For most people with dependent children, the dependency exemption deduction on your personal return is pretty straight forward. However, if you are divorced with children, keep in mind that the dependency exemption goes to the custodial parent - defined as the parent who has custody of the child for more than half the year. It does not matter one bit if the non custodial parent supports that child 100% - with one exception to be described immediately after this, the dependency exemption goes to the custodial parent, end of story. The one exception is that the custodial parent can waive the exemption by giving the non custodial parent a filled out and signed Form 8332, assigning the exemption to that non custodial parent for one or more years. Note that even if the judgment of divorce awards the exemption to the non custodial parent, that is likely not good enough for the IRS - you need the Form 8332.
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If your employer sponsors a 401(k) plan, if you can at all afford to contribute, do so. Many employers do some form of a match - in which case it is almost a "no brainer" to contribute. Even in the absence of a match, what you are getting is a current deduction against your taxable income for saving money which will build up over the years in a tax deferred arrangement. Frankly, in our tax system, it doesn't get much better than that. The 401(k) plan has to be employer sponsored (you can't establish your own), and the contributions into it have to come out of your paycheck. The annual limitation - and note that if you are in more than one 401(k) plan, say with more than one employer, the limitation is a total combined for an individual, not for the employer - currently is $17,500 if you are under age 50, and $23,000 if you are 50 and over. For a married couple, if both are working for employers who sponsor 401(k) plans, these limitations are for each of them. Note, subject to any restrictions placed by your employer (there are no such restrictions placed by the IRS), these contributions can be made piecemeal, sporadically, all at once; the amount can change from week to week or month to month, etc. Thus as an example, if you start the year contributing $500 out of each paycheck, and then a couple of months into the year you decide you want to increase or decrease it, there are absolutely no restrictions imposed by the IRS on doing so.
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The Financial Information & Tax Tips are intended for general information and to provide ideas. They are presented in an abbreviated format. They are not tax advice, which can only be given on a one-on-one basis inasmuch as taxes are very complex and each situation is unique. If you believe that any tax tip is relevant to your situation, we urge that you consult with a tax professional.
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Kal Barson
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About Kal
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The Barson Group
60 East Main Street
PO Box 8018
Somerville, NJ 08876
Phone: (908) 203-9800
Fax: (908) 203-9399
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