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My wife and I live in Massachusetts and adopted a sibling pair with special needs from foster care last year. We cannot file as married for federal taxes, and we therefore end up paying far more taxes than our straight friends. Additionally I pay imputed income tax on her health insurance.
I'm looking to mitigate some of that.
I make twice as much as my wife. I was going to claim both children as dependents and also claim head of household status. I'd therefore be claiming both adoption credits that I'd use over 5 years.
However, if we were married we'd get more of the money sooner as we'd have a larger combined refund. I'm therefore wondering if it makes more sense for us to each file as head of household and each claim one child as a dependent, thereby each claiming one of the adoption credits.
I know it's all quite confusing. And I'm not trying to take advantage. Just wondering how to make the best of a pretty frustrating situation where we are literally paying to be discriminated against.
Thanks.
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Other than being a male-male couple, we're in almost exactly the same situation as you are (married, Massachusetts residents, considering a sibling group), and can sympathize with the terribly complicated tax issues and tax penalties that can be invoked by being in such a relationship.
The head-of-household rules are quite clear (and are [URL="http://www.irs.gov/publications/p501/ar02.html#en_US_publink1000220775"]available on the IRS website[/URL]). To claim this status, there are three requirements:
[LIST=1]
[*]You are unmarried or considered unmarriedӔ on the last day of the year.
[*]You paid more than half the cost of keeping up a home for the year.
[*]A qualifying personӔ lived with you in the home for more than half the year (except for temporary absences, such as school).
[/LIST]
Unfortunately, it is virtually impossible for both you and your spouse to claim this status, as only one of you will have paid more than half the cost of keeping up a home for the year. Therefore, barring exceptional circumstances, the individual with the highest income (and therefore the one most likely to be paying for more than half the cost of the home) should generally be the one to take advantage of the head-of-household filing status.
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Hmm... How would this apply to two single parents sharing a home? For instance, AA and BB are splitting the cost of a 4 bdrm house - basically roommates. They each have one child, aa and bb. Couldn't they both claim HOH? I would think this could be done legally. But definitely talk to a tax professional...