According to the Centers for Disease Control and Prevention, over 2 million people got married last year.
Sadly, a lot of marriages end in divorce. In fact, from the same CDC study, there were over 800,000 divorces in 2017.
Divorce can be a stressful time in a person’s life. Unfortunately, some new tax laws may add on additional stress and aggravation.
Have you been keeping up with the news? Not sure what the new tax laws are? Read on for an overview of what you need to know.
Tax Cut and Reform Bill
Back in December 2017, President Trump signed the new Tax Cut and Reform Bill into law. Basically, it’s the biggest tax overhaul since the 1986 bill signed by Ronald Reagan.
If you’re an American taxpayer, expect some changes coming. Do you normally file your taxes yourself or have a professional do it for you? It’s important to be prepared in case you do file them yourself.
For those going through the process of a divorce, you should be paying attention to three big changes under this new bill.
1. What Does It Mean for Alimony?
To put it into simpler terms, alimony is spousal support. It’s “tax-deductible by the payer and taxable to the payee.”
So what does this mean? The person paying alimony is paying pretax dollars, which they can deduct on their annual return.
Under the new bill, for divorces finalized in 2019 and after, “the payer can no longer deduct the payment of alimony, and the spouse receiving the alimony doesn’t need to claim the support as income.”
Just be aware that if your divorce is filed and finalized BEFORE January 1, 2019, the old tax rule will apply.
2. What About Itemized Deductions?
People claim deductions and itemize their returns every year. Isn’t that why you keep every single receipt?
Here are a few things to consider:
- Legal fees paid directly to your attorney to secure that spousal support is no longer tax deductible.
- For those that have home equity loans, they’ll no longer be able to deduct the loan interest either.
- Remember those tax preparation fees? They’re not tax deductible anymore.
3. How About Children?
One of the biggest questions when it comes to divorce is, “what’s going to happen with the children?” The child tax credits are there to “give an income boost to the parents or guardians of dependent children.”
The good news, according to the new bill, the credit will increase from $1,000 to $1,600 at the start of 2018. The plan also adds a $300 credit for “each non-child dependent of a parent for five years.”
How to Handle the New Tax Laws
Strap in because it’s going to be a bumpy ride. That’s why the advice of an attorney or tax professional is highly encouraged.
We here at Parker Business Consulting are here for you every step of the way. Contact us today for any questions regarding taxes or advice on the new tax laws.
Parker Business Consulting & Accounting, P.C. is a unique firm with more than a combined 75 years of experience in private industry, coupled with a strong background in public accounting. This combination enables us to provide valuable assistance based on direct experience with many of the same issues faced by our clients.