I’ve written before about the sometimes harsh results a parent finds in tax court after trying to claim a dependency exemption without a Form 8332 [You Almost Can’t Win With the IRS] State courts are even faced with the argument that they don’t have the authority to allocate dependency exemptions at all. (That argument of a litigant wasn’t accepted.) Peter O’Reilly’s column at www.forbes.com posits that state courts need to focus not only on allocating the exemption between parents, but ordering a parent to execute Form 8332, which is the only way the IRS and tax court recognize a non-custodial parent’s ability to claim the exemption. See the cases cited in my earlier “You Almost Can’t Win” post.
O’Reilly notes: “Dependency exemptions seem to take on a role in divorce negotiations that is out of proportion to their economic significance.” Truer words about the dependency exemption were never spoken. In 2013, the dependency exemption is a $3900. That is not a tax credit; that’s a deduction from taxable income, so your taxable income is reduced by that amount. So, if your effective tax rate is 18%, the dependency exemption is worth $3900 X 18% which is $702 for the year, or $58.50 per month. If you have your attorneys fight about the dependency exemption for much time at all, you’ve lost money.