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Generally, the child and dependent care credit
can only be claimed by the custodial parent.
If the children (or one of the children) lived with you for more than half of the year, then you can claim all of the child care expenses of the children (or child) that lived with you for more than half of the year. If the children were in custody of your spouse for more than half of the year, she is the only taxpayer entitled to claim the child and dependent care credit.
"Since my wife claims the oldest child, can I claim the 50% of the tuition and daycare that I paid despite him not being a dependent in the eyes of the IRS?"
If the oldest child lived with you for more than half of the year, you can claim all child care expenses associated with that child for the child care credit regardless of whether you claimed that child or not.
"How do I deal with the deductions properly to maximize my return and not break IRS rules?"
For children in divorce, the four main deductions and credits are divided by custody and who claims the exemption. The dependency exemption
and the child tax credit are deducted with the parent who claims the child as a dependent. The earned income
credit and the child and dependent care credit,
can only be used by the parent who has physical custody of the child for more than half of the year. There really is not much you can do to maximize these deductions.
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