Your children can be tax shelters. In 2003, you can deduct $3,050 for each dependent you claim. Each dependent, then, can save you around $1,000 in taxes, assuming an effective 33 percent tax bracket. But who gets the deductions after a separation or divorce? Generally, the dependency exemptions go to the parent who is awarded custody in a divorce or separation agreement. If there’s no agreement, the parent with physical custody for most of the year gets the tax break.
The parent with custody, though, may not go to a job and thus may have little or no taxable income. For such a parent, the dependency exemptions are worth little or nothing, in terms of tax relief.
In this situation, the low-income custodial parent can sign over the dependency exemptions to the higher-income non-custodial parent, on IRS Form 8332. Generally, the higher-income parent will make some concession, in the divorce negotiations, to get the tax-saving exemptions.
