Tax Deduction Strategies

Getting divorced or separated isn’t pleasant. In addition to dividing up your belongings, you could become embroiled in a custody battle with your ex-spouse. And you also must figure out all the tax ramifications.

For instance, if you have young children, who claims the dependency exemptions? Often, this becomes a point of contention.

Strategy: Follow the IRS’ lead. It has just issued new proposed regulations for divorced and separated taxpayers. The new regs provide some much-needed guidance in this area.

For 2007, each dependency exemption is $3,400. And be aware that more than just a dependency exemption is at stake. Other tax benefits, such as the child-tax credit and education-tax credits, may also be on the table.

Here’s the whole story: The rules for claiming dependency exemptions for children when the parents are divorced, legally separated or living apart for the last six months of the year (see box) we...(register to read more)

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