Tax Blog

Alimony Tax?

Divorce is never easy, and the last thing on a recently divorced persons mind is likely taxes. The problem is, the new legislation under the Tax Cuts and Jobs Act means divorcees need to be thinking about taxes.

Starting January 2019, new tax laws will take full effect, which reverse the alimony law that has stood for 77 years. The old law allowed the spouse paying alimony to take a deduction, while the one receiving payments is taxed according to their individual income bracket. The new law changes all that, now alimony is not deductible, and the one receiving it will not pay tax on it.

In the past, the tax deduction on alimony has often acted as an incentive by allowing higher-earning spouses to provide more money to the low income spouse in the form of alimony. The deduction provided the incentive, and the recipient receives more money for the family unit as a whole.

According to experts, one problem that may arise is divorcees will try to avoid paying alimony because there is no longer any incentive in the form of the deduction. This could subsequently lead to more divorce trials instead of settlements, and create a longer more drawn out process.

Sadly, divorce is a common place in America, and the new tax code adds a new caveat. Still, it will help to have attorneys on your side that can help you get to the best situation and work through your taxes. For help, contact the Center for Finance, Legal & Tax, Inc.

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