Don’t Forget – You Could Lose Your Tax Deduction for Alimony This January

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Don’t Forget – You Could Lose Your Tax Deduction for Alimony This January

Don’t Forget – You Will Lose Your Tax Deduction for Alimony This JanuaryIn the hot, balmy days of July, January 1 can seem a long way off – but in reality, it is less than 6 months until the start of the new year. For couples with significant assets and property, or who are in vastly disparate tax brackets, we say this: you might want to bump up your timeline, and settle your divorce before the years ends.

That is because starting January 1, 2019, the tax deduction for alimony payments will be eliminated. This is a blow not only to the person who pays alimony, but to the person who receives it. In many cases, spouses who are ordered to pay alimony were more likely to be generous in these payments, because they could write the support off at the end of the year. Losing that deduction could lead to more hostile, high-conflict divorce proceedings if the payor is advised to fight the amount of support the payee seeks.

To sum it up, if you are dragging your feet, you might end up losing more in the end.

What happens to the tax break if I am already divorced?

Couples who have already divorced will be grandfathered in, so their deduction remains. However, if your alimony is modified at any time in the future, you could lose your tax deduction – but only if you opt into the new laws. Otherwise, your current divorce agreement will function in the same manner.

“Why would anyone opt-in to the new law?” you might be asking. There are two reasons, though only one affects alimony payments:

First, the new tax law allows spouses to use IRAs for lump-sum payments for alimony, which had never been allowed before. Opting-in to the new laws would allow you to take advantage of this. For older couples, this may be a better option, as many IRAs charge a penalty fee if they are closed out early.

Second, the Child Tax Credit has increased under the new tax plan. If your current agreement is based on the existing laws – i.e., your Parenting Plan or custody agreement includes information about who can claim the children for the tax deduction – but you would like to take advantage of the additional credits, you will need to opt-in to the new law.

At Cynthia H. Clark & Associates, LLC in Annapolis, our divorce lawyers want to help you keep what you worked so hard to build. If you have questions about alimony payments and how the new tax plan might affect them, please call 410.921.2422 or fill out our contact form.

 

 

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