My wife and I have been separated, but not legally; yet. Payments for child care come from her paycheck. I pay her half in a check at the beginning of each month. What is the best choice for tax purposes - to continue paying her half at the beginning of each month, or to begin paying the child's care directly? Will I be able to claim dependent care credits if I pay my wife half of day care costs?

If you are not legally separated and won't be at the end of the year claiming the deduction for the child is going to be a nightmare.

If you pay the child care center directly you have a paper trail. Without a Court Order anything you pay is a "gift."

Thanks judy. Can you elaborate on your term "nightmare"? which is funny in itself, but if you could be more specific, that would be great. I would think, if not legally separated, then we file "married filing separate."

Yes, both of you can not claim the child, only one parent if you are filing separate. After the divorce and child custody the agreement will state who will and on what years the child can be claimed.

At this point, if the child is living with your soon to be ex, she would appear to be the one claiming the child on taxes.

By "nightmare" I mean both of you attempt to claim the child and the child's expenses, your wife claims all the child care payments were gifts to her, something in between - and it goes on and on.

Legally is the way to handle this. Even though things between you right now may be amicable, you never know what's up (or is it down?) the road!

Zorbarose:

It is unlikely that ANY divorce will be final at the end of 2010, so the easiest way to handle this is to file jointly and claim all of the expenses on that JOINT return, then negotiate how you will split the refund or how to pay what is owed in tax.

If that is not an option, then the wife gets to claim the deduction, and you will have to come to some agreement as to how you will get credit for your share of the expense.