Tax Cut Jobs Act- and Your Divorce
The Tax Cut and Jobs Act which was signed into law in December 2017 contains one provision that specifically impacts divorces completed after December 31, 2018: the deductibility of Alimony. In addition to this divorce specific provision, there are numerous other changes to the tax code that will impact many people (not just divorcing couples), but may have a particularly significant impact on divorcing families.
If your divorce is completed (executed) before December 31, 2018 you may use the prior rules for alimony. Alimony is deductible to the payor and taxable to the recipient For divorces completed after December 31, 2018 Alimony will no longer be deductible to the payor and will not be taxable to the recipient. While this may sound like a good thing for someone who anticipates receiving alimony payments, what this means is that there is less money for the family, since there will be more taxes paid. This could impact the outcome of divorces in the future. Unlike many other provisions in the new tax changes, this provision does not expire. This is a permanent change to the tax code. Additional provisions, including the definition of a "completed" divorce are too detailed to include here. For more information, contact Vicki McLellan at Equitable Divorce Resolutions.
Child Tax -Dependents- Exemptions
Provisions in the Tax Cut and Jobs Act increased the Child Tax Credit from $1000 per eligible child to $2,000 per child. Additionally, the income phase outs for claiming this credit are much higher than before. This means that more parents will be able to take advantage of this credit through 2025.
There has been a lot of confusion about "eliminating" exemptions and exactly what that means. Briefly, the exemption amount for tax filers, spouses and children will be zero ($0) through 2025. That does NOT mean that children are no longer dependents, it just means that there is no longer an exemption (i.e. a subtraction from taxable income) for your dependents. As noted the Child Tax Credit is expanded, and there are still deductions or credits for education expenses and child care- to name a few- for taxpayers that qualify.
Understanding the new tax rules, how it will impact your family after divorce and what it means that the current tax rules will expire after 2025 is important information for you and your family as you consider your divorce settlement. Equitable Divorce Resolutions will provide the experience and expertise you need to navigate these sometimes confusing issues.