As we approach the deadline to file 2018 taxes, our family lawyers stress the importance of being aware of the new tax law changes that went into effect under the Tax Cuts and Jobs Act of 2017, and how those changes affect your taxes going forward. This is particularly true if you recently went through a divorce, or are in the process of getting divorced.
Prior to January 1, 2019, pursuant to IRS rules, alimony paid to a former spouse was deductible by the payor and reportable as income by the recipient, as long as certain IRS requirements regarding those payments were met. And, as long as you and your spouse had a signed “divorce or separation agreement” in place prior to December 31, 2018, these rules still apply going forward.
Under the Tax Cuts and Jobs Act of 2017, however, the alimony deduction has been eliminated. This means that if you entered into a divorce or separation agreement after December 31, 2018, the payor may no longer deduct alimony payments and the recipient no longer needs to report these payments as income. Since the taxes on the alimony amount will now be paid at the payor’s higher tax rate, the practical effect is that more taxes will be paid to the government. Unlike other provisions of the Tax Cuts and Jobs Act of 2017, this new rule is not set to expire, and will remain in place unless changed in the future.
If you were one of the many individuals scrambling to get divorced prior to December 31, 2018 in order to take advantage of the old alimony deduction, you are likely already aware of these new rules, and you can expect that your divorce or separation agreement will be “grandfathered in,” allowing you to take advantage of the old tax rules. If you entered into a divorce or separation agreement after January 1, 2019, your agreement will fall under the new tax rules, and alimony will not be deductible. However, even if you entered into the agreement prior to December 31, 2018, it is important to consult with a divorce attorney and tax professional before modifying any alimony agreement, since a modification could nullify your ability to deduct alimony. And, despite the plain language of the new law, there are still many uncertainties in how it will be applied. Prior to your filing taxes this year, you should be sure to consult with a tax professional and family lawyer to be sure you know whether you fall under the pre- or post-December 31, 2018 alimony rule, and whether or not your written separation agreement meets the IRS criteria.
In addition to the elimination of the alimony deduction, there are a number of new changes to the tax code resulting from the Tax Cuts and Jobs Act of 2017 that could impact settlement of your divorce going forward, and that will certainly impact your tax returns going forward. These changes include, among other things, changes to the tax brackets, elimination of the dependency exemption, increase in the child care credit, changes to the mortgage interest deduction, and changes to the passthrough business deduction.
The divorce and family lawyers at Vetrano Vetrano & Feinman have worked closely with tax professionals over the past year to educate ourselves about these new changes to the tax laws and their impact on divorce settlements, so that we can best advise our clients and put them in the best position, tax-wise, following a divorce.
Divorce can create many confusing issues for families, with regard to custody schedules, alimony and more. The divorce and family lawyers of Vetrano | Vetrano & Feinman are committed to helping reduce the confusion and make the process of divorce as simple as possible. We know that harmony during the process can lead to a more amicable relationship between family members after the divorce, so, with the best interests of our clients and their families in the forefront, we endeavor to facilitate proceedings in a positive manner. For more information about our law firm or to schedule a family law consultation, contact us today.
Our experienced family lawyers take the time to fully understand the financial and emotional complexities that can be involved in separating two lives. We offer the patience and resources to effectively guide clients through a divorce, addressing all the challenges they may face in moving forward with their lives. To learn more about how we can help protect your rights and interests in a complex divorce, contact the Pennsylvania divorce attorneys at Vetrano | Vetrano & Feinman LLC.