The recently passed tax reform bills are having a dramatic impact on the lives of just about everyone in the country. The sweeping reform has direct changes to individual taxes, business taxes, and even how taxes related to divorces are handled. Whether you are currently getting a divorce, or you’re just weighing your options, it is important to learn how the tax laws will impact you today, and for years to come.
When do the New Laws Take Effect?
The changes to how taxes related to divorces are handled won’t take effect until January 1st, 2019. This is causing many couples to take a close look at their marriage and decide what they want to do. Depending on the situation, some people will want to hurry up and get their divorce finalized prior to the end of the year, while others will likely procrastinate and try to ensure the divorce ends sometime after the New Year. Given the significant changes that are being made, it is well worth the effort to try to get your divorce handled on a timeline that will most benefit you.
Alimony is No Longer Taxed or Deductible
One of the biggest changes to the new tax law is in how alimony payments are taxed. Since 1942, the person paying the alimony could claim the amount as a deduction, and the person receiving alimony would have to claim it as income. Any new alimony agreement that begins in 2019, however, will include the change that makes alimony payments non deductible, and those who receive the money will no longer need to pay taxes on that amount.
This may seem like a minor change at first, but it can have a very significant outcome. Previous to the reform, the person who pays alimony was almost always the one with the higher income and were able to deduct the payments from their taxable income. The person who was paid the alimony had to claim it on their taxes; but because they are usually in a lower tax bracket, however, this transaction effectively kept an often significant amount of money out of the hands of the government.
With the new system, the taxes will be paid by the higher earner, at their tax rate, which will mean a greater portion of taxes are paid. This can cost alimony payers thousands of dollars, only part of which will now go to the alimony receiver, with the rest going to the government.
We will Fight for Your Rights
If you are thinking about getting a divorce, you will need to look closely at how these tax law changes will affect the outcome. Please contact us to discuss all your options and begin making a plan of action to protect yourself and your future.
asoto64
