In 2017, the federal government enacted the most extensive tax reform in decades, with provisions touching upon every aspect of the code. Because this tax overhaul has serious ramifications for those going through a divorce, understanding how these changes affect your tax status is crucial to achieving the best possible outcome for your case. Before signing an agreement, consult a divorce lawyer for clarification on how the new legislation impacts you.
Divorce After Tax Reform
Alimony & Taxes
As of January 1st, 2019, alimony payments will no longer be deductible, and these funds will not be considered taxable income. As a result, tax deductions for legal expenses related to pursuing alimony are also eliminated. However, because these provisions have been delayed for a year, any divorce cases closing in 2018 will still be subject to the old rules. As many divorce cases can take a year or more to resolve, it’s important to understand how the new rules affect your tax liability before entering into an alimony agreement.
Under the previous tax structure, the $4,050 personal exemption per child provided considerable benefits to parents with primary physical custody. The new system eliminates this exemption, while increasing the child tax credit and allowing more flexibility for education savings accounts. Parents with primary custody will be able to take advantage of an increased Head of Household deduction, the child care tax credit up to $5,000, a $5,000 dependent care exclusion, and claim an earned income credit of up to $6,444, under some conditions. Your divorce lawyer will explain how these changes will impact your overall tax position once your dissolution is finalized.
Getting divorced is a complex legal process, with outcomes that could potentially shape the rest of your life. The divorce lawyers at Patton & Hyder PLLC have extensive experience serving families throughout middle and eastern Tennessee, providing high-quality counsel and guidance through this difficult experience. Visit their website for more on how they can help, follow their Facebook page for news and legal tips, or call (931) 787-1333 now to schedule your free initial consultation.