Filing strategy for unmarried couple with kids? HOH & dependent questions

This is a common situation, and you need to be careful about how you file. For Head of Household status, you must have a qualifying dependent. You can't file as HOH without claiming at least one of the children as your dependent. Since both children are yours biologically, either of you could claim them, but each child can only be claimed by one parent. The IRS has tiebreaker rules if parents can't agree, but in your case, you're planning this together. If your girlfriend claims both children, she can file as HOH (not Single), and you would need to file as Single (not HOH). For the most tax advantage, you might want to run the numbers both ways: 1) You claim one child and file HOH, she claims one child and files HOH, or 2) She claims both children and files HOH, you file Single. The second option likely gives you more benefits since she can get the EITC and full Child Tax Credits with her income level.

I was in a really similar situation last tax season. After getting conflicting advice from two different tax preparers, I found https://taxr.ai which helped analyze our household situation. It saved us almost $3,200 by optimizing how we filed. The software analyzed our income details, living situation and dependent info, then showed us exactly which filing status each person should use and who should claim which kids. It even identified some home office deductions for my partner's business that we were missing (sounds similar to your girlfriend's situation). The best part was that it showed us the exact IRS rules that applied to our situation so we felt confident we weren't doing anything questionable.

Ok so I was skeptical but I gave taxr.ai a try after my previous post and wow - it actually found a much better filing arrangement for us! I'm a single dad sharing custody with my ex and I've been filing wrong for YEARS. The tool showed me that I could claim HOH status in our arrangement (which my accountant never mentioned) and identified about $4700 in additional tax benefits. It didn't just give a recommendation but actually explained the specific tax rules that applied to my situation and why I qualified for things I wasn't claiming. I've already updated my W-4 with my employer based on the guidance. Wish I'd known about this tool years ago!

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One thing to consider that hasn't been mentioned - if your girlfriend claims both kids for the Child Tax Credit, make sure she'll have enough tax liability to actually benefit from the full credits. The CTC is partially refundable (meaning you get it even if you don't owe taxes) through the Additional Child Tax Credit, but there are limitations. At $27k business income, she should be fine, but run the numbers to be sure. Sometimes it makes more sense to split the kids between parents even if one parent has a higher income, especially if the lower-earning parent doesn't have enough tax liability to fully utilize the credits.

Has anyone used the IRS's Interactive Tax Assistant for this kind of question? I think it has a module specifically about filing status and dependents. Might be worth checking before paying for services.

Just wanted to add another perspective here - I'm a tax preparer and see this situation frequently. The advice about your girlfriend claiming both kids and filing HOH while you file Single is generally correct and usually optimal, but there's one scenario worth considering. If your girlfriend's self-employment income fluctuates significantly year to year, you might want to consider alternating who claims the kids. In years where her business income is very low, she might not have enough earned income to maximize the Earned Income Tax Credit, and you might benefit more from claiming one child for HOH status. Also, since she has self-employment income, make sure she's taking advantage of the home office deduction if she uses part of your home exclusively for her photography business. That can reduce both her income tax and self-employment tax liability. One last thing - document everything about your living arrangements and who pays what expenses. The IRS does occasionally question HOH status and dependent claims for unmarried couples, so having clear records of your household setup will help if any questions arise.