Tax reform changes the alimony game. This may or may not have any relevance to you, but if it does, you will want to move quickly.
The Tax Cuts and Jobs Act (TCJA) eliminates tax deductions for alimony payments that are required under post-2018 divorce agreements. More specifically, the TCJA’s new denial of alimony tax deductions applies to payments required by divorce or separation instruments
Example. Alberta is divorcing Edward, and Alberta will pay $120,000 a year in alimony. If Alberta can deduct the $120,000 in her 50 percent combined federal and state income tax bracket, her net cost is $60,000 ($120,000 x 50 percent).
To look at the alimony in another light, with no tax deduction, Alberta has to earn $240,000, then pay taxes of $120,000 in her 50 percent bracket, before she can give Edward the $120,000. Regardless of how you look at the cost of alimony, the loss of the alimony tax deduction is huge.
Note: You deal with a judge (court) to finalize the divorce. This could take some time, so don’t procrastinate, or you’ll surely miss the deadline.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.