Marriages are like partnerships, with each partner making different contributions to the marriage. If a divorce occurs, the couple must then work through the arduous task of dividing assets and settling financial obligations. If you are expecting the receipt of alimony from a divorce, a change in the tax law is likely to affect your strategy of how and when to seek alimony. You also want to consider hiring an attorney from a firm such as http://www.cappolellalaw.com.
The Tax Cuts and Jobs Act (TCJA) makes a major change in the taxable status of alimony. Before the TCJA, the payer of alimony was entitled to a tax deduction for alimony paid. At the same time, alimony was reported as taxable income by the recipient. Starting in 2019, alimony is no longer deductible by the payer, nor is it taxable to the recipient.
Date of alimony tax change
The tax status of child support is not affected by the changes surrounding alimony. Child support was not taxable before passage of the TCJA, and it continues to remain nontaxable. The effect of the new law is to equalize the tax treatment of alimony and child support in divorces finalized after 2018. Divorces executed on or after January 1, 2019 are subject to the new tax rules.
Because of the delayed start of the new alimony provision, you have some time to decide which tax treatment would work best for you. If you wait until 2019 to divorce, your spouse will lose the tax deduction, and you will report no taxable income from alimony. However, there are valid reasons you might prefer to divorce in 2018 and receive taxable alimony.
Advantages of taxable alimony
To fund an individual retirement account, you generally must have earned income. Taxable alimony, however, is the equivalent of earned income for purposes of funding an IRA. A contribution to a traditional IRA usually provides an equal tax deduction, deferring income tax on the contribution amount. If you are in a lower tax bracket, you might prefer to fund a Roth IRA, paying income tax for 2018 in exchange for tax-free future earnings.
Another factor to consider is the availability of the saver's credit, a tax credit for contributions made to a retirement account. If your income is within a certain range, you may be eligible for the saver's credit in addition to the tax benefits of an IRA.
It's a bit difficult to predict all possible scenarios going forward, Your spouse has probably been advised of the potential loss of the alimony deduction. As a result, there may an increased level of bargaining in regards to alimony. Contact a divorce attorney for more advice on negotiating the most equitable divorce settlement.Share
19 July 2018
When I began the divorce process, I knew that I wanted to change my name back to my maiden name. I no longer wanted to be associated with the family name of the man that I was divorcing. The problem was, I have three kids that all had their father's name. I wanted to know if I would be able to change their last names to my maiden name rather than having them carry that family's name for the rest of their lives. I found out a lot about what it would take and began working to create this blog to help other women wanting to do the same thing.