What are tax credits?
Tax credits, which are another consideration for divorcing couples, are either nonrefundable, which can only reduce a filer’s taxes to zero, refundable, which can result in a payment to the filer.
The types of tax credits include, but are not limited to, 1) the earned income tax credit, which is refundable and for a working low-income eligible filer with or without a qualifying child; 2) the child and dependent care credit, which is available to persons who must incur expenses in order to work; 3) the child tax credit, which is available to a tax payer who claims a dependency exemption for a child under 17 at the end of the year; 4) child adoption credit, a nonrefundable credit of up to $10,160 for qualified adoption expenses.
Divorcing couples can sometimes use these credits economically to reduce their joint and later separate tax bills.
Even when couples do not face major tax problems related to assets and distribution, they must make other tax-related decisions that have an impact after they are divorced. As mentioned, for example, couples with minor children must also decide which spouse takes the dependency exemption.
Tax credits also may fall into this category.