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ALIMONY TAX CHANGES FOR 2019 Information You Need to Know
If you and your spouse are involved in divorce proceedings, I’m sure you are familiar with the new tax changes. Lawyers typically advise couples to take time before making any final decisions on divorce proceedings, but for the following reasons and tax considerations, time is of the essence! Current Alimony Treatment As of today, federal law allows alimony payments to be tax deductible for the person paying and taxable as income to the recipient. The alimony recipient reports alimony payments as taxable income. This system allows the payer to provide more alimony and the recipient to keep more of the payment after taxes. However, this will change next year. both the ability for payers to deduct alimony on their taxes and for recipients to report alimony they receive as taxable income. Come tax time, this means the person who contributes alimony will pay more money, and the recipient will keep more. If you are involved in divorce proceedings and paying alimony, your payments may not be tax deductible unless your final judgment is entered on or before Dec. 31, 2018. A Shift in Bargaining When tax deductions are no longer an option, alimony will become more like child support. If the payor can’t deduct payments, then they may push for a lower amount. On the other hand, alimony recipients could stall a divorce to avoid a change in income-based financial decisions, or even avoid an adjustment in tax brackets. New Alimony Treatment After Dec. 31, 2018, the Tax Cuts Job Act will remove
How These Changes Affect You The new changes won’t take effect until Jan. 1, 2019, so those looking to maintain current tax treatment for alimony must obtain a final judgment before the end of the year. There will be no taxable alimony for divorces finalized after Dec. 31, 2018. Temporary Orders For those currently involved in divorce proceedings and paying alimony pursuant to a temporary order, you may be entitled to take a deduction for alimony payments so long as your temporary order was entered prior to Dec. 31, 2018. Prior agreements that the court ratified are not affected by the tax changes, which means those alimony payments may still be tax deductible to the payer and taxable to the recipient.
Due to the technical nature of the alimony statute, ongoing alimony reform efforts, and the new tax changes, it is my advice that anyone involved in divorce proceedings where alimony is an issue have the most experienced counsel possible. Navigating through divorce is emotionally difficult and can even be blinding at times, which is precisely why choosing the most experienced attorney to represent you is the smartest thing you can do.
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