Last year, the Tax Cuts and Jobs Act (TCJA) was passed by federal lawmakers. This legislation has introduced a number of new changes to the existing tax code, and several of them will affect couples that are getting divorced. Here’s how the new tax law affects alimony payments:
Alimony Payments and Taxes
Before the new tax law was established, people who paid alimony could deduct their payments from their taxable income. There was no limit on this deduction, so even if the alimony payments were large, they could still be deducted from the payer’s taxable income every year. As a result, the higher-earning spouse could save money on taxes simply by paying alimony. The deduction was even located on the front page of Form 1040, so it was easier for taxpayers to locate than other common deductions.
However, the new law treats alimony payments in the same manner as child support payments, which means they are no longer deductible for the payer. Some of the changes made in this tax law are temporary, however this change is permanent, and it goes into effect in 2019.
How the New Tax Law Could Affect Divorced Couples
The existing tax law gave the higher-earning spouse an incentive for agreeing to pay alimony: significant tax deductions. But, now this incentive is gone. For this reason, many experts believe that higher-earning spouses will fight harder to avoid paying alimony during the divorce proceedings. This means it could be harder for the lesser-earning spouse to secure the alimony he or she needs to maintain his or her lifestyle after a divorce.
If you’re getting divorce, it’s important to be prepared. Lesser-earning spouses should prepare to aggressively fight for the alimony they deserve during their divorce proceedings. The new tax law also eliminates the dependency exemption that gave custodial parents a tax incentive for each of their dependents. This change could impact disputes involving child custody and child support during the divorce proceedings. Because of all of these significant changes, it is imperative to hire a family law attorney who understands how the new tax law may complicate your divorce.
Are you prepared to end your marriage? If so, contact Williams Law Group, LLC right away. Our experienced attorneys know the many ways that divorce can affect your taxes, and we use this knowledge to fight for a fair settlement that is in your best interests. Call our office at (908) 810-1083, email us at email@example.com, or contact us through our confidential online form to schedule a consultation.