“Love,” we’re told, “is a many splendid thing.” And here at Gordon Law, we wish every single human a lifetime of joy. But we also know that divorce happens. And when it does, things can get messy — especially financial things. So we’re here to offer some divorce tax advice: If you’re best option is separating, now is the time to do it. Why? Taxes.
Divorce Tax: New Tax Code Eliminates Alimony Tax Deduction
Under the old tax code, alimony payers were able to deduct those payments from their taxable income calculation. But that break ends on Dec. 31, 2018.
In other (blunt) words, if you’re in divorce limbo and certain that separation is the best answer, finalize your paperwork before the end of the year.
According to this article, over 500,000 use the alimony deduction to reduce taxable income. But starting this upcoming January that reduction will no longer be available to people who get divorced in 2019 and beyond (or until the tax code is changed again).
Divorce Tax: Why Did Officials Kill The Alimony Deduction and What Will Be The Likely Impact?
Divorce and tax lawyers are bracing for impact. In years past, payers were often willing to give more to former spouses because they could write it off, and then the receiver would pay out taxes at the lower tax rate. But now, divorcés who make significantly more than their soon-to-be ex-spouses will likely fight tooth and nail to pay less alimony since they can no longer write it off.
Why did lawmakers vote to eliminate this deduction? The Joint Committee on Taxation estimates that killing it will generate about $7 billion in tax revenue over the next 10 years.
What About Child Support and “Unallocated Support”?
Note that child support payments — as opposed to alimony payments — have never been deductible. However, “un-allocated support” was. Under the new tax code, payers will no longer be able to subtract “un-allocated support” payments in their remittance calculations.
There are better ways to configure your positions and monthly finances. For example, do you make the most of tax-exempt retirement accounts and gifting possibilities? Get in touch today and let’s start exploring your options. There’s a better than average chance that we’ll be able to tweak your current set-up and save you money.
Chat With A Tax Attorney Today About Your “Divorce Tax” Concerns
Divorces are difficult. And part of the difficulty is sorting through finances. Our tax law team can walk you through options and explain the pros and cons of each. We’ll move at your pace, make the process painless, and save you the most amount of money.
We’re here to help. Let’s talk. The consultation is on us.