The links below correspond to screens in the software.
This screen shows the best party to claim the tax exemptions for the children.
By “best party,” we mean the party who, if he or she claims the exemptions, minimizes the combined tax liability of the two parties.
Since the claim of exemption has no impact in the real world other than its impact on taxes, this could be a guide to help the parties make a good choice, which can save them some money.
As you may know, under the tax act which was passed in 2017, the exemption amount is zero, for as long as that act is in effect.
But the claim of exemption affects the Child Tax Credit, so the determination of exemption still has significant tax impact.
This screen of the software shows the combined potential tax savings for having one party claim the exemptions as opposed to the other.
If the potential savings is low, it may not be worth disturbing the parties’ current intentions with respect to the claim of exemptions.
But if the potential savings would be significant to the parties, you can add value to the situation by showing them the amount of money they could save by switching.
The graphical presentation makes it easier for the parties to understand the impact of the choice.
In the middle of the screen, there are links that you can click to show more detail. The “Parties” screen shows each party’s taxes under each scenario.
The two bars on the left show each party’s taxes if Party A claims all of the children as exemptions.
The two bars on the right show each party’s taxes if Party B claims all the exemptions.
At the top of the screen, on the right, you can specify the next year.
That is because the parties’ finances may be different in the current year than in the next year.
At the top of the screen on the left is an option to include state tax in the calculation.
We make this an option because the state income tax we calculate is typically more of an estimate than the federal income tax.
The federal income tax is calculated precisely, and so you can be confident of the result with respect to which party should claim the exemptions.
When we add in state tax, since we are only estimating, we are less confident of the result.
Note that the software is concerned with the combined tax savings.
What if this savings accrues only to one party?
In that case, the party that is saving may wish to make a payment to the other party of a portion of the savings, to equalize the savings between them.