The recently passed Tax Cuts and Jobs Act (TCJA) will directly affect those who are facing a divorce and alimony payments. This major tax code change goes into effect January 1, 2019, and there are specific revisions in the new law that you should consider if you are planning to divorce.
Before this law was enacted, alimony payments, which can be significant in many cases, could be deducted by the payer on their federal income tax returns. Conversely, recipients of alimony payments had to report it as taxable income on their returns. Beginning next year, alimony payments cannot be deducted from the payer and will not be reported as taxable income by the recipient.
Alimony Payment Deductions
Elimination of the deduction of alimony for the payer spouse in divorce agreements will affect any couple whose divorce commences after December 31, 2018. Couples that divorce or sign a separation agreement before this date will not be affected by the changes.
Alimony payment deductions can translate into a lot of dollars. Ex-spouses that pay them might be losing substantial tax savings that they depend on. Those who receive alimony will save on their tax dollars. This presents two possible scenarios:
- Those who will be paying alimony may want to consider completing divorce proceedings by December 31, 2018.
- Those who will be receiving alimony may want to consider waiting until 2019 to complete divorce proceedings.
According to Congress’s Joint Committee on Taxation (JCT), this law is set to expire by December 31, 2025. Any alimony agreements executed from 2019 through the end of 2025 could be subject to new laws later. It is imperative to understand the implications of this new tax code on your alimony for the near future, as well as further down the road.
It can all seem confusing and complicated, but it does not have to be. No matter which side you find yourself on, you need a divorce lawyer with experience in divorce tax issues who can guide you towards making the right decisions. Every United States citizen that has a divorce agreement, prenuptial agreement, or post-nuptial agreement should consider this new law and its effects on their taxes. Waiting too long could turn into an expensive mistake tax-wise, and you may have to live with a costly mistake for years.
Moorestown Divorce Lawyers at the Hartman Group LLC Help Clients in All Areas of Divorce
If you have any questions regarding alimony, or other divorce matters, contact a Moorestown divorce lawyer at the Hartman Group LLC. We have extensive experience in divorce and family law issues, and we are ready to assist you. Located in Moorestown, New Jersey, we serve clients throughout the state. We will answer your questions and recommend the next steps for you and your family. Call us today at 856-235-4511 or contact us online for an initial consultation.