Articles Tagged with santa rosa alimony lawyer

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spousal support changesHow can spousal support changes to the new 2019 tax law affect you? For anyone looking to get divorced in the near future, you may want to get things settled in the very near future—before the end of the year, in fact. That is because changes in federal tax laws are going to have a significant impact on anyone who receives or pays spousal support, potentially making negotiations for these payments significantly trickier.

Factors Considered When Determining Alimony

A number of issues must be weighed as the court makes judgments regarding spousal support payments. Naturally, disparate incomes are a central factor. Just a few of the many other items considered include:

  • The length of the marriage;
  • The ability of the lower-earning spouse to obtain employment without having an adverse impact on minor children;
  • The amount of support one partner gave another in the pursuit of education and/or career goals;
  • The health of the parties involved;
  • The tax consequences of any settlement agreement.

How Important Are the Upcoming Spousal Support Changes?

The implications of the new tax laws will be felt by all individuals paying or receiving alimony payments, and is expected to be be quite significant for couples who jointly earn between $60,000 and $500,000. Here is why:

For the past 75 years, alimony payments were deductible for payers, and recipients were expected to claim the money as income. Since the higher-earning spouse received a deduction, Uncle Sam collected taxes based on the lower tax bracket of the recipient. The couple jointly kept a bigger chunk of dollars earned with this arrangement. Starting in January 2019, all of that changes, and the payer will be unable to deduct alimony payments, making that money taxable at the earner’s higher tax bracket rates.  

Spousal Support ChangesThe Numbers Tell the Story

So, let us say in 2018, Spouse A, who is in a 33% tax bracket, is paying $30,000 in alimony. The deduction saves him or her $9,900.

Spouse B, who receives that $30,000, is in only a 15% tax bracket. The tax burden on alimony income is $4,500. The couple has jointly saved $5,400 that would otherwise be going to the federal government. In 2019, Spouse A will be paying the taxes on that $30,000, meaning there will be $5,400 less in the joint coffers to divide between the divorcing spouses.

Do not be fooled into thinking that Spouse B will be making a killing by keeping that extra $4,500.  Experts predict that alimony negotiations will take all of this into account, meaning each spouse will take a hit. Presumably, a 2018 alimony requirement of $30,000 will be significantly less in 2019 because the government’s chunk of the money will have to be factored in. Continue reading →

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Alimony, taxes and tax deductions. Tax day recently came and went and with it, many Americans were thinking about what deductions they could list on their returns. The tax code seems to get more complicated every year, making it difficult for taxpayers to avoid paying more than they are legally obligated. Divorcees who pay or receive alimony or child support are particularly vulnerable to our complex tax laws and the risk of overpayment. In order to maximize their deductions, divorced taxpayers need to carefully analyze the rules governing spousal support payments. The tax implications of alimony are quite different, depending on whether you are on the paying or receiving end of the money.

TaxesTax Implications for Paying Alimony

Alimony payments are generally tax-deductible for the person paying the support. If you pay alimony to your ex-spouse, make sure that you list it as a deduction on your tax return. Note that certain other types of payments to an ex-spouse are not tax-deductible. These include child support payments, distributions of personal or real property, and mortgage payments on a house co-owned by the two ex-spouses (you can deduct half, but not all, of those mortgage payments). Make sure you keep separate records of your alimony and child support payments, so that you do not confuse them on your tax return.

Tax Implications for Receiving Spousal Support

If you receive spousal support payments, you should be aware that it is considered taxable income. You will want to factor in the alimony payments when you are trying to figure out which tax bracket you fall into, and plan accordingly. Failing to report alimony payments you have received on your tax return will likely result in an IRS audit, particularly since your ex-spouse is likely to deduct the payments on their own tax return. Mortgage payments made to third parties on your behalf are also considered taxable income. Child support payments, however, are not taxable, and neither are non-cash property settlements.

Divorce Decree Should Clarify Types of Payments

A divorce decree or marital settlement agreement is issued at the end of a divorce proceeding and spells out each party’s obligations. The decree or agreement will often clarify which payments qualify as spousal support (and are therefore tax-deductible) and which do not. In addition to child support, other payments that are not tax-deductible include money used to maintain the payer’s property or the simple use of the payer’s property. You should read the decree or agreement carefully in order to make a preliminary determination as to which payments are taxable or which may be tax-deductible, and make sure to comply with its terms.

What to Do if You Are Paying or Receiving Alimony

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