Why You Should Get Divorced Under the 2018 Tax Reform
If divorce seems like a very likely event in your near future, the time to do it might be now. More specifically, you have until December 31, 2018 to finalize a divorce if you want to take advantage of the old tax laws. Starting January 1, 2019, divorce could become a lot more expensive and a much longer process – and if you are lower income, it could get even worse.
This is all due to the tax bill that President Trump signed into law in late December, 2017. May of the changes will apply to your 2018 tax filing. The plan has met mixed reviews. Some deductions are increased, others are cut, and still others have undergone radical changes. One measure though, regarding alimony payments, is getting a lot of attention – and sending unhappy couples scrambling to their divorce attorneys so they can beat the deadline.
How does it work?
Under the new tax law, the spouse who pays the alimony is no longer able to claim a deduction on that payment while the spouse who receives the alimony no longer have to declare it as income and pay income taxes on the amount received..
Under the old tax plan, the person who pays the alimony is allowed to claim a deduction for it on their taxes while the recipient of the alimony must declare it as income and pay income taxes on the amounts received. It doesn’t matter if they itemized their deductions or not. The issue that divorce attorneys and other divorce professionals are having is that the Internal Revenue Service (IRS) has not released any rules or guidance when it comes to the new tax plan.
Who is affected and when does it go into effect?
Any divorce or separation that is started after December 31, 2018 or is still ongoing after December 31, 2018 will be subject to the new tax laws. Divorces that are finalized by December 31, 2018 will fall under the previous tax laws.
What are the arguments?
Many divorce attorneys contend that the current plan is actually more cost effective for both parties because more money is kept in the family which gives them a better chance at being able to afford living apart from each other. Under the new plan, critics warn that the lack of the deduction could result in higher income spouses paying less alimony to their exes since they get no tax benefit from the shift in income.
This measure also has the potential to impact couples entering into marriage with a prenuptial agreement. Some of the agreements have provisions for alimony based on the tax deduction. This would require changes to the agreement.
States could also see some upset as they are forced to revisit the alimony and child support guidelines that are embedded in their state statutes.
What other measures affect families?
There are several other measures within the new tax plan that affect families and couples. Some of the more notable include:
- Several of the rates for the seven tax brackets for individuals have been lowered. They are now 10%, 12%, 22%, 24%, 32%, 35% and 37%. This chart can help you better understand how it works.
- The standard deduction has almost doubled. Single filers went from $6,350 to $12,000 while married couples who file jointly went from $12,700 to $24,000.
- You can no longer claim the $4,050 personal exemption for each of your dependents, your spouse, and yourself.
- The state and local tax (SALT) deduction now has a $10.000 cap.
- They expanded the child tax credit. It doubled to $2,000 per child under the age of 17. It has also been made available to more people. Single parents with an annual income of up to $200,000 as well as married couples with an annual income of up to $400,000 can now claim the entire credit.
- Taxpayers can claim a tax credit for dependents who are not children. The $500 temporary credit can apply to adult children who have a disability, elderly parents, or children who are over 17 years old.
If you are seeking a divorce or contemplating a divorce, you probably have questions. At Infinity Law Group we will sit with you, listen to your concerns, give you answers, and help you find the best arrangement that fits your life and benefits your family. We’re here to help and we care about you. Give us a call at (855) 941-0909 to schedule you free consultation. You don’t have to go through this alone; let us be there to support and guide you. Call today.